<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549


                                   FORM 10-K/A
                               (Amendment No. 1)


(MARK ONE)

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

                 For the fiscal year ended December 31, 1998,

                                      OR

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

                 For the transition period from                    to

                        Commission File Number: 0-21068

                           SIGHT RESOURCE CORPORATION
             (Exact name of registrant as specified in its charter)


                                   DELAWARE
                         (State or other jurisdiction
                       of incorporation or organization)

                                                                 01746
                                                               (Zip Code)



                       100 JEFFREY AVENUE, HOLLISTON, MA
                   (Address of principal executive offices)

                                                               04-3181524
                                                            (I.R.S. Employer
                                                           Identification No.)


      Registrant's telephone number, including area code:   (508) 429-6916

  Securities registered pursuant to Section 12(b) of the Exchange Act:   None.

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, $.01 par value per share

                                (Title of Class)

                        Preferred Share Purchase Rights

                                (Title of Class)

     Redeemable Warrants, each exercisable for the purchase of one share of
                Common Stock, $.01 par value per share, at $6.00

                                (Title of Class)

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

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

  The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant (without admitting that any person whose shares are
not included in such calculation is an affiliate) on March 18, 1999, was
approximately $26,050,237, based on the last sale price as reported by NASDAQ.

  As of March 18, 1999, the registrant had 9,060,952 shares of common stock
outstanding, which does not include 30,600 shares held as treasury stock.


                      DOCUMENTS INCORPORATED BY REFERENCE

  The following documents (or parts thereof) are incorporated by reference into
the following parts of this Form 10-K: Certain information required in Part III
of this Annual Report on Form 10-K is incorporated from the registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 20, 1999.
<PAGE>

                                    PART 1

Item 1.   BUSINESS

General

  Sight Resource Corporation (the "Company") manufactures, distributes and
sells eyewear and related products and services. As of December 31, 1998 the
Company's operations consisted of 93 eye care centers, with three regional
optical laboratories and distribution centers, making it one of the seventeen
largest providers in the primary eye care industry based upon sales. Effective
January 1, 1999 the Company acquired Shawnee Optical, a chain of nine primary
eye care centers operating in Ohio and western Pennsylvania, increasing to 102
the total number of eye care centers operated by the Company. The Company's eye
care centers operate primarily under the brand names Cambridge Eye Doctors,
E.B. Brown Opticians, Eyeglass Emporium, Vision Plaza, Vision World and Shawnee
Optical. The Company also provides or, where necessary to comply with applicable
law, administers the business functions of optometrists, ophthalmologists and
professional corporations that provide vision related professional services. In
addition, as of December 31, 1998 the Company operated two laser vision
correction ("LVC") centers.


ACQUISITION HISTORY AND STRATEGY

  Effective January 1, 1995, the Company acquired the assets of Cambridge Eye
Associates, Inc. ("Cambridge Eye"), an optometric practice which, at
December 31, 1998, operated 23 primary eye care centers, principally in
Massachusetts. The assets and liabilities of Cambridge Eye were acquired from a
Company by the same name (Cambridge Eye Associates, Inc.) owned by Elliot S.
Weinstock, O.D. as sole stockholder. Following the acquisition, Cambridge Eye
entered into a management services contract with Optometric Providers, Inc.
("Optometric Providers"), a corporation established to employ the optometrists
previously employed by the acquired company.

  Effective July 1, 1995, the Company acquired the assets of Douglas Vision
World, Inc. ("Vision World"), a company which, at December 31, 1998, operated
seven primary eye care centers in Rhode Island. The assets and liabilities of
Vision World were acquired from a company by the same name (Douglas Vision
World, Inc.) owned by Kathleen Haronian, Lynn Haronian and Shirley Santoro.
Following the acquisition Vision World entered into a management services
contract with Optometric Care, Inc. ("Optometric Care"), a professional
corporation established to employ the optometrists previously affiliated with
the acquired Company.

  Effective July 1, 1996, the Company acquired the assets and liabilities of
three companies, the E.B. Brown Optical Company, Brown Optical Laboratories,
Inc. and E.B. Brown Opticians, Inc. (collectively, "E.B. Brown"), all owned by
Gordon and Evelyn Safran. At December 31, 1998, E. B. Brown operated 37 eye care
centers in Ohio and western Pennsylvania. Independent optometrists are
associated with all E.B. Brown eye care centers; therefore, the Company does not
record revenue from the provision of vision related medical services at these
locations. The Company may add optometrists to the staffs of several of its eye
care centers in Ohio and Pennsylvania. To accomplish this, it may be necessary
to enter into management services contracts with professional corporations
established to employ these optometrists.
<PAGE>

  Effective July 1, 1997, the Company acquired all of the outstanding shares of
stock of Vision Holdings, Ltd. (formerly known as Dr. Greenberg, An Optometry
Corporation d/b/a Vision Plaza)("Vision Plaza"). At December 31, 1998, Vision
Plaza operated 15 primary eye care centers and two specialty eyewear centers in
Louisiana and Mississippi. Following the acquisition, Vision Plaza entered into
a management services contract with Dr. John Musselman, A Professional
Corporation ("Musselman"), a corporation established to employ the
optometrists previously employed by the acquired company.

  Effective April 1, 1998, the Company acquired all of the outstanding shares of
stock of Eye Glass Emporium, Inc. ("Eyeglass Emporium"). At December 31, 1998,
Eyeglass Emporium operated nine primary eye care centers in northwest Indiana.
Independent optometrists are associated with all Eyeglass Emporium eye care
centers, therefore, the Company does not record revenue from the provision of
vision related medical services at these locations.

  Effective January 1, 1999, the Company acquired all of the outstanding shares
of stock of Shawnee Optical, Inc. ("Shawnee"). At January 1, 1999, Shawnee
operated nine primary eye care centers in western Pennsylvania and central Ohio.
Independent optometrists are associated with all Shawnee eye care centers,
therefore, the Company does not record revenue from the provision of vision
related medical services at these locations.

  The Company has an acquisition strategy to acquire and integrate the assets of
multi-site eye care centers and the practices of eye care professionals and to
employ or enter into management services contracts with these professionals.
This strategy includes both expanding existing regional markets and entering new
regional markets. The Company will also target acquisitions in strategic markets
that will serve as platforms from which the Company can consolidate a given
service area by making and integrating additional "in-market" acquisitions.

  In assessing potential acquisition candidates, the Company evaluates
qualitative issues such as the reputation of the eye care professional in the
local and national marketplace, the training and education of the eye care
professional, licensure and experience, Medicare and Medicaid compliance,
billing practices and operating history. Prior to entering any market, the
Company considers such factors as the local level of eye care competition,
networking and consolidation activity, the regulatory environment, customer-
provider ratios and the economic condition of the local market. The Company from
time to time also considers acquisitions of, or affiliations with, ambulatory
surgical centers, specialty eye hospitals and other complementary practices and
services that are consistent with its objective of being a leading integrated
provider of eye care products and services in select, regional markets.


CURRENT OPERATIONS

 Eye Care Centers

  The Company's 102 eye care centers are located in major shopping malls, strip
shopping centers, urban locations and free-standing buildings and generally are
clustered within discrete market areas so as to maximize the benefit of
advertising strategies and to minimize the cost of supervising operations. The
Company's centers in Massachusetts, Rhode Island, Ohio and Louisiana are leading
providers of prescription and non-prescription eye care products and services in
those markets. In addition, the Company's eye care centers in Indiana, New
Hampshire, Pennsylvania and Mississippi are leading providers in their local
markets.

  The eye care centers are substantially similar in appearance within each
region and are operated under certain uniform standards and operating
procedures. Each eye care center carries a selection of eyeglass frames, ranging
in price from value models to designer collections. Lens and frame selections
include a variety of materials and styles. The Company continually analyzes
sales of its frames to keep its eye care centers stocked with a wide selection
of
<PAGE>

the latest in eyewear fashion and a proper assortment of styles, colors, and
sizes. In addition to prescription eyewear, each eye care center also carries
fashion sunglasses and eyewear accessories. E.B. Brown's eye care centers also
offer hearing aids and audiology goods and services which are provided by
audiologists who service many of E.B. Brown's centers on a rotating schedule.

  Each eye care center in Massachusetts, New Hampshire, Rhode Island, Indiana,
Louisiana and Mississippi is staffed by one or more licensed optometrists, a
manager and a number of trained eye care technicians and/or licensed opticians.
The Company intends to continue to add optometrists to several of its eye care
centers in Ohio and Pennsylvania.


 Centralized Optical Laboratories and Distribution Centers

  To meet the volume needs of the eye care centers for certain prescription
eyeglass lenses and the delivery needs of each center's customers, the Company
operates three regional optical laboratories and distribution centers. The
regional optical laboratories provide complete laboratory services to the
Company's eye care centers, including polishing, cutting and edging, tempering,
tinting and coating of ophthalmic lenses. The distribution centers provide and
maintain an inventory of all accessories and supplies necessary to operate the
primary eye care centers in their regions, as well as "ready made" eye care
products, including contact lenses and related supplies. The inventory of
eyeglass lenses, frames, contact lenses, accessories and supplies is acquired
through a number of sources, domestic and foreign. The Company is not dependent
on any one supplier. Management believes that the regional optical laboratories
and distribution centers have the capacity to accommodate additional multi-site
eye care centers.


 Management Information and Financial Systems

  In 1998 the Company completed the first stage of testing and installation of
software associated with a new point of sale system and perpetual inventory
system for its primary eye care centers, regional optical laboratories and
distribution centers. The Company completed the installation of the new point of
sale system in its New England eye care chains in the Fall of 1998 and
anticipates the installation of the system to be completed in its remaining
chains during 1999. The Company believes that the new system will facilitate the
processing of customer sales information and replenishment of inventory by
passing such information, including customer specific orders, to the Company's
home office, and its regional optical laboratories and distribution centers for
further processing. When the Company acquires additional eye care chains, it
intends to integrate those chains into the new system or a similar compatible
system.


 Managed Primary Eye Care

  The Company implemented its SightCare program to address the expanding
enrollment of patients in managed primary eye care programs and the resulting
customer flow to designated providers of these managed primary eye care
services. SightCare is responsible for developing programs for third party
payors, securing new contracts for providing managed primary eye care services,
and ensuring the consistency and quality of managed primary eye care products
and services delivered by the Company.

  As of December 31, 1998, the Company provided managed primary eye care
benefits to more than 50 organizations in the markets served by its chains,
including private companies, unions and leading health maintenance
organizations. The Company believes that its buying power, regional
laboratories, in-center optometrists, and broad outreach within its markets,
enable it to deliver consistent, quality eyewear and primary eye care at
competitive prices, thereby positioning the Company to achieve a leadership
position in managed primary eye care in its markets.
<PAGE>

 Management Agreements

  Many states have laws which prohibit or restrict the practice of optometry by
non-licensed persons or entities. See "--Government Regulation." In states
which allow the Company to employ optometrists and ophthalmologists, the Company
plans on providing professional services directly. Otherwise, the Company will
enter into management agreements with optometrists, ophthalmologists and/or
professional corporations which will provide the professional eye care services.
The Company's wholly owned subsidiaries, Cambridge Eye, Vision World, and Vision
Plaza each entered into a management agreement with Optometric Providers,
Optometric Care, and Musselman (collectively the "PCs"), respectively.
Accordingly, Cambridge Eye operates as the management service organization
("MSO") for Optometric Providers, Vision World operates as the MSO for
Optometric Care, and Vision Plaza operates as the MSO for Musselman. Cambridge
Eye, Vision World, and Vision Plaza, as MSOs, have exclusive decision making
authority for the ongoing major operations of the PCs, with the exception of the
provision of professional eye care services. Pursuant to these management
agreements, the Company, among other things, (i) acts as the exclusive financial
manager, business manager and administrator of all business and administrative
functions and services associated with the provision of the professional
services, (ii) orders and purchases all professional and office inventory and
supplies and arranges for the availability of the same, (iii) maintains files
and records, (iv) provides or arranges for the provision of technical and
ancillary service and support personnel, (v) establishes, operates and maintains
bookkeeping, payroll, accounting, billing and collection systems, (vi) renders
advice concerning the marketing of services, (vii) develops and administers
benefit plans for the professionals and (viii) renders such other business and
financial management, consultation and advice as may reasonably be needed from
time to time by the practice in connection with its provision of professional
services. As a result, the Company is involved in the daily on-site financial
and administrative management of these optometric practices. The Company's goals
in providing such services are to (i) improve the performance of these
optometric practices in these non-professional activities, (ii) allow the
optometrists employed by or associated with these practices to more fully
dedicate their time and efforts toward their professional practice activities,
and (iii) afford the Company expanded service capabilities, and, for itself and
on behalf of the optometric practices, capitalize on opportunities for
contracting with third party payors and their intermediaries, including managed
care providers. The management fees payable to the Company by the affiliated
practices under the management agreements vary based on the cost, nature and
amount of services provided, and may be adjustable or subject to renegotiation
from time to time. Management fees payable under existing and future contracts
are subject to the requirements of applicable laws, rules and regulations and
negotiations with individual professional practices.

  Under the management agreements, the affiliated practices retain the
responsibility for, among other things, (i) hiring and compensating
professionals, (ii) ensuring that professionals have the required licenses,
credentials, approvals and other certifications needed to perform their duties
and (iii) complying with applicable federal and state laws, rules and
regulations. In addition, the affiliated practices exclusively control all
aspects of professional practice and the delivery of professional services.


 Stock Restrictions and Pledge Agreements

  The outstanding voting capital stock of each of the PCs is 100% owned by a
licensed optometrist (the "nominee shareholder") who has, in turn, executed a
Stock Restrictions and Pledge Agreement (a "Pledge Agreement") in favor of the
respective MSO. Set forth below is a chart identifying each PC, the nominee
shareholder for each PC and the total number of employees for each PC as of the
end of fiscal 1998:

<TABLE>
<CAPTION>
                                                                                    NO. OF
                     NAME OF PC                         NOMINEE SHAREHOLDER        EMPLOYEES
----------------------------------------------------  ------------------------  ---------------
<S>                                                  <C>                       <C>
Optometric Providers, Inc.  ........................   Alerino Iacobbo, O.D.      33 persons
Optometric Care, Inc.  .............................   Alerino Iacobbo, O.D.       9 persons
Dr. John Musselman, An Optometry Corporation  ......    John Musselman, O.D.      19 persons
</TABLE>
<PAGE>

  Through each Pledge Agreement, the nominee has pledged all of the outstanding
voting capital stock of his PC to the respective MSO. The Company requires that
a nominee shareholder execute a Pledge Agreement in order to provide security
for the prompt payment, performance and observance by the PC of all of its
obligations, debts and covenants under its management agreement with the MSO.
The Pledge Agreement also contains restrictions on the nominee shareholder's
ability to transfer the stock of the PC, in order to provide that the
stockholder will at all times be a person eligible to hold such stock pursuant
to the provisions of applicable law, the PC's Articles of Organization and the
PC's By-Laws. The Pledge Agreement may be terminated only upon the written
agreement of the parties thereto or upon the termination of the management
agreement and satisfaction in full of all of the PC's obligations thereunder; a
nominee shareholder may not unilaterally terminate a Pledge Agreement.

  In order to provide for the orderly continuation of the PC's business and
affairs, each Pledge Agreement also enumerates several events or circumstances
that require or permit the MSO to effect a change of the nominee shareholder.
Upon the occurrence of any of the following events (each of which is enumerated
in the Company's form of Pledge Agreement), an MSO may require the nominee
stockholder to sell and transfer the stock of the PC to another person eligible
to serve as a new nominee shareholder: (i) the death or disability of the
nominee shareholder; (ii) the nominee shareholder's disqualification to practice
optometry in the relevant jurisdiction or any other event or circumstance the
effect of which is to cause the nominee shareholder to cease being eligible to
serve as the shareholder of the PC; (iii) the transfer, by operation of law or
otherwise, of the nominee shareholder's shares of stock in the PC to a person
who is not eligible to serve as the shareholder of the PC; (iv) the termination
of the nominee shareholder's employment by the PC or by the Company (including
its subsidiaries); (v) the occurrence of any other event or the existence of any
other condition which, in the reasonable opinion of the MSO (in its capacity as
exclusive business manager and administrator of the professional corporation),
impairs or renders less-than-optimal the Company's business management and
administration of all of the business and administrative functions and services
of the PC; or (vi) the occurrence of any other event or the existence of any
other condition which might require or otherwise result in the sale or transfer
by the nominee shareholder (or his estate or personal representative) of the
nominee shareholder's shares of stock in the PC. The purchase price for a sale
of the PC's stock is equal to the aggregate book value of the PC. The Company
believes that such book value will always be a nominal cost because each PC
operates and expects to continue to operate at an almost break-even level
generating a nominal profit, if any at all, and each PC does not own or hold or
plan to own or hold any significant assets of any nature.

  The Company believes that the events or circumstances identified in clauses
items (iv) and (v) are entirely within the Company's control. For example, as
there are no employment agreements between the Company and any nominee
shareholder, each nominee shareholder is an "at-will" employee of the MSO,
whose employment can be terminated at any time, with or without cause. Either of
these events are entirely within the Company's control and, therefore, these
provisions provide the Company with the ability at all times to cause a change
in the nominee shareholder and for an unlimited number of times, at nominal
cost. These provisions meet the criteria described in footnote 1 to EITF 97-2,
so that (i) the Company can at all times establish or effect a change in the
nominee shareholder, (ii) the Company can cause a change in the nominee
shareholder an unlimited number of times, that is, changing the nominee
shareholder one or more times does not affect the Company's ability to change
the nominee shareholder again and again, (iii) the Company has the sole
discretion without cause to establish or change the nominee shareholder,
(iv) the Company can name any qualified optometrist as a new nominee shareholder
(that is, the Company's choice of an eligible nominee is not materially
limited), (v) the Company and the nominally owned entity incur no more than a
nominal cost to cause a change in the nominee shareholder and (vi) neither the
Company nor the nominally owned entity is subject to any significant adverse
impact upon a change in the nominee shareholder. The Company effected the change
of the nominee shareholder for Optometric Providers in August of 1998, without
an adverse impact on the Company or the PC. The Company does not believe that
any future change in any nominee shareholder would have a significant adverse
impact on it or any PC. To date, the Company's experience with the nominee
shareholders has been satisfactory.
<PAGE>

 Laser Vision Correction Services

  At December 31, 1998, the Company operated two laser vision correction
("LVC") centers in association with selected ophthalmic surgical providers.
By affiliating with the Company, these LVC surgical providers benefit by having
a convenient way of participating in LVC without incurring substantial capital
expenditures. The LVC surgical providers also benefit from the Company's ability
to acquire, counsel and refer customers for LVC services through its primary eye
care centers.

  LVC centers are established in compliance with applicable law and pursuant to
a written LVC center agreement between the Company and the provider. The
Company's obligations pursuant to such agreements typically include: furnishing
the laser system to be used for the delivery of LVC, therapeutic and related eye
care services at the LVC center; maintenance, repairs and upgrades to the laser
system; and certain training and oversight of medical, technical and
administrative personnel involved in the delivery of services at the center. The
providers' responsibilities pursuant to such agreements typically include:
providing ophthalmologists to perform the LVC, therapeutic and related eye care
services to patients at the LVC center, including performing LVC on qualified
patients originated through the Company's marketing efforts; furnishing suitable
space and certain ancillary equipment, furniture and supplies for the LVC
center's operations; and providing administrative, nursing and technical support
for the LVC center.

  The LVC center agreements also generally provide for the Company to pay the
providers for certain services associated with each LVC procedure performed by
the provider on a customer generated through the Company's marketing efforts.
In addition, the provider pays the Company an access fee for use of the laser
system to perform LVC or therapeutic procedures on any patient generated by such
provider. Community-based ophthalmologists who access the LVC center pay the
Company an access fee for use of the laser.

  In 1998 the Company sold two of the excimer laser systems which it owned,
reducing the number of operating systems in place at the end of the year to two,
both of which operate in New England and primarily service customers referred
from the Company's primary eye care centers. In markets outside New England, the
Company believes it can negotiate contracts with excimer laser owners and
operators who may offer LVC services at favorable terms for the Company's
customers.


MARKETING AND MERCHANDISING

  The Company's marketing and merchandising strategy focuses on the following
key concepts: (i) selling quality, brand name and private-label eyewear at
competitive prices, (ii) offering a wide selection of eyewear products,
(iii) offering convenient locations and hours, and in-house optometric
examinations by licensed optometrists, (iv) using a variety of media, such as
radio, newspaper, direct mail, television and yellow pages advertising, to
differentiate it from competitors and to create general consumer awareness and
traffic in its eye care centers and (v) providing knowledgeable and personalized
customer service. The Company makes use of various tools to market its products
and services:

     Advertising.   The Company uses newspaper, magazine, television, radio,
  direct mail and other advertising to reach prospective, as well as existing,
  customers. Advertisements emphasize the Company's benefits to the eyewear
  public, such as value pricing, product promotions, convenience of location,
  customer service and knowledgeable salespersons. In-house optometric
  examinations by licensed optometrists are also emphasized in advertising,
  subject to regulatory requirements.

     In-center Marketing.   The Company prepares and revises point-of-purchase
  displays which convey promotional messages to customers upon arriving at its
  centers. Visual merchandising techniques, educational videotapes, and take-
  home brochures are employed to draw attention to products displayed in the eye
  care centers.
<PAGE>

     Quarterly Catalogs.   The Company mails a quarterly catalog to customers
  who are in its marketing database. This database consists of individuals who
  have utilized the services of the Company and its affiliated professionals
  over the last several years. The catalog includes educational, promotional and
  marketing information about the Company's products and services, including
  LVC.

  The Company markets its comprehensive and competitively priced primary eye
care programs to leading HMOs, insurance companies and other third party payors
in the Company's regional markets. The Company's marketing strategy towards
these organizations stresses its regional coverage, its complete range of eye
care products and services and its commitment to quality and service. Through
its SightCare programs the Company has upgraded and simplified its frame
collection available to managed care organizations in order to allow it to
compete more effectively for managed care contracts. Eventually, the Company
intends to offer its SightCare programs in all of its markets.


COMPETITION

  The Company experiences competition regarding the acquisition of the assets
of, and the provision of management services to, eye care centers and practices.
Several companies, both publicly and privately held, that have established
operating histories and greater resources than the Company are pursuing the
acquisition of the assets of general and specialty practices and the management
of such practices.

  Eye care practices affiliated with the Company will compete with other local
eye care practices as well as managed care organizations. The Company believes
that changes in governmental and private reimbursement policies and other
factors have resulted in increased competition for consumers of eye care
services. The Company believes that cost, accessibility and quality of services
are the principal factors that affect competition.

  The optical industry is highly competitive and includes chains of retail
optical stores, multi-site eye care centers, and a large number of individual
opticians, optometrists, and ophthalmologists who provide professional services
and/or dispense prescription eyewear. Optical retailers generally serve
individual, local or regional markets, and, as a result, competition is
fragmented and varies substantially among locations and geographic areas. The
Company believes that the principal competitive factors affecting retailers of
prescription eyewear are location and convenience, quality and consistency of
product and service, price, product warranties, and a broad selection of
merchandise, and that it competes favorably in each of these respects.

  The Company and its affiliated practices compete with other providers for
managed primary eye care contracts. The Company believes that trends toward
managed primary eye care have resulted in increased competition for such
contracts.

  Competition in providing LVC comes from entities similar to the Company and
from hospitals, hospital-affiliated group entities, physician group practices
and private ophthalmologists that, in order to offer LVC to existing patients,
purchase refractive lasers. Suppliers of conventional vision correction
alternatives (eyeglasses and contact lenses), such as optometric chains, may
also compete with the Company by purchasing laser systems and training personnel
to offer LVC to their customers. In certain markets, competition to provide LVC
has reduced and may continue to reduce prices for LVC, as has happened in some
countries where the treatment has been available for several years.


GOVERNMENT REGULATION

  The Company and its operations are subject to extensive federal, state and
local laws, rules and regulations affecting the healthcare industry and the
delivery of healthcare, including laws and regulations prohibiting the practice
of medicine and optometry by persons not licensed to practice medicine or
optometry, prohibiting control
<PAGE>

over optometrists or physicians in the practice of optometry by parties not
licensed to practice optometry or medicine, prohibiting the unlawful rebate or
unlawful division of fees and limiting the manner in which prospective patients
may be solicited. The Company attempts to structure all of its operations so as
to comply with the relevant state statutes and regulations. The Company believes
that its operations and planned activities do not violate any applicable medical
practice, optometry practice, fee-splitting or other laws identified above. Laws
and regulations relating to the practice of medicine, the practice of optometry,
fee-splitting or similar laws vary widely from state to state and seldom are
interpreted by courts or regulatory agencies in a manner that provide guidance
with respect to business operations such as those of the Company. There can be
no assurance that courts or governmental officials with the power to interpret
or enforce these laws and regulations will not assert that the Company or
certain transactions in which it is involved are in violation of such laws and
regulations. In addition, there can be no assurance that future interpretations
of such laws and regulations will not require structural and organizational
modifications of the Company's business.

  Services that are reimbursed by third party payors may be subject to
provisions of the Social Security Act (sometimes referred to as the "anti-
kickback" statute) and similar state laws that impose criminal and civil
sanctions on persons who solicit, offer, receive, or pay any remuneration,
whether directly or indirectly, in return for inducing the referral of a patient
for treatment or the ordering or purchasing of items or services that are paid
for in whole or in part by Medicare, Medicaid or other specified federal or
state programs, or, in some states, private payors. The federal government has
promulgated regulations that create exceptions or "safe harbors" for certain
business transactions. Transactions that are structured in accordance with such
safe harbors will not be subject to prosecution under federal law. In order to
obtain safe harbor protection, the business arrangement must satisfy each of and
every requirement of the applicable safe harbor(s). Business relationships that
do not satisfy each element of a safe harbor do not necessarily violate the
anti-kickback statute but may be subject to greater scrutiny by enforcement
agencies. Many state anti-kickback statutes do not include safe harbors and some
state anti-kickback statutes apply to all third party payors. The Company is
concerned about federal and state anti-kickback statutes only to the extent that
it provides healthcare services that are reimbursed by federal, state and in
some states, private third party payors. The Company believes its business
relationships and operations are in material compliance with applicable laws.
Nevertheless, there can be no assurance that the Company will not be required to
change its practices or experience a material adverse effect as a result of a
challenge by federal or state enforcement authorities under the foregoing
statutes.

  Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by dramatically
enlarging the field of physician-owned or physician-interested entities to which
the referral prohibitions apply. Effective December 31, 1994, Stark II prohibits
a physician from referring Medicare or Medicaid patients to an entity providing
"designated health services" in which the physician has an ownership or
investment interest, or with which the physician has entered into a compensation
arrangement. The designated health services include prosthetic devices, which
under applicable regulations and interpretations include one pair of eyeglasses
or contact lenses furnished after cataract surgery and intraocular lenses
provided at ambulatory surgery centers. The penalties for violating Stark II
include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each violative referral and $100,000 for
participation in a "circumvention scheme." The Company's current business is
not governed by Stark I or II. To the extent the Company or any affiliated
practice is deemed to be subject to the prohibitions contained in Stark II for
services, the Company believes its activities fall within the permissible
activities defined in Stark II, including, but not limited to, the provision of
in-office ancillary services.

  The FDA and other federal, state or local governmental agencies may amend
current, or adopt new, rules and regulations that could affect the use of
ophthalmic excimer lasers for LVC and therefore adversely affect the business of
the Company.
<PAGE>

ENVIRONMENTAL REGULATION

  The Company's business activities are not significantly affected by
environmental regulations and no material expenditures are anticipated in order
for the Company to comply with environmental regulations. However, the Company
is subject to certain regulations promulgated under the Federal Environmental
Protection Act with respect to grinding, tinting, edging and disposing of
ophthalmic lenses and solutions.


PROPRIETARY PROPERTY

  The Company has no licenses, patents or registered copyrights. The Company
does have various registered trademarks in the U.S., including "Sight
Resource", "Cambridge Eye Doctors", "E.B. Brown Opticians", "Eyeglass
Emporium", "Kidspecs", "Shawnee Optical", "SightCare" and "Vision
Plaza."


EMPLOYEES

  As of December 31, 1998, the Company had 616 employees. The Company intends to
hire additional key personnel it believes will be required for advancement and
expansion of the Company's activities.

  The success of the Company's future operations depends in large part on the
Company's ability to recruit and retain qualified personnel over time. There can
be no assurance, however, that the Company will be successful in retaining or
recruiting key personnel.


BUSINESS RISKS AND CAUTIONARY STATEMENTS

  When used in this Form 10-K and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "estimate",
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual results to differ
materially from historical results and those presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed below could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.

  The Company will not undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.

  There are a number of risks and uncertainties that could cause actual results
to differ materially from historical results and those presently anticipated or
projected. Such significant risks and uncertainties include but are not limited
to:

  1. The Company has a limited operating history, entering the LVC market in
     1993 and the primary eye care market in 1995.

  2. The Company has a history of operating losses, has not yet demonstrated
     sustained profitability and may continue to incur significant operating
     losses for the foreseeable future.
<PAGE>

  3. The primary eye care market and LVC market are highly competitive. The
     Company's current and potential competitors include many larger companies
     with substantially greater financial, operating, marketing and support
     resources than the Company.

  4. There can be no assurance that attractive acquisition candidates, or the
     financing necessary for any such acquisitions, will be available to the
     Company.

  5. There can be no assurance that the Company will be able to realize any
     operating efficiencies from the purchase and consolidation of primary eye
     care centers or optical chains.

  6. There can be no assurance that the Company will acquire new managed primary
     eye care contracts or that existing contracts will be expanded in any
     meaningful way.

  7. The Company and its operations are subject to extensive federal, state and
     local regulation, which could materially affect the Company's operations.


CORPORATE LIABILITY AND INSURANCE

  The provision of professional eye care services entails an inherent risk of
professional malpractice and other similar claims. The Company does not
influence or control the practice of medicine or optometry by professionals or
have responsibility for compliance with certain regulatory and other
requirements directly applicable to individual professionals and professional
groups. As a result of the relationship between the Company and its affiliated
practices, the Company may become subject to some professional malpractice
actions under various theories. There can be no assurance that claims, suits or
complaints relating to professional services provided by affiliated practices
will not be asserted against the Company in the future. The Company believes
that the providers with which the Company enters into LVC center agreements or
other strategic affiliation agreements are covered by such providers'
professional malpractice or liability insurance. The Company may not be able to
purchase professional malpractice insurance, and may not be able to purchase
other insurance at reasonable rates, which would protect it against claims
arising from the professional practice conducted by providers. Similarly, the
use of laser systems in the Company's LVC centers may give rise to claims
against the Company by persons alleging injury as a result of the use of such
laser systems. The Company believes that claims alleging defects in the laser
systems it purchases from its suppliers are covered by such suppliers' product
liability insurance and that the Company could take advantage of such insurance
by adding such suppliers to lawsuits against the Company. There can be no
assurance that the Company's laser suppliers will continue to carry product
liability insurance or that any such insurance will be adequate to protect the
Company.

  The Company maintains insurance coverage that it believes will be adequate
both as to risks and amounts. The Company believes that such insurance will
extend to professional liability claims that may be asserted against employees
of the Company that work on site at affiliated practice locations. In addition,
pursuant to the management agreements, the affiliated practices are required to
maintain professional liability and comprehensive general liability insurance.
The availability and cost of such insurance has been affected by various
factors, many of which are beyond the control of the Company and its affiliated
practices.

  There can be no assurance that the Company will be able to retain adequate
liability insurance at reasonable rates, or that the insurance will be adequate
to cover claims asserted against the Company, in which event the Company's
business may be materially adversely affected.
<PAGE>

ITEM 2.   DESCRIPTION OF PROPERTIES

  At December 31, 1998, the Company leased space for 90 of the Company's eye
care centers (which range in size from approximately 600 to 6,200 square feet),
under operating leases, which expire as follows, exclusive of renewal options.

<TABLE>
<CAPTION>
                                        At 12/31/98
                                        -----------
                                      NUMBER OF LEASES
  YEAR                                    EXPIRING
------                                    --------
<S>                                  <C>
  1999  ............................         15
  2000  ............................         19
  2001  ............................         17
  2002  ............................         13
  2003  ............................          9
  2004 and thereafter  .............         17
</TABLE>

  In addition, the Company is currently in lease negotiations or is an at will
tenant for three eye care centers.

  The Company's corporate headquarters, centralized optical laboratory and
distribution center occupy approximately 22,000 square feet of space leased in
an industrial complex in Holliston, Massachusetts pursuant to a lease which
expires in 2004. The Company believes that its facilities are adequate for its
present needs and that suitable space will be available to the Company upon
commercially reasonable terms to accommodate its future needs.


ITEM 3.   LEGAL PROCEEDINGS

  From time to time the Company's subsidiaries may be defendants in certain
lawsuits alleging various claims incurred in the ordinary course of business.
These claims are generally covered by various insurance policies, subject to
certain deductible amounts and maximum policy limits. In the opinion of
management, the resolution of existing claims should not have a material adverse
effect, individually or in the aggregate, upon the Company's business or
financial condition.

  Sight Resource Corporation is not currently a party to any claims, suits or
complaints, although there can be no assurance that such claims will not be
asserted against Sight Resource Corporation in the future. From time to time
Sight Resource Corporation has been party to claims, litigation or other
proceedings in the ordinary course of its business, none of which has been
material to the Company or its business.

  There can be no assurance that future claims against the Company or any of its
subsidiaries will not have a material adverse effect on the Company, its
operations or financial condition.


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

  No matters were submitted to a vote of security holders during the quarter
ended December 31, 1998.
<PAGE>

                                    PART II

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

Market for Company's Common Equity

  The Company's Common Stock began trading on NASDAQ on March 31, 1993 under the
symbol "VISN". The Company also issued Warrants which began trading on NASDAQ
on August 25, 1994 under the symbol "VISNZ". The following table sets forth
for the periods indicated, the high and low sales prices for the Common Stock
and Warrants as reported by NASDAQ:

<TABLE>
<CAPTION>
                                      Common Stock                Warrants
                               --------------------------  -----------------------
                                   High           LOW          HIGH         LOW
                               -------------  -----------  ------------  ---------
<S>                            <C>            <C>          <C>           <C>
  1998:
     First Quarter  ..........     $ 5 1/16    $  3 1/2     $  1 3/8   $1 1/16
     Second Quarter  .........        4 1/2       3 5/8       1 5/32       5/8
     Third Quarter  ..........      3 21/32     1 15/16          3/4       1/8
     Fourth Quarter  .........      3 11/16       1 5/8         9/16      1/16
  1997:
     First Quarter  ..........     $  5 1/2    $  3 3/4     $  1 7/8   $ 1 1/8
     Second Quarter  .........       5 1/16       3 3/8        1 7/8       7/8
     Third Quarter  ..........        6 3/8       3 7/8      1 29/32    1 1/16
     Fourth Quarter  .........        5 3/4       3 3/8        1 3/4     1 1/8
</TABLE>

  The Common Stock and Warrants have been quoted on the NASDAQ National Market
System since August 25, 1994. Prior to that time, the Common Stock was quoted on
the NASDAQ SmallCap Market.

  The Company has not paid dividends to its common stockholders since its
inception and does not plan to pay cash dividends in the foreseeable future.
The Company currently intends to retain earnings, if any, to finance the growth
of the Company. As of March 18, 1999, there were 257 and 17 holders of record of
the Company's Common Stock and Warrants, respectively. There are approximately
4,000 beneficial owners of the Company's Common Stock.


ITEM 6.   SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
                                                                                  Year ended December 31
                                                       ----------------------------------------------------------------------
                                                           1998(1)      1997(2,3,4)    1996(4,5)       1995(6)        1994
                                                       -------------  -------------  ------------  -------------  -----------
                                                                        (in thousands, except per share amounts)
<S>                                                    <C>            <C>            <C>           <C>            <C>
Statement of Operations Data:
  Net revenues  .....................................     $54,971      $    44,576     $  29,987      $18,240        $   529
  Net loss  .........................................        (985)          (2,004)       (5,850)      (4,888)        (2,945)
  Net loss per common share  ........................       (0.11)           (0.46)        (0.78)       (0.89)         (0.94)
  Weighted average number of common shares
    outstanding  ....................................       8,867            8,669         7,523        5,488          3,122
BALANCE SHEET DATA:
  Working capital  ..................................     $ 3,176      $     4,243     $   7,774      $ 5,325        $ 9,787
  Total assets  .....................................      32,145           34,507        31,430       23,249         13,911
  Non-current liabilities  ..........................         348              101         1,876        1,703             --
  Stockholders' equity  .............................      18,959           19,446        22,766       16,445         13,364
</TABLE>
----------------
1. Effective April 1, 1998, the Company acquired one hundred percent of the
   outstanding shares of stock of Eye Glass Emporium, Inc. ("Eyeglass
   Emporium"). The purchase price paid in connection with this acquisition was
   $2,309 in cash, $350 in notes payable in twelve equal quarterly installments
   commencing June 30, 1998, and 87,940 shares of common stock. At December 31,
   1998, Eyeglass Emporium operated nine eye care centers in Indiana.
<PAGE>

2. Effective July 1, 1997, the Company acquired one hundred percent of the
   outstanding shares of stock of Vision Holdings, Ltd. (formerly known as
   Dr. Greenberg, An Optometry Corporation d/b/a/ Vision Plaza) ("Vision
   Plaza"). At December 31, 1998, Vision Plaza operated 14 primary eye care
   centers and three specialty eyewear centers in Louisiana and Mississippi.
   Following the acquisition, Vision Plaza entered into a management services
   contract with Dr. John Musselman, A Professional Corporation ("Musselman"), a
   corporation established to employ the optometrists previously employed by the
   acquired company.
3. The net loss per share in 1997 includes a $1,953 dividend to the preferred
   stock holders as discussed in Note 8 of the Notes To Consolidated Financial
   Statements.
4. Includes a $110 provision for store closings and $400 write off of software
   development costs in 1997 and a $2,622 provision for impairment of ophthalmic
   equipment in 1996.
5. Effective July 1, 1996, the Company purchased certain assets and assumed
   certain liabilities of The E.B. Brown Optical Company and Brown Optical
   Laboratories, Inc. and acquired by merger E.B. Brown Opticians, Inc.
   (collectively "E.B. Brown"). At December 31, 1998, E.B. Brown operated
   37 eye care centers located throughout Ohio and western Pennsylvania which
   provide optometric and audiology goods and services to persons with vision
   and hearing disorders.
6. Effective January 1, 1995 and July 1, 1995 the Company purchased
   substantially all the assets of Cambridge Eye Associates, Inc. and Douglas
   Vision World, Inc., respectively. At December 31, 1998, these companies
   combined had a practice of 30 optometric offices throughout New England
   providing comprehensive vision care services to residents of this region.


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

Overview

  Sight Resource Corporation (the "Company") manufactures, distributes and
sells eyewear and related products and services. As of December 31, 1998, the
Company's operations consisted of 93 eye care centers, with three regional
optical laboratories and distribution centers, making it one of the seventeen
largest providers in the United States' primary eye care industry based upon
sales. Effective January 1, 1999, the Company acquired Shawnee Optical, a chain
of nine primary eye care centers operating in Ohio and western Pennsylvania,
increasing to 102 the total number of eye care centers operated by the Company.
The Company's eye care centers operate primarily under the brand names Cambridge
Eye Doctors, E.B. Brown Opticians, Eyeglass Emporium, Vision Plaza, Vision World
and Shawnee Optical. The Company also provides, or where necessary to comply
with applicable law administers the business functions of optometrists,
ophthalmologists and professional corporations that provide, vision related
professional services. In addition, as of December 31, 1998, the Company
operated two laser vision correction ("LVC") centers.

  The Company operates three regional optical laboratories and distribution
centers. The regional optical laboratories provide complete laboratory services
to the Company's eye care centers, including polishing, cutting and edging,
tempering, tinting and coating of ophthalmic lenses. The distribution centers
provide and maintain an inventory of all accessories and supplies necessary to
operate the primary eye care centers in their regions, as well as "ready made"
eye care products, including contact lenses and related supplies. The inventory
of eyeglass lenses, frames, contact lenses, accessories and supplies is acquired
through a number of sources, domestic and foreign. Management believes that the
regional optical laboratories and distribution centers have the capacity to
accommodate additional multi-site eye care centers.
<PAGE>

  The Company's results of operation include the accounts of the Company, its
wholly-owned subsidiaries and three professional corporation's ("PCs") in
which the Company's subsidiaries assume the financial risks and rewards of such
entities. The Company has no direct equity ownership in the PCs since the
outstanding voting capital stock of each of the PCs is 100% owned by a licensed
optometrist (the "nominee shareholder") who has, in turn, executed a Stock
Restrictions and Pledge Agreement (a "Pledge Agreement") in favor of a
subsidiary of the Company. Each Pledge Agreement contains provisions that
provide the Company with the ability at all times to cause a change in the
nominee shareholder and for an unlimited number of times, at nominal cost.
For example, if (i) the employment of the nominee shareholder is terminated by
the PC or by the Company (including its subsidiaries) or (ii) the Company
determines that the nominee shareholder is impairing or rendering less-than-
optimal the Company's business management and administration of the PC, then the
Company has the right to require the existing nominee shareholder to sell all of
the outstanding stock of the PC to another person eligible to serve as a new
nominee shareholder. The purchase price for a sale of the PC's stock is equal to
the aggregate book value of the PC, which will always be a nominal cost because
each PC operates and expects to continue to operate at an almost break-even
level generating a nominal profit, if any at all. See "Business--Stock
Restrictions and Pledge Agreements."


RESULTS OF OPERATIONS 1998 AS COMPARED WITH 1997

  Net Revenue.   The Company generated net revenue of approximately $55.0
million during the year ended December 31, 1998 from the operation of its 93 eye
care centers and two laser vision correction centers in the United States as
compared to net revenue of approximately $44.6 million from the operation of its
86 eye care centers and four laser vision correction centers in the United
States for the same period in 1997. Of the $10.4 million (or 23.3%) increase in
net revenue for the year ended December 31, 1998 as compared to the year ended
December 31, 1997, $3.2 million (or 7.2%) relates to the additional nine eye
care centers acquired effective April 1, 1998. The remaining increase of
$7.2 million (or 16.1%) relates primarily to recognition of a full year of
revenue from the Vision Plaza acquisition.

  Cost of Revenue.   Cost of revenue increased to approximately $19.0 million
for the year ended December 31, 1998 as compared to $16.1 million for the year
ended December 31, 1997. Cost of revenue decreased as a percentage of net
revenue from 36.1% for the year ended December 31, 1997, to 34.5% for the year
ended December 31, 1998. The improvement as a percentage of net revenue is
primarily due to the improved gross profit margin resulting from sales from both
the additional 17 eye care centers acquired July 1, 1997 and the nine eye care
centers acquired effective April 1, 1998. Cost of revenue for the years ended
December 31, 1998 and 1997 principally consisted of (i) the cost of
manufacturing, purchasing and distributing optical products to its customers and
(ii) the cost of delivering LVC, including depreciation and maintenance on
excimer lasers.

  In February, 1997 the Company discontinued the operations of an optical
laboratory and distribution facility operated by E.B. Brown in Cleveland, Ohio,
and consolidated its operations with those at its Holliston, Massachusetts
facility in order to reduce the cost of revenue. In August, 1997 the Company
elected to re-open a smaller version of the Cleveland facility to improve the
quality and timeliness of product delivery. The closing and subsequent reopening
of the smaller Cleveland facility did not have a material affect on the
Company's cost of revenue.

  Selling, General and Administration Expense.   Selling, general and
administration expenses were approximately $37.0 million and $30.7 million for
the years ended December 31, 1998 and 1997, respectively. The increase primarily
relates to payroll and facility costs incurred in operating the additional nine
eye care centers acquired effective April 1, 1998 and costs incurred for a full
year of operations of the 17 eye care centers acquired in the Vision Plaza
acquisition. Selling, general and administrative expense, as a percentage of net
revenue, declined from 68.9% for the year ended December 31, 1997, to 67.3% for
the year ended December 31, 1998. This decrease
<PAGE>

is primarily a result of (i) the nine eye care centers acquired effective April
1, 1998, which operate with a level of selling, general and administrative
expenses as a percentage of net revenue that is lower than that of the Company
and its other subsidiaries, and (ii) the Company's ability to better leverage
its fixed expenses in connection with the acquisition of multi-site eye care
centers.

  Provision for Store Closings.   The Company had a $110,000 provision for 1997
for the estimated costs to close one store in early 1998.  The provision was
primarily for estimated future lease payments of $64,135 and to write-off the
net book value of fixed assets of $27,137.  In 1998, the Company closed two
additional stores whose leases had expired and accordingly, no provisions were
provided.

  Provision for Write Off of Software Development Costs.    In 1996 the Company
selected a vendor and began the testing and installation of software associated
with a new point of sale system and perpetual inventory system for its primary
eye care centers, regional optical laboratories and distribution centers.
By late 1997 the Company, after testing the software system in selected eye care
centers, elected to utilize an alternative software vendor whose product is
better suited to the needs of the Company. As a result, the Company wrote down
$400,000 of capitalized costs associated with the original point of sale system.
The Company believes that the new system will facilitate the processing of
customer sales information and replenishment of inventory by passing such
information, including customer specific orders, to the Company's home office,
and its regional optical laboratories and distribution centers for further
processing. In 1998, the Company began operating the new point of sale system.

  Other Income and Expense.   Interest income decreased to approximately
$184,000 from $360,000 for the years ended December 31, 1998 and 1997,
respectively. This decrease resulted from the investment of a lower average cash
and cash equivalents balance during 1998 as compared to 1997. Interest expense
decreased from approximately $344,000 to $201,000 for the years ended December
31, 1997 and 1998, respectively. The decrease is associated with a lower average
balance of debt outstanding during 1998 as compared to 1997. The sale of certain
ophthalmic equipment during 1998 generated a gain of approximately $158,000
compared to a gain of approximately $738,000 from similar sales in 1997. In 1998
the Company sold two of the excimer laser systems which it owned, reducing the
number of operating systems in place at the end of the year to two, both of
which operate in New England and primarily service customers referred from the
Company's primary eye care centers.

  Net Loss.   The Company realized a net loss of approximately $1.0 million
($0.11 per share) and $2.0 million ($0.46 per share, including the $1,953,000
dividend to the preferred stock holders as discussed in Note 8 of the Notes To
Consolidated Financial Statements), for the years ended December 31, 1998 and
1997, respectively. The decrease in net loss is attributable to the increased
income generated by a full year of operations of the 17 eye care centers
acquired in the Vision Plaza acquisition in 1997, the additional nine eye
centers acquired effective April 1, 1998, improvements in gross profit margins,
sales volume gain, and, to a lesser extent, the non-recurrence of the $110,000
provision for store closings in 1997 and the $400,000 provision for the
writedown of software development costs. The reduction in net loss was partially
offset by a reduction of $580,000 in gain from the sale of equipment in 1998
versus 1997.


RESULTS OF OPERATIONS 1997 AS COMPARED WITH 1996

  Net Revenue.   The Company generated net revenue of approximately
$44.6 million during the year ended December 31, 1997 from the operation of its
86 eye care centers and four laser vision correction centers in the United
States as compared to net revenue of approximately $30.0 million from the
operation of its 72 eye care centers and ten laser vision correction centers in
the United States for the same period in 1996. Of the $14.6 million (or 48.7%)
increase in net revenue for the year ended December 31, 1997 as compared to the
year ended December 31, 1996, $5.7 million (or 19.0%) relates to the additional
17 eye care centers acquired effective July 1, 1997. The remaining increase of
$8.9 million (or 29.7%) relates primarily to recognition of a full year of
revenue from the E.B. Brown acquisition.
<PAGE>

  Cost of Revenue.   Cost of revenue decreased as a percentage of net revenue
from 39.5% (approximately $11.8 million) for the year ended December 31, 1996,
to 36.1% (approximately $16.1 million) for the year ended December 31, 1997. The
decrease as a percentage of net revenue is primarily due to increased LVC
procedure volume which covered more of the fixed cost components of cost of
goods sold, and an increase in eyeglass sales as a percentage of total sales.
Cost of revenue for the years ended December 31, 1997 and 1996 principally
consisted of (i) the cost of manufacturing, purchasing and distributing optical
products to its customers and (ii) the cost of delivering LVC, including
depreciation and maintenance on excimer lasers.

  In February, 1997 the Company discontinued the operations of an optical
laboratory and distribution facility operated by E.B. Brown in Cleveland, Ohio,
and consolidated its operations with those at its Holliston, Massachusetts
facility in order to reduce the cost of revenue. In August, 1997 the Company
elected to re-open a smaller version of the Cleveland facility to improve the
quality and timeliness of product delivery. As the Company grows, it may elect
to expand or contract the operations of any or all of its optical laboratories
and distribution centers based on the needs of the Company at that time.

  Selling, General and Administration Expense.   Selling, general and
administration expenses were approximately $30.7 million and $21.6 million for
the years ended December 31, 1997 and 1996, respectively. The increase primarily
relates to payroll and facility costs incurred in operating the additional
17 eye care centers acquired effective July 1, 1997 and a full year of
operations from the E.B. Brown acquisition. Selling, general and administrative
expense as a percentage of net revenue, declined from 72.1% for the year ended
December 31, 1996, to 68.9% for the year ended December 31, 1997. This decrease
is a result of operating efficiencies which the Company has begun to realize
from the acquisition and expansion of multi-site eye care centers and an
increase in LVC revenue.

  Provision for Store Closings.   The Company had a $110,000 provision for the
estimated costs to close one store in early 1998.  The provision was primarily
for estimated future lease payments of $64,135 and to write-off the net book
value of fixed assets of $27,137. No similar closings were provided for in 1996.

  Provision for Write Off of Software Development Costs.    In 1996 the Company
selected a vendor and began the testing and installation of software associated
with a new point of sale system and perpetual inventory system for its primary
eye care centers, regional optical laboratories and distribution centers. By
late 1997 the Company, after testing the software system in selected eye care
centers, elected to utilize an alternative software vendor whose product is
better suited to the needs of the Company. As a result, the Company wrote off
$400,000 of capitalized costs associated with the original point of sale system.
The Company believes that the new system will facilitate the processing of
customer sales information and replenishment of inventory by passing such
information, including customer specific orders, to the Company's home office,
and its regional optical laboratories and distribution centers for further
processing.

  Impairment of Ophthalmic Equipment.   During the fourth quarter of 1996, the
Company recognized a $2.6 million write down due to impairment of ophthalmic
equipment. Operating losses sustained during 1996 from the operation of this
equipment coupled with anticipated future operating losses over the remaining
depreciable life of the equipment, which were based upon operating history and a
recent industry report indicating a slower than expected growth in LVC, resulted
in the Company's decision to recognize the impairment in the fourth quarter
1996. The fair value of the equipment was based upon recent publications in
ophthalmic trade journals, offers from third parties, as well as recent sales of
similar equipment. For those lasers which the Company could dispose of
immediately, fair market value was determined to be $90,000 for warehoused
lasers and $55,000 for lasers that were in use. The lasers that were in use by
the Company were valued at $55,000 because of the expenses that would be
incurred by the Company during such use. In determining the fair market value of
the four lasers which the Company was contractually obligated to keep in
service, the Company considered the impact that anticipated FDA approval of
expanded treatment protocols would have on its ability to sell these lasers. The
Company determined that without upgrading these four lasers to permit treatment
of all patients under the expanded treatment protocols, their marketability and
fair market value would be impacted. Thus, a $30,000 impairment adjustment was
recorded for each of these four lasers to reduce the fair market value from
$55,000 to $25,000 to account for the estimated cost required
<PAGE>

to upgrade each laser for the technological obsolescence that would occur upon
availability of the expanded treatment protocols. In addition, two lasers were
held for use (i.e. not intended to be sold) and these were written down to fair
market value of $55,000. Since the Company has no other significant tangible or
intangible assets associated with LVC, the Company believes the impairment
relates only to ophthalmic equipment.

  Other Income and Expense.   Interest income totaled approximately $360,000 and
$499,000 for the years ended December 31, 1997 and 1996, respectively. This
decrease resulted from the investment of a lower average cash and cash
equivalents balance during 1997 as compared to 1996. Interest expense increased
from approximately $248,000 in 1996 to approximately $344,000 in 1997. This
increase is associated with a higher average balance of debt outstanding during
1997 as compared to 1996. The sale of certain ophthalmic equipment during 1997
generated a gain of approximately $738,000. In 1997 the Company sold 12 of the
excimer laser systems which it owned, reducing the number of operating systems
in place at the end of the year to four.

  Net Loss.   The Company realized a net loss of approximately $2.0 million
($0.46 per share, including the $1,953,000 dividend to the preferred stock
holders as discussed in Note 8 of the Notes To Consolidated Financial
Statements) and $5.9 million ($0.78 per share) for the years ended December 31,
1997 and 1996, respectively. The decrease in net loss is attributable to the
increased income generated by a full year of operations from the E. B. Brown
acquisition in 1996, the additional 17 eye centers acquired effective July 1,
1997, the gain on sale of excimer laser systems of $738,000, and the $2.6
million impairment of ophthalmic equipment recognized in 1996.


LIQUIDITY AND CAPITAL RESOURCES

  At December 31, 1998, the Company had approximately $1.9 million in cash and
cash equivalents and working capital of approximately $3.2 million in comparison
to approximately $6.1 million in cash and cash equivalents and working capital
of approximately $4.2 million as of December 31, 1997.

  Effective April 1, 1998, the Company acquired one hundred percent of the
outstanding shares of stock of Eye Glass Emporium, Inc. ("Eyeglass Emporium").
The purchase price paid in connection with this acquisition was $2,300,000 in
cash, the assumption and payment of notes payable outstanding as of April 1,
1998 of approximately $350,000 and 87,940 shares of common stock. Eyeglass
Emporium operated nine eye care centers in northwest Indiana. The acquisition
was accounted for using the purchase method of accounting.

  Effective January 1, 1999, the Company acquired one hundred percent of the
outstanding shares of stock of Shawnee Optical, Inc. ("Shawnee Optical"). The
purchase price paid in connection with this acquisition was $1,750,000 in cash,
the payment of notes payable in the aggregate amount of $300,000 and 70,000
shares of common stock. Shawnee Optical operated nine eye care centers in Ohio
and western Pennsylvania. The acquisition was accounted for using the purchase
method of accounting.

  As of December 31, 1998, the Company had securities outstanding which provide
it with potential sources of financing as outlined below:

<TABLE>
<CAPTION>
                                                                    Potential
                                                                    ---------
                          SECURITIES                                PROCEEDS
---------------------------------------------------------------     --------
<S>                                                 <C>          <C>
Warrants  .........................................   2,472,100     $14,800,000
Class A Warrants  .................................      85,000         500,000
Class II Warrants  ................................     290,424       2,032,968
Unit Purchase Options  ............................     215,000       3,700,000
Bank Austria AG, f/k/a Creditanstalt, Warrants  ...     150,000         694,000
Representative Warrants  ..........................     170,000       1,400,000
                                                                    -----------
                                                                    $23,126,968
                                                                    ===========
</TABLE>
<PAGE>

  The Company also has outstanding 842,294 Class I Warrants. The Class I
Warrants entitle the holder to purchase an amount of shares of the Company's
common stock equal to an aggregate of up to 19.9% of the shares of common stock
purchasable under the Company's outstanding warrants and options on the same
terms and conditions of existing warrant and option holders. The purchaser is
obligated to exercise these warrants at the same time the options and warrants
of existing holders are exercised, subject to certain limitations. The amount of
proceeds from the exercise of these warrants cannot be estimated at this time.

  There can be no assurance that the Company will obtain any of the proceeds
from the exercise of the above securities.

  On February 20, 1997, the Company entered into a Credit Agreement (the
"Agreement") with a bank pursuant to which the Company can borrow up to $5.0
million on a term loan basis and up to $5.0 million on a revolving credit basis,
subject to certain performance criteria. Such certain performance criteria
include, among others, financial condition covenants such as rolling EBITDA
levels, indebtedness to EBITDA ratios, current ratio of 1:1 and minimum net
worth ratios. The term loan facility bears interest at the bank's prime rate
plus 1.5% or LIBOR plus 3% at the Company's election, and the revolving credit
facility bears interest at the bank's prime rate plus 1.25% or LIBOR plus 2.75%
at the Company's election. These loans are secured by all assets of the Company
and its wholly owned subsidiaries. Amounts borrowed under the Agreement have
been and will continue to be used to refinance existing debt, finance future
acquisitions, provide ongoing working capital and for other general corporate
purposes. As part of the Agreement, the Company issued to the bank warrants to
purchase 150,000 shares of the Company's common stock at a purchase price of
$4.625 per share. The warrants expire December 31, 2003. As of December 31,
1998, there were no amounts outstanding under the Agreement. At December 31,
1998, the Company was not in compliance with a financial covenant which requires
that the Company maintain a certain minimum net worth. The Company has received
a waiver of this covenant.

  The Company has an acquisition strategy to acquire and integrate the assets of
multi-site eye care centers and the practices of eye care professionals and to
employ or enter into management services contracts with these professionals.
This strategy includes both expanding existing regional markets and entering new
regional markets. The Company will also target acquisitions in strategic markets
that will serve as platforms from which the Company can consolidate a given
service area by making and integrating additional "in-market" acquisitions. The
Company is currently evaluating potential acquisition candidates. Without
additional funding, the Company's rate of acquisition and size of acquisition
could be limited.

  The Company anticipates that its working capital and sources of capital, such
as the existing credit facility, will be adequate to fund the Company's
currently proposed operating activities for at least the next twelve months. The
Company anticipates using financing vehicles such as bank debt, leasing, and
other sources of funding, such as additional equity offerings, to achieve its
business plan, including the acquisition of eye care centers.


RECENT ACCOUNTING PRONOUNCEMENTS

  In June 1998, the Financial Accounting Standards Board issued SFAS 133
("Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS 133,
which becomes effective for the Company in its year ending December 26, 1999 is
not expected to have a material impact on the Consolidated Financial Statements
of the Company.


YEAR 2000 ISSUE

  When used in this Section, the words or phrases "plans to", "expected to",
"believes" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual results to differ
materially from historical results and those presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
will not undertake and specifically declines any obligation to publicly


<PAGE>

release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.

  The "Year 2000" issue refers to the inability of certain computer systems,
as well as certain hardware and equipment containing embedded microprocessors
with date sensitive data, to recognize accurate dates commencing on or after
January 1, 2000. This has the potential to affect the operation of these systems
adversely and materially. The Company has identified four phases in its Year
2000 compliance efforts: discovery, assessment, remediation and applicable
testing and verification.

  The Company has substantially completed its assessment of critical internal
systems which include customer service, customer order entry, lab operations,
purchasing and financial situations. The Company has surveyed, by written
questionnaire, its principal vendors, customers and others on whom it relies to
assure that their systems will be Year 2000 compliant, and that they will be
able to continue their business with the Company without interruption. The
Company has received written confirmation of Year 2000 compliance from vendors
and suppliers of its (i) point of sale system, (ii) general ledger software
system, (iii) laser vision correction equipment, (iv) laboratory finishing
equipment, and (v) corporate headquarters telecommunications systems. The
Company identified that some early versions of the software (RX calc) used in
two of its regional optical laboratories is not Year 2000 compliant. However,
Year 2000 compliant upgraded versions of that same software are available and
the Company plans to upgrade this software by the end of the third quarter of
1999.

  The Company plans to complete the remediation phase of its critical internal
systems by the second quarter of 1999 and complete the applicable testing and
verification phase by the end of the third quarter of fiscal year 1999, however
no assurance can be given that any or all of the Company's systems are or will
be Year 2000 compliant. The Company has drafted a contingency plan in the event
normal operations are interrupted as a result of Year 2000 issues. Certain
precautionary measures are considered in the contingency plan, including
restriction of vacation schedules in January 2000, increasing inventory levels
and manual processing of key financial documents and other operations. The plan
is expected to be completed during the second quarter of 1999. Contingency plan
testing will be completed by the end of the third quarter of 1999.

  The Company estimates costs to become Year 2000 compliant will be
approximately $50,000, however, no assurance can be given that the ultimate
costs required to address the Year 2000 issue will not exceed such amounts.

  The Company expects to convert all of its existing eye care centers to the new
point of sale system, which the Company has received written confirmation is
Year 2000 compliant, by the third quarter of 1999, except for the nine recently
acquired Shawnee Optical locations. The Company believes that the Shawnee
Optical centers will be converted to the new point of sale system by December
31, 1999. However, the Company has not completed its assessment of the
integration plan timetable for Shawnee Optical.

  The Company believes that there are multiple sources of supply in the industry
and the failure of some vendors to remediate Year 2000 issues would not disrupt
the supply chain. The Company provides managed primary eye care benefits to more
than fifty organizations. Presently, the Company manually files paper claims
with these organizations. However, during 1999 the Company intends to convert to
electronic filing for some of these organizations. If Year 2000 issues did not
permit electronic filing, the Company would revert back to manually processing
paper claims.

  The Company currently believes that its most reasonably likely worst case Year
2000 scenario would relate to problems with systems of third parties which could
create the greatest risks with infrastructure, including water and sewer
services, electricity, transportation, telecommunications and critical supplies,
or raw materials and spare parts. The Company's ability to eliminate or control
these potential third party problems is limited. Therefore, contingency plans
are limited to ensuring that store operations, eye examinations and optical
laboratory operations can be performed manually, if necessary.
<PAGE>

  No assurance can be given that the impact of any failure to achieve
substantial Year 2000 compliance will not have a material adverse effect on the
Company's financial condition.


ITEM 7A.   QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

  The Company has no significant fixed rate debt obligations or related interest
rate swap and cap agreements.
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Sight Resource Corporation:

  We have audited the consolidated balance sheets of Sight Resource Corporation
and its subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sight
Resource Corporation and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.


                                  /s/   KPMG Peat Marwick LLP

                                  KPMG Peat Marwick LLP

Boston, Massachusetts
March 19, 1999
<PAGE>

                          SIGHT RESOURCE CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31
                                                                                        -----------------
                                                                                        1998         1997
                                                                                        ----         ----
                                                                                      (in thousands except
                                                                                       for share amounts)
<S>                                                                                <C>          <C>
                                       ASSETS
Current assets:
  Cash and cash equivalents  ...................................................     $  1,860     $  6,076
  Accounts receivable, net of allowance of $748 and $478, respectively  ........        2,658        1,781
  Inventories  .................................................................        4,584        4,434
  Prepaid expenses and other current assets  ...................................          377          377
                                                                                     --------     --------
     Total current assets  .....................................................        9,479       12,668
                                                                                     --------     --------
Property and equipment, net (note 3)  ..........................................        6,140        5,664
                                                                                     --------     --------
Other assets:
  Intangible assets (note 4)  ..................................................       15,337       14,898
  Other assets  ................................................................        1,189        1,277
                                                                                     --------     --------
     Total other assets  .......................................................       16,526       16,175
                                                                                     --------     --------
                                                                                     $ 32,145     $ 34,507
                                                                                     ========     ========
                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long term debt (note 6)  ..................................          146        1,000
  Current portion of capital leases (note 7)  ..................................           34           --
  Accounts payable  ............................................................        2,870        1,797
  Accrued expenses (note 5)  ...................................................        3,253        5,628
                                                                                     --------     --------
     Total current liabilities  ................................................        6,303        8,425
                                                                                     --------     --------
Non-current liabilities:
  Long term debt, less current maturities (note 6)  ............................          184           --
  Capital leases (note 7)  .....................................................           13           --
  Other liabilities  ...........................................................          151          101
                                                                                     --------     --------
     Total non-current liabilities  ............................................          348          101
                                                                                     --------     --------
  Series B redeemable convertible preferred stock 1,452,119 shares issued
    (note 8)  ..................................................................        6,535        6,535
                                                                                     --------     --------
Stockholders' equity (note 9):
  Preferred Stock, $.01 par value. Authorized 5,000,000 shares; no shares of
    Series A issued and outstanding  ...........................................           --           --
  Common stock, $.01 par value. Authorized 20,000,000 shares; issued
    8,936,330 and 8,787,100 shares in 1998 and 1997, respectively  .............           90           88
  Additional paid-in capital  ..................................................       36,847       36,329
  Common stock issuable, 71,181 shares in 1998 and 1997 (note 1(b))  ...........          432          432
  Treasury stock at cost (30,600 shares in 1998 and 1997)  .....................         (137)        (137)
  Unearned compensation  .......................................................          (22)          --
  Accumulated deficit  .........................................................      (18,251)     (17,266)
                                                                                     --------     --------
     Total stockholders' equity  ...............................................       18,959       19,446
                                                                                     --------     --------
                                                                                     $ 32,145     $ 34,507
                                                                                     ========     ========
</TABLE>
          See accompanying notes to consolidated financial statements.
<PAGE>

                          SIGHT RESOURCE CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                            Years Ended December 31
                                                                   -----------------------------------------
                                                                        1998           1997         1996
                                                                   ---------------  -----------  -----------
                                                                   (in thousands except for per share amounts)
<S>                                                                <C>              <C>          <C>
Net revenue  ....................................................         $54,971      $44,576      $29,987
Cost of revenue  ................................................          18,991       16,096       11,841
                                                                          -------      -------      -------
     Gross margin  ..............................................          35,980       28,480       18,146
Selling, general and administrative expense  ....................          37,036       30,703       21,600
Provision for store closings  ...................................              --          110           --
Provision for write off of software development costs  ..........              --          400           --
Impairment of ophthalmic equipment (note 3)  ....................              --           --        2,622
                                                                          -------      -------      -------
  Total operating expenses  .....................................          37,036       31,213       24,222
                                                                          -------      -------      -------
     Loss from operations  ......................................          (1,056)      (2,733)      (6,076)
                                                                          -------      -------      -------
Other income (expense):
  Interest income  ..............................................             184          360          499
  Interest expense  .............................................            (201)        (344)        (248)
  Gain on sale of assets  .......................................             158          738           --
                                                                          -------      -------      -------
     Total other income  ........................................             141          754          251
                                                                          -------      -------      -------
     Loss before income tax expense  ............................            (915)      (1,979)      (5,825)
Income tax expense  .............................................              70           25           25
                                                                          -------      -------      -------
     Net loss  ..................................................         $  (985)     $(2,004)     $(5,850)
                                                                          =======      =======      =======
Dividends on redeemable convertible preferred stock (note 8)  ...              --       (1,953)          --
Net loss attributable to common shareholders  ...................         $  (985)     $(3,957)     $(5,850)
                                                                          =======      =======      =======
Basic and Diluted loss per common share (note 2)  ...............          $(0.11)      $(0.46)      $(0.78)
                                                                          =======      =======      =======
Weighted average number of common shares outstanding  ...........           8,867        8,669        7,523
                                                                          =======      =======      =======
</TABLE>
         See accompanying notes to consolidated financial statements.
<PAGE>

                          SIGHT RESOURCE CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                       Years Ended December 31, 1998, 1997 and 1996
                                 -----------------------------------------------------------------------------------------
                                 Common Stock   Additional     Accumu-    Common                Unearned        Total
                                 -------------  ------------  ----------  --------              ----------  --------------
                                          Par     Paid-in       lated      Stock    Treasury      Comp-     Stockholders
                                         -----  ------------  ----------  --------  ----------  ----------  --------------
                                 Shares  Value    Capital      Deficit    Issuable    Stock      ensation       Equity
                                 ------  -----  ------------  ----------  --------  ----------  ----------  --------------
                                                                      (in thousands)
<S>                              <C>     <C>    <C>           <C>         <C>       <C>         <C>         <C>
Balance, December 31,
 1995  ........................   6,347    $63      $25,794    $ (9,412)      $ --      $  --        $ --         $16,445
Proceeds from exercise of
 warrants  ....................      --     --            1          --         --         --          --               1
Proceeds from public
 offering, net of offering
 costs  .......................   1,775     18        9,816          --         --         --          --           9,834
Issuance of common stock
 for acquisitions  ............     522      5        1,896          --        432         --          --           2,333
Proceeds from exercise of
 stock options  ...............       5     --            3          --         --         --          --               3
Net loss  .....................      --     --           --      (5,850)        --         --          --          (5,850)
                                  -----    ---      -------    --------   --------  ---------   ---------         -------
Balance, December 31,
 1996  ........................   8,649     86       37,510     (15,262)       432         --          --          22,766
Exercise of stock options
 (notes 9 and 12)  ............     138      2          592          --         --         --          --             594
Acquisition of treasury
 stock (note 9)  ..............      --     --           --          --         --       (137)         --            (137)
Dividend to preferred
 shareholders (note 8)  .......      --     --       (1,953)         --         --         --          --          (1,953)
Issuance of warrants under
 Credit Agreement
 (note 6)  ....................      --     --          180          --         --         --          --             180
Net loss  .....................      --     --           --      (2,004)        --         --          --          (2,004)
                                  -----    ---      -------    --------   --------  ---------   ---------         -------
Balance, December 31,
 1997  ........................   8,787     88       36,329     (17,266)       432       (137)         --          19,446
Exercise of stock options
 (notes 9 and 12)  ............      20     --            9          --         --         --          --               9
Issuance of Common Stock
 for acquisitions  ............      88      1          349          --         --         --          --             350
Issuance of Common
 Stock  .......................      41      1          160          --         --         --         (40)            121
Amortization of unearned
 compensation  ................      --     --           --          --         --         --          18              18
Net loss  .....................      --     --           --        (985)        --         --          --            (985)
                                  -----    ---      -------    --------   --------  ---------   ---------         -------
Balance, December 31,
 1998  ........................   8,936    $90      $36,847    $(18,251)      $432      $(137)       $(22)        $18,959
                                  =====    ===      =======    ========   ========  =========   =========         =======
</TABLE>
          See accompanying notes to consolidated financial statements
<PAGE>

                          SIGHT RESOURCE CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31
                                                                                   ------------------------------------
                                                                                      1998        1997         1996
                                                                                   ----------  -----------  -----------
                                                                                             (in thousands)
<S>                                                                                <C>         <C>          <C>
Operating activities:
Net loss  .......................................................................    $  (985)     $(2,004)     $(5,850)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation and amortization  ................................................      2,596        2,183        2,221
  Amortization of unearned compensation  ........................................         18           --           --
  Impairment of ophthalmic equipment  ...........................................         --           --        2,622
  Gain on sale of assets  .......................................................       (158)        (738)          --
  Provision for store closings and write off of software developments costs  ....         --          510           --
Changes in operating assets and liabilities:
  Accounts receivable  ..........................................................       (746)         138         (248)
  Inventories  ..................................................................        289       (1,027)         153
  Prepaid expenses and other current assets  ....................................         47          (78)         (47)
  Accounts payable and accrued expenses  ........................................       (829)      (1,349)      (1,408)
                                                                                     -------      -------      -------
     Net cash provided by (used in) operating activities  .......................        232       (2,365)      (2,557)
                                                                                     -------      -------      -------
Investing activities:
  Purchases of property and equipment  ..........................................     (1,612)      (1,948)      (1,639)
  Payments for acquisitions  ....................................................     (2,201)      (2,075)      (2,854)
  Proceeds from sale of assets  .................................................        235        1,747           --
  Other assets  .................................................................         88         (240)         (72)
                                                                                     -------      -------      -------
     Net cash used in investing activities  .....................................     (3,490)      (2,516)      (4,565)
                                                                                     -------      -------      -------
Financing activities:
  Principal payments on debt  ...................................................     (1,087)      (2,754)        (400)
  Debt financing costs  .........................................................         --         (320)          --
  Proceeds from issuance of stock  ..............................................        129           --           --
  Proceeds from exercise of warrants and stock options  .........................         --           --            4
  Net proceeds from offerings  ..................................................         --        4,582        9,834
  Purchase of treasury stock  ...................................................         --         (137)          --
  Payment of other liabilities  .................................................         --         (338)        (427)
                                                                                     -------      -------      -------
     Net cash provided by (used in) financing activities  .......................       (958)       1,033        9,011
                                                                                     -------      -------      -------
Net increase (decrease) in cash and cash equivalents  ...........................     (4,216)      (3,848)       1,889
Cash and cash equivalents, beginning of period  .................................      6,076        9,924        8,035
                                                                                     -------      -------      -------
Cash and cash equivalents, end of period  .......................................    $ 1,860      $ 6,076      $ 9,924
                                                                                     =======      =======      =======
</TABLE>
             See note 11 for supplementary cash flow information.
         See accompanying notes to consolidated financial statements.
<PAGE>

                           SIGHT RESOURCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1998, 1997, AND 1996

(1)   THE COMPANY

 (a) Nature of Business

  Sight Resource Corporation (the "Company") manufactures, distributes and
sells eyewear and related products and services.


 (b) Acquisitions

  During 1995, the Company acquired two primary eye care chains, effective
January 1, 1995 and July 1, 1995, respectively. The aggregate purchase price
paid in connection with the acquisitions consisted of (i) $2,660,000 in cash,
(ii) 555,525 shares of common stock, (iii) the assumption of approximately
$1,600,000 of net liabilities, and (iv) $660,000 payable over a 3 year period
and $250,000 payable over 18 months, contingent upon the occurrence of certain
future events. The transactions were accounted for using the purchase method of
accounting.

  Effective July 1, 1996, the Company purchased certain assets and assumed
certain liabilities of The E.B. Brown Optical Company and Brown Optical
Laboratories, Inc. as well as entered into a merger with E.B. Brown Opticians,
Inc. (collectively, "E.B. Brown") for approximately $7,733,000, consisting of:
$4,000,000 in cash, 521,997 shares of common stock issued, 71,181 shares of
common stock to be issued and $1,400,000 in notes payable over an 18 month
period. When the common stock to be issued is issued, the $432,000 of common
stock issuable will be reclassed into common stock and additional paid-in
capital. As of July 1, 1996, E.B. Brown operated 42 eye care centers located
throughout Ohio and Western Pennsylvania which provide optometric and audiology
goods and services to persons with vision and hearing disorders. The transaction
was accounted for using the purchase method of accounting.

  Effective July 1, 1997, the Company acquired one hundred percent of the
outstanding shares of stock of Vision Holdings, Ltd. (formerly known as Dr.
Greenberg, An Optometry Corporation, d/b/a Vision Plaza ("Vision Plaza")). The
purchase price paid in connection with this acquisition was $2,000,000 in cash
and the assumption and payment of notes payable outstanding as of July 1, 1997
of approximately $800,000. Vision Plaza operated 17 eye care centers in
Southeast Louisiana and Mississippi. The acquisition was accounted for using the
purchase method of accounting.

  Effective April 1, 1998, the Company acquired one hundred percent of the
outstanding shares of stock of Eye Glass Emporium, Inc. ("Eyeglass Emporium").
The purchase price paid in connection with this acquisition was $2,309,000 in
cash, the assumption and payment of notes payable outstanding as of April 1,
1998 of approximately $350,000 and 87,940 shares of common stock. Eyeglass
Emporium operated nine eye care centers in northwest Indiana. The acquisition
was accounted for using the purchase method of accounting.

  The results of operations of the five acquisitions have been included in the
consolidated financial statements from their respective dates of acquisition.
The excess of the purchase price and expenses associated with each acquisition
over the estimated fair value of the net assets acquired has been recorded as
goodwill.
<PAGE>

                          SIGHT RESOURCE CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  As a result of the acquisitions, the Company has also recorded adjustments to
increase liabilities and establish reserves for the closing of stores and
related restructuring costs, including lease commitments and severance costs.

  A summary of the activity follows:

                      Store and Laboratory Closing Costs
                      ----------------------------------
<TABLE>
<CAPTION>
                                                         Eyeglass
                             E.B. Brown   Vision Plaza   Emporium      Total
                             ----------   ------------   --------      -----
<S>                          <C>          <C>            <C>        <C>
January 1, 1997 Balance       $  15,557      $       0   $      0   $    15,557
---------------------------

Additions (1997)                518,281        781,000          0     1,229,281
Charges (1997)                  (89,595)       (10,604)         0      (100,199)
                              ---------      ---------   --------   -----------

December 31, 1997 Balance     $ 444,243      $ 770,396   $      0   $ 1,214,639

Additions (1998)                      0              0     32,000        32,000
Charges (1998)                        0              0    (32,000)      (32,000)
Adjustments to Goodwill        (444,243)      (770,396)         0    (1,214,639)
                              ---------      ---------   --------   -----------

December 31, 1998 Balance     $       0      $       0   $      0   $         0
                              ---------      ---------   --------   -----------

</TABLE>
                                Severance Costs
                                ---------------
<TABLE>
<CAPTION>

                                                         Eyeglass
                             E.B. Brown   Vision Plaza   Emporium     Total
                             ----------   ------------   --------     -----
<S>                          <C>          <C>            <C>        <C>

January 1, 1997 Balance       $  24,912      $       0   $      0   $  24,912
-----------------------       ---------      ---------   --------   ---------

Additions (1997)                 67,588        156,410          0     233,998

Charges (1997)                  (42,500)             0          0     (42,500)
                              ---------      ---------   --------   ---------

December 31, 1997 Balance     $  50,000      $ 156,410   $      0   $ 206,410
-------------------------

Additions (1998)                      0              0     21,087      21,087
Charges (1998)                        0         37,584    (21,087)    (58,671)
Adjustments to Goodwill        ( 50,000)      (118,826)         0    (168,826)
                              ---------      ---------   --------   ---------

December 31, 1998 Balance     $       0      $       0   $      0   $       0
-------------------------     ---------      ---------   --------   ---------
</TABLE>

  In 1997, the Company provided a reserve of $518,281 to close seven stores in
the Cleveland area and four mini labs and the Cleveland central lab for E.B.
Brown and a reserve of $781,000 to close one store in the Boston area and a
kiosk for Vision Plaza. The reserve was established for the estimated future
rental payments of stores and to write-off furniture and equipment and lease
components that the Company intended to close.
<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  The Company charged $89,595 and $10,604 in 1997 for E.B. Brown and Vision
Plaza, respectively.  These charges were for the closing of four stores at E.B.
Brown and a kiosk at Vision Plaza.  Nothing was charged in 1998 against these
reserves.

  In addition, in 1997, the Company provided costs of $67,588 and $156,410,
respectively, to sever 22 and 10 people at E.B. Brown and Vision Plaza,
respectively.  During 1997, the Company charged $42,500 against the E.B. Brown
reserves for costs to sever an administrative person and nothing against Vision
Plaza reserves.

  In 1998, the Company charged $37,584 against the Vision Plaza reserves for
severance costs of five accounting and administrative employees.

  In 1998, the Company acquired Eyeglass Emporium and established a $32,000
reserve for lease payments associated with vacating the Eyeglass Emporium home
office and a reserve of $21,087 for costs to sever an administrative person at
Eyeglass Emporium.  These reserves were fully utilized in 1998 as the Company
executed its plan.

  Delays were experienced in finalizing the plans for E.B. Brown and Vision
Plaza principally due to the failure of the plan to consolidate the E.B. Brown
laboratories with the Company's main facility in Holliston, Massachusetts, the
inability to negotiate reasonable economic lease terminations, and delays in
automating administrative, distribution and accounting functions.  In late 1997
and early 1998, the Company experienced considerable change in its management.
Under new management, all operations were evaluated and priorities assigned.
The plans to exit stores at E.B. Brown and Vision Plaza were not given high
priority by the new leadership.  Accordingly, the Company reversed its accrued
liabilities against goodwill and no reserves exist at December 31, 1998 as the
Company believes its plan is completed.

  The following unaudited pro forma financial information gives effect to the
acquisitions as if:

  i)  the acquisition of Vision Plaza was effective January 1, 1996

  ii)  the acquisition of Eyeglass Emporium was effective January 1, 1997

  These pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations which actually
would have resulted had the acquisitions occurred on the date indicated, or
which may result in the future.

<TABLE>
<CAPTION>
                                                                    1998         1997          1996
                                                                    ----         ----          ----
                                                              (in thousands except for per share data)
<S>                                                           <C>            <C>          <C>
Revenue  ....................................................      $56,188      $54,741      $48,636
                                                                   =======      =======      =======
Net loss  ...................................................      $(1,018)     $(4,073)     $(5,084)
                                                                   =======      =======      =======
Basic and Diluted loss per share  ...........................      $ (0.11)     $ (0.47)     $ (0.63)
                                                                   =======      =======      =======
Weighted average number of common shares outstanding  .......        8,889        8,757        8,045
                                                                   =======      =======      =======
</TABLE>
Subsequent to year end the Company acquired Shawnee Optical, Inc. for
$2,400,000. Had the Shawnee acquisition occurred at the beginning of 1998, the
pro forma results for 1998 would have been as follows:

<TABLE>
<CAPTION>
                                                                           1998
                                                                           ----
                                                                   (in thousands except
                                                                   for per share data)
<S>                                                           <C>
Revenue  ....................................................            $60,144
                                                                         =======
Net loss  ...................................................            $  (918)
                                                                         =======
Basic and Diluted loss per share  ...........................            $ (0.10)
                                                                         =======
Weighted average number of common shares outstanding  .......              8,937
                                                                         =======
</TABLE>
<PAGE>
                          SIGHT RESOURCE CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  The above unaudited pro forma financial information reflects certain
adjustments, including amortization of goodwill, and an increase in the weighted
average shares outstanding. This pro forma information does not necessarily
reflect the results of operations that would have occurred had the acquisitions
taken place at the beginning of 1996, 1997 and 1998 and is not necessarily
indicative of results that may be obtained in the future.


(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 (a) Principles of Consolidation

  The Company's results of operation include the accounts of the Company, its
wholly-owned subsidiaries and three professional corporation's ("PCs") in
which the Company's subsidiaries assume the financial risks and rewards of such
entities. The Company has no direct equity ownership in the PCs since the
outstanding voting capital stock of each of the PCs is 100% owned by a licensed
optometrist (the "nominee shareholder") who has, in turn, executed a Stock
Restrictions and Pledge Agreement (a "Pledge Agreement") in favor of a
subsidiary of the Company. Each Pledge Agreement contains provisions that
provide the Company with the ability at all times to cause a change in the
nominee shareholder and for an unlimited number of times, at nominal cost. The
purchase price for a sale of the PC's stock is equal to the aggregate book value
of the PC, which will always be a nominal cost because each PC operates at an
almost break-even level generating a nominal profit, if any at all. All
significant intercompany balances and transactions have been eliminated.

  In preparation of these consolidated financial statements in conformity with
generally accepted accounting principles, management of the Company has made
estimates and assumptions that affect the reported amounts of assets and
liabilities, such as accounts receivable, inventory, impairment of property and
equipment and intangibles. Actual results could differ from those estimates.


 (b) Statement of Cash Flows

  Cash and cash equivalents consist of cash in banks and short-term investments
with original maturities of three months or less.


 (c) Financial Instruments

  The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of the
short maturity of these items. The carrying amount of other long-term maturities
approximates fair value. The carrying amount of the Company's revolving line of
credit approximates fair value because the borrowing rate changes with market
interest rates.


 (d) Revenue Recognition

  Revenue and the related costs from the sale of eyewear are recognized at the
time an order is complete. Revenue from eye care services is recognized when the
service is performed. The Company has fee for service arrangements with most of
its third party payors. Revenue is reported net of contractual allowances.

  Under revenue sharing arrangements for refractive surgery where the Company is
not responsible for patient billing, the Company receives a specified payment
from the hospital or center for each refractive surgical procedure performed.
Accordingly, the Company recognizes revenue on a per procedure basis at the time
procedures are performed. Under revenue-sharing arrangements for refractive
surgery where the Company is responsible for the collection from the patient and
payment to the ophthalmologist and other operating costs, the total patient
charge is recorded as revenue with the corresponding expenses recorded in cost
of revenue.


 (e) Inventories

  Inventories primarily consist of the costs of eyeglass frames, contact lenses,
ophthalmic lenses, sunglasses and other optical products and are valued at the
lower of cost (using the first-in, first-out method) or market.


 (f) Property, Equipment and Long-Lived Assets

  Property, equipment and long-lived assets are stated at cost. The Company
provides for depreciation at the time the property, equipment and long-lived
assets are placed in service. The straight-line method is used over the
estimated useful life of the assets. In accordance with SFAS 121, the Company
assesses the recoverability of the undepreciated property, equipment and long-
lived assets on an ongoing basis by comparing anticipated operating profits and
future, undiscounted cash flows to net book value. In performing this analysis,
management considers such factors as current results, trends, and future
prospects, in addition to other economic factors.


 (g) Advertising

  Advertising costs are expensed when incurred.

<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



 (h) Intangible Assets

  Intangible assets resulting from the business acquisitions consist of customer
lists, trademarks, non-compete agreements and the excess cost of the acquisition
over the fair value of the net assets acquired (goodwill). Certain values
assigned are based upon independent appraisals and are amortized on a straight
line basis over a period of 5 to 25 years. The Company assesses the
recoverability of unamortized intangible assets on an ongoing basis by comparing
anticipated operating profits and future, undiscounted cash flows to net book
value. In performing this analysis, management considers such factors as current
results, trends, and future prospects, in addition to other economic factors.


 (i) Income Taxes

  The Company follows the asset and liability method of accounting for income
taxes and records deferred tax assets and liabilities based on temporary
differences between the tax bases of assets and liabilities and their carrying
amounts for financial statement purposes.


 (j) Deferred Revenue

  The Company offers a contact lens purchasing program in which, for a set fee,
customers may purchase contacts at discounted rates for a 12 month period. The
Company recognizes revenue from the sales of its contact lens purchasing program
on a monthly basis over the life of the program.


 (k) Net Loss Per Share

  Earnings per share are computed based on Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings
per share ("Diluted EPS") by all entities that have publicly traded common
stock or potential common stock (options, warrants, convertible securities or
contingent stock arrangements). Basic EPS is computed by dividing income
attributable to common stockholders by the weighted average number of common
shares outstanding during the period. The computation of Diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would have
an antidilutive effect on earnings.

  The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings (loss) per share computations for
the years ended December 31:

<TABLE>
<CAPTION>
                                                                       Years Ended December 31
                                                                       -----------------------
                                                                    1998        1997         1996
                                                                    ----        ----         ----
                                                                       (in thousands except for
                                                                           per share amounts)
<S>                                                            <C>         <C>          <C>
Basic Loss Per Share
Net loss  ...................................................     $ (985)     $(2,004)     $(5,850)
Less: dividends on redeemable convertible preferred stock  ..         --       (1,953)          --
                                                                  ------      -------      -------
Net loss attributable to common stockholders  ...............     $ (985)     $(3,957)     $(5,850)
                                                                  ======      =======      =======
Weighted average common shares outstanding  .................      8,867        8,669        7,523
Net loss per share  .........................................     $(0.11)     $ (0.46)     $ (0.78)
                                                                  ======      =======      =======
DILUTED LOSS PER SHARE
Net loss  ...................................................     $ (985)     $(2,004)     $(5,850)
Less: dividends on redeemable convertible preferred stock  ..         --       (1,953)          --
                                                                  ------      -------      -------
Net loss attributable to common stockholders  ...............     $ (985)     $(3,957)     $(5,850)
                                                                  ======      =======      =======
Weighted average common shares outstanding  .................      8,867        8,669        7,523
Net loss per share  .........................................     $(0.11)     $ (0.46)     $ (0.78)
                                                                  ======      =======      =======
</TABLE>
<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  The options, warrants and convertible preferred stock discussed in Notes 8
and 9 were not included in the computation of diluted Earnings Per Share because
the effect would be antidilutive.


(3)   PROPERTY AND EQUIPMENT

  Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                          Years Ended December 31
                                    -----------------------------------
                                                             Estimated
                                                            ----------
                                        1998      1997      Useful Life
                                        ----      ----      -----------
                                              (in thousands)
<S>                                 <C>       <C>        <C>
Land and building  ................  $    87    $    87     40 years
Equipment  ........................    5,195      4,123     3-5 years
Computer equipment  ...............    1,143        485     3 years
Furniture and fixtures  ...........    1,751      1,243     3 years
Leasehold improvements  ...........    4,731      3,974     Life of lease
Construction-in-progress  .........      310        158
                                     -------    -------
                                      13,217     10,070
Less accumulated depreciation  ....    7,077      4,406
                                     -------    -------
Property and equipment, net  ......  $ 6,140    $ 5,664
                                     =======    =======
</TABLE>

  During the fourth quarter of 1997, the Company recorded a $400,000 charge for
the write off of development costs associated with Point of Sale software due to
a decision to change the system provider to be utilized.


(4)   INTANGIBLE ASSETS

  Intangible assets consists of the following:

<TABLE>
<CAPTION>
                                          Years Ended December 31
                                    -----------------------------------
                                                            Estimated
                                                           ----------
                                        1998      1997     Useful Life
                                        ----      ----     -----------
                                              (in thousands)
<S>                                 <C>       <C>        <C>
Goodwill  .........................  $14,331    $13,061       20-25
Customer lists  ...................    2,662      2,659       11-15
Non-compete  ......................      120        120           5
Trademarks  .......................      713        713          15
                                     -------    -------
                                      17,826     16,553
Accumulated amortization  .........    2,489      1,655
                                     -------    -------
  Total  .........................   $15,337    $14,898
                                     =======    =======
</TABLE>

  The useful lives of the above intangible assets are estimated based upon,
among other things, independent appraisals, history of operations acquired,
terms of agreements and industry standards.
<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(5)   ACCRUED EXPENSES

  Accrued expenses consists of the following:

<TABLE>
<CAPTION>
                                          Years Ended December 31
                                          -----------------------
                                               1998      1997
                                               ----      ----
                                                (in thousands)
<S>                                    <C>           <C>
Professional fees  ....................      $  118    $  308
Payroll and related cost  .............       1,505     1,671
Acquisition reserves and accruals  ....          --     1,863
Deferred revenue  .....................         161       161
Other  ................................       1,469     1,625
                                             ------    ------
                                             $3,253    $5,628
                                             ======    ======
</TABLE>

(6)   DEBT

<TABLE>
<CAPTION>
                                                                                                      Years Ended
                                                                                                      December 31
                                                                                                    ---------------
                                                                                                    1998       1997
                                                                                                    ----       ----
                                                                                                     (in thousands)
<S>                                                                                                <C>     <C>
Notes payable, 7% interest rate, principal and interest due quarterly until March 31,
   2001  .......................................................................................    $ 263   $   --
Notes payable, 12% interest rate, principal and interest due monthly until January,
   2001  .......................................................................................       67       --
Unsecured notes payable, 7% interest rate, $400 paid on September 18, 1997 and $1,000
   due on March 18, 1998; due on demand if the Company's cash balance is less than
   $2,800  .....................................................................................       --    1,000
                                                                                                    -----   ------
                                                                                                                 0
                                                                                                      330    1,000
Less current maturities  .......................................................................      146    1,000
                                                                                                    -----   ------
Long term debt, less current maturities  .......................................................    $ 184   $   --
                                                                                                    =====   ======
</TABLE>

  On April 8, 1998, as part of the acquisition of Eyeglass Emporium, the Company
issued a three-year $350,000 note to the seller. The annual interest rate is 7%.
Principal and interest are due quarterly beginning June 30, 1998 and continuing
until March 31, 2001.

  On February 20, 1997, the Company entered into a Credit Agreement (the
"Agreement") with a bank pursuant to which the Company can borrow $5,000,000
on a term loan basis and $5,000,000 on a revolving credit basis, subject to
certain performance criteria. The performance criteria include, among others,
financial condition covenants such as rolling EBITDA levels, indebtedness to
EBITDA ratios, current ratio of 1:1 and minimum net worth requirements. The term
loan facility bears interest at the bank's prime rate plus 1.5% or LIBOR plus 3%
at the Company's election and the revolving credit facility bears interest at
the bank's prime rate plus 1.25% or LIBOR plus 2.75% at the Company's election.
These loans are secured by all assets of the Company and its wholly owned
subsidiaries. As of December 31, 1998, the entire term loan and revolving note
was unused. Amounts borrowed under the Agreement will be used to finance future
acquisitions, provide ongoing working capital and for other general corporate
purposes. As part of the Agreement, the Company issued to the bank warrants to
purchase 150,000 shares of the common stock at a purchase price of $4.625 per
share. The warrants expire December 31, 2003. The warrants were accounted for as
additional paid in capital based upon the fair value of the securities. Fair
market value was determined by using the relationship of the interest rate
charged with the warrants versus the rate to be charged without the warrants.
This value approximated that obtained using the Black Scholes Method. As of
December 31, 1998 and 1997, there were no amounts outstanding under the

<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


Agreement. At December 31, 1998, the Company was not in compliance with a
financial covenant which requires that the Company maintain a certain minimum
net worth. The Company has received a waiver of this covenant.

  In January 1996, one of the Company's subsidiaries entered into a five-year,
$140,000 construction note payable relating to one of its mall locations. The
annual interest rate is 12%. Principal and interest payments are due monthly
until January 2001.


(7)   LEASE OBLIGATIONS

  The Company has operating leases primarily for its primary eye care centers,
distribution center, corporate offices and certain equipment. The leases are
generally for periods of up to 10 years with renewal options at fixed rentals.
Certain of the leases provide for additional rentals based on sales exceeding
specified amounts. Capitalized leases consists of various office and optometric
equipment at multiple locations.

  Future minimum annual lease commitments for facilities and equipment for the
five years subsequent to December 31, 1998 and in the aggregate are as follows:

<TABLE>
<CAPTION>
                                                               Capital   Operating
                                                               -------   ---------
                                                                Leases     Leases
                                                                ------     ------
                                                                  (in thousands)
<S>                                                            <C>       <C>
1999  ......................................................      $39     $ 5,394
2000  ......................................................       12       4,501
2001  ......................................................        2       3,579
2002  ......................................................       --       2,762
2003  ......................................................       --       2,233
Thereafter  ................................................       --       5,187
                                                                  ---     -------
Total minimum lease obligations  ...........................       53     $23,656
                                                                          =======
Less amount representing interest  .........................        6
                                                                  ---
Present value of net minimum capital lease obligations  ....       47
Less current maturities  ...................................       34
                                                                  ---
                                                                  $13
                                                                  ===
</TABLE>

  Rental expenses charged to operations, including real estate taxes, common
  --------------------------------------------------------------------------
area maintenance and other expenses related to the leased facilities and
------------------------------------------------------------------------
equipment, were approximately $5,335,000, $4,500,000 and $2,592,000, for fiscal
-------------------------------------------------------------------------------
years 1998, 1997 and 1996, respectively.
----------------------------------------

(8)   REDEEMABLE CONVERTIBLE PREFERRED STOCK

  On November 25, 1997, the Company issued 1,452,119 shares of Series B
Convertible Preferred Stock (the "Series B"), Class I and Class II Warrants to
an outside investor (the "Purchaser") for a net purchase price of $4,582,000.
The Series B was purchased with a conversion price into common stock that was
lower than market value of the common stock, and as a result, the difference of
$1,953,000 was reflected as a dividend to the preferred stockholders to reflect
the preferred stock at its fair value. Each share of Series B is convertible
into one share of Common Stock at $3.50 per share, subject to adjustment, at the
Purchaser's option at any time and at the Company's option if the price per
share of Common Stock during any period of thirty consecutive trading days
equals or exceeds $7.00 at any time during the first three years or $9.00 at any
time thereafter. The holders of the Series B have the right to appoint two
directors to the Company's Board of Directors.
<PAGE>

                           SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  The Class I (Mirror) Warrants entitle the Purchaser to purchase an amount of
shares of the Company's Common Stock equal to an aggregate of up to 19.9% of the
shares of Common Stock purchasable under the Company's outstanding warrants and
options on the same terms and conditions of existing warrant and option holders.
The Purchaser is obligated to exercise these warrants at the same time the
options and warrants of existing holders are exercised, subject to certain
limitations.

  The Class II Warrants entitle the Purchaser to purchase an aggregate of
290,424 shares of the Company's Common Stock at an exercise price of $7.00 for a
term of five years.

  The Purchaser is entitled to "shelf" registration rights and "piggyback"
registration rights with respect to the shares of Common Stock underlying the
Series B, the Class I Warrants and the Class II Warrants.

  Upon a change of control of the Company, defined as (i) a change in any person
or group obtaining a majority of the securities ordinarily having the right to
vote in an election of Directors; (ii) during any two year period, the
individuals who at the beginning of the period constituted the Company's Board
of Directors no longer constitute a majority of the Board of Directors;
(iii) any merger, consolidation, recapitalization, reorganization, dissolution
or liquidation of the Company which results in the current stockholders no
longer owning more than 50% of the voting securities or the Company; (iv) any
sale, lease, exchange or other transfer of all, or substantially all, of the
assets of the Company; or (v) the adoption of a plan leading to the liquidation
or dissolution of the Company, at the option of the Purchaser, the Company would
have to redeem the Series B at a price of 105% of the offering price, subject to
certain adjustments, plus accrued and unpaid dividends. The redemption value at
December 31, 1997 and 1998 was $5,337,000.

(9)   STOCKHOLDERS' EQUITY

 Preferred Stock

  As of December 31, 1998 and 1997, the Company has authorized 5,000,000 shares
of preferred stock at $.01 par value of which 1,452,119 shares of Series B are
issued and outstanding (see Note 8), and 200,000 shares have been designated
Series A Junior Participating Preferred Stock pursuant to a certificate of
designation filed with the State of Delaware on May 12, 1997, of which no shares
are issued and outstanding. The terms and conditions of any other series of
preferred stock, including any preferences and dividends, will not be
established until such time, if ever, as such shares are in fact issued by the
Company.


 Common Stock

  As of December 31, 1998 and 1997, the Company has authorized 20,000,000 shares
of common stock at $.01 par value. Common stock is entitled to dividends if
declared by the Board of Directors, and each share carries one vote.


 Warrants

  In connection with the Company's initial public offering, the Company sold to
the IPO Representative (at an aggregate price of $85), warrants to purchase up
to 85,000 IPO Units at an exercise price of $7.98 per IPO Unit at any time
during the four-year period commencing March 31, 1994. Each IPO Unit consisted
of one share of common stock and one redeemable common stock purchase warrant,
which entitled the holder to purchase one share of common stock at a price of
$6.75. No IPO Units were exercised prior to their expiring on March 31, 1998.
<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  In connection with the Company's private placement of Bridge Notes, the
Company issued 110,000 Class A Warrants. Each Class A Warrant entitles the
holder to purchase one share of common stock at a price of $6.00 and is
exercisable at any time through March 25, 1999. During 1995, 25,000 Class A
Warrants were exercised providing the Company with net proceeds of $150,000.

  In connection with the Company's second public offering, the Company issued
2,472,500 redeemable common stock purchase warrants ("Z Warrant"). Each Z
Warrant entitles the holder to purchase one share of common stock at a price of
$6.00 and terminates on August 25, 1999, unless previously redeemed. The Z
Warrants are redeemable at the option of the Company at a price of $.05 per
warrant, upon 30 days written notice, provided that the closing price of the
common stock exceeds $9.50 for a period of 20 consecutive business days. During
fiscal 1995, 300 Z Warrants were exercised providing the Company with $1,800 in
proceeds. During the year ended December 31, 1996, 100 Z Warrants were exercised
providing the Company with $600 in proceeds.

  In connection with the Company's second public offering, the Company sold to
its underwriter and a finder, 215,000 Unit Purchase Options ("UPOs") at a
price of $.001 per UPO. Each UPO consists of one share of common stock and one
redeemable common stock purchase warrant, which entitles the holder to purchase
one share of common stock at a price of $7.20. The UPOs are exercisable for a
period of four years commencing August 25, 1995, at a price of $9.90. No UPOs
have been exercised.

  In connection with its third public offering in 1996, the Company sold to its
underwriter warrants to purchase an aggregate of 170,000 shares of the Company's
common stock at $8.45. No underwriter warrants have been exercised.

  In connection with the Company issuing 1,452,119 shares of Series B
Convertible Preferred Stock , Class I and Class II Warrants were issued to an
outside investor (the "Purchaser"). The Class I (Mirror) Warrants entitle the
Purchaser to purchase an amount of shares of the Company's Common Stock equal to
an aggregate of up to 19.9% of the shares of Common Stock purchasable under the
Company's outstanding warrants and options on the same terms and conditions of
existing warrant and option holders. The Purchaser is obligated to exercise
these warrants at the same time the options and warrants of existing holders are
exercised, subject to certain limitations. The Class II Warrants entitle the
Purchaser to purchase an aggregate of 290,424 shares of the Company's Common
Stock at an exercise price of $7.00 for a term of five years. No Class I or
Class II Warrants have been exercised.


 Treasury Stock

  From time to time, the Company's Board of Directors has authorized the
repurchase of shares of the Company's common stock in the open market. During
the year ended December 31, 1997, the Company repurchased 30,600 shares of
common stock at a cost of $137,000. There were no repurchases of shares of
common stock during the year ended December 31, 1998.


 Stock Option Plan

  On November 30, 1992, the Company's Board of Directors and the stockholders
approved the Company's 1992 Employee, Director and Consultant Stock Option Plan
(the "Plan"). On April 26, 1994, the Board of Directors and the stockholders
approved an increase in shares of common stock reserved for issuance under the
Plan to an aggregate of 1,000,000 shares. In March 1996, the Board recommended
and the stockholders subsequently approved, that an additional 500,000 shares of
common stock be reserved for issuance under the Plan. In December 1998, the
Board recommended that an additional 350,000 shares of common stock be reserved
for issuance under the Plan. Such proposal will be submitted to the stockholders
at the 1999 Annual Meeting.
<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Under the Plan, incentive stock options may be granted to employees of the
Company. Non-qualified stock options may be granted to consultants, directors,
employees or officers of the Company. Most options vest after two or three years
from date of grant with a maximum term of ten years.

  The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan and as a result no compensation expense has been
recorded for granted options. Had compensation costs been determined consistent
with FASB Statement No. 123, the Company's net loss and loss per share would
have been as follows:

<TABLE>
<CAPTION>
                                             1998         1997         1996
                                             ----         ----         ----
                                      (in thousands except for per share data)
<S>                     <C>           <C>            <C>          <C>
Net loss  ............  as reported        $  (985)     $(2,004)     $(5,850)
                                           =======      =======      =======
                        pro forma          $(1,863)     $(2,370)     $(6,308)
                                           =======      =======      =======
Net loss per share ...  as reported        $ (0.11)     $ (0.46)     $ (0.78)
                                           =======      =======      =======
                        pro forma          $ (0.21)     $ (0.50)     $ (0.84)
                                           =======      =======      =======
</TABLE>
==
  The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants as follows:

<TABLE>
<CAPTION>
                            1998          1997          1996
                            ----          ----          ----
<S>                 <C>            <C>           <C>
Dividend Yield  ...         0.00%         0.00%         0.00%
Volatility  .......         91.1%         93.9%         63.9%
Interest Rate .....         5.50%         5.73%         6.41%
Expected Life  ....   8.12 years    7.97 years    6.00 years
</TABLE>

  A summary of the stock option transactions follows:

<TABLE>
<CAPTION>
                                                      Number of
                                                      ---------
                                       Shares       Shares Under     Weighted Average
                                       ------       ------------     ----------------
                                      Available        Option        Price per Share
                                      ---------        ------        ---------------
<S>                                  <C>           <C>               <C>
Balance, December 31, 1995  .....     336,767         661,133             $4.80
Increase in Plan  ...............     500,000              --                --
Canceled  .......................      42,600         (42,600)             5.16
Granted  ........................    (225,400)        225,400              6.46
Exercised  ......................          --         (20,700)             4.39
                                     --------       ---------             -----
Balance, December 31, 1996  .....     653,967         823,233              5.25
Canceled  .......................     154,600        (154,600)             4.67
Granted  ........................    (298,395)        298,395              4.13
Exercised  ......................          --        (138,332)             4.29
                                     --------       ---------             -----
Balance, December 31, 1997  .....     510,172         828,696              5.11
Canceled  .......................     217,666        (217,666)             5.08
Granted  ........................    (613,999)        613,999              3.43
Exercised  ......................          --         (20,000)             0.43
                                     --------       ---------             -----
Balance, December 31, 1998  .....     113,839       1,205,029             $4.15
                                     ========       =========             =====
</TABLE>
  There were 557,200 and 405,561 shares exercisable under the Plan at
December 31, 1998 and 1997, respectively.
<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  The weighted average fair value of options granted under the Plan was $2.90
and $3.53 for the years ended December 31, 1998 and 1997, respectively.

  The following table summarizes information about options outstanding as of
December 31, 1998:

<TABLE>
<CAPTION>
                               Options Outstanding                 Options Exercisable
                     --------------------------------------     ------------------------
                                     Weighted
                                     --------
                                      Average      Weighted       Number        Weighted
                                      -------      --------       ------        --------
    Range of           Number        Remaining      Average     Exercisable      Average
    --------           ------       ----------      -------     -----------      -------
    Exercise         Outstanding    Contractual    Exercise         at          Exercise
    --------         -----------    -----------    --------         --          --------
     Prices          at 12/31/98        Life         Price       12/31/98        Price
     ------          -----------        ----         -----       --------        -----
<S>                 <C>            <C>            <C>          <C>             <C>
$0.00-$0.95  ......     15,000           3.9         $0.43        15,000         $0.43
$1.90-$2.85  ......     97,000           9.9         $2.00             0         $0.00
$2.85-$3.80  ......    224,999           9.3         $3.28        45,001         $3.53
$3.80-$4.75  ......    632,630           7.8         $4.12       300,800         $4.23
$4.75-$5.70  ......     54,900           5.9         $5.00        54,900         $5.00
$5.70-$6.65  ......    125,500           7.1         $6.43        88,833         $6.39
$6.65-$7.60  ......     52,000           6.5         $6.82        49,666         $6.83
$7.60-$8.55  ......      3,000           6.9         $7.81         3,000         $7.81
                     ---------                                  --------
                     1,205,029                                   557,200
                     =========                                  ========
</TABLE>

(10)   INCOME TAXES

  Income tax benefit attributable to loss from operations differed from the
amounts computed by applying the U.S. federal income tax rate of 34 percent as a
result of the following:

<TABLE>
<CAPTION>
                                                                               Years Ended December 31
                                                                              -------------------------
                                                                              1998      1997       1996
                                                                              ----      ----       ----
                                                                                    (in thousands)
<S>                                                                        <C>         <C>       <C>
Computed "expected" tax benefit  .........................................   $ 305     $ 680     $ 1,989
Increase in tax benefit resulting from:
  State net operating loss and State tax deductions  .....................     137       111         338
Decrease in tax benefit resulting from:
  Other  .................................................................    (104)      (78)         (7)
  Increase in valuation allowance for deferred tax assets allocated to
    income tax expense  ..................................................    (408)     (738)     (2,345)
                                                                              -----    -----     -------
                                                                             $ (70)    $ (25)    $   (25)
                                                                             =====     =====     =======
</TABLE>
<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset are presented below:

<TABLE>
<CAPTION>
                                                         Years Ended
                                                         -----------
                                                         DECEMBER 31
                                                         -----------
                                                      1998         1997
                                                      ----         ----
                                                       (in thousands)
<S>                                               <C>          <C>
Deferred tax assets:
  Net operating loss carryforwards  .............  $ 7,513      $ 7,001
  Plant and equipment  ..........................      720          819
  Vacation accrual  .............................      201          181
  Bad debt reserve  .............................      259          107
  Other reserves  ...............................      117          761
                                                   -------      -------
     Gross deferred tax assets  .................    8,810        8,869
  Valuation allowance under SFAS 109  ...........   (8,810)      (8,869)
                                                   -------      -------
     Net deferred tax assets  ...................       --           --
                                                   =======      =======
</TABLE>

  A valuation allowance in the amount of $8,810,000 and $8,869,000 was
established at December 31, 1998 and 1997, respectively. This allowance has been
established due to the uncertainty of the Company to benefit from the federal
and state operating loss carryforwards.

  Subsequently recognized tax benefit relating to the valuation allowance for
deferred tax assets will be allocated as follows:

<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                                                     -----------
                                                                                     DECEMBER 31
                                                                                     -----------
                                                                                   1998      1997
                                                                                   ----      ----
<S>                                                                              <C>       <C>
                                                                                  (in thousands)
Income tax benefit that would be reported in the statement of operations  ....    $8,171    $7,763
Charge to goodwill for recognition of acquired tax assets  ...................       639     1,106
                                                                                  ------    ------
                                                                                  $8,810    $8,869
                                                                                  ======    ======
</TABLE>

  The net operating loss carryforwards ("NOLs") for federal and state tax
purposes at December 31, 1998 are approximately $18,901,000 and $17,328,000
respectively and expire through 2018 and 2003, respectively.
<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



(11)   SUPPLEMENTARY CASH FLOW INFORMATION

  The following represents supplementary cash flow information:

<TABLE>
<CAPTION>
                                                              Years Ended December 31
                                                              -----------------------
                                                         1998        1997         1996
                                                         ----        ----         ----
                                                                   (in thousands)
<S>                                                    <C>          <C>
Interest paid  ......................................   $   222      $   343      $   223
Non-cash financing activities:
Equity issued associated with
  Credit Agreement   ................................        --          180           --
Acquisitions:
Assets acquired  ....................................     3,949        5,623       10,266
Net liabilities assumed  ............................    (1,247)      (3,548)      (2,533)
Notes payable  ......................................      (350)          --       (1,400)
Common stock issued  ................................        (1)          --       (1,901)
Common stock issuable  ..............................        --           --         (432)
                                                        -------      -------      -------
Cash paid  ..........................................     2,351        2,075        4,000
Less cash acquired  .................................      (150)          --       (1,146)
                                                        -------      -------      -------
Net cash paid for acquisition  ......................   $ 2,201      $ 2,075      $ 2,854
                                                        =======      =======      =======
</TABLE>


(12)   RELATED PARTY TRANSACTIONS

  In connection with the exercise of stock options during 1997, the Company's
former Executive Vice President and Director (the "Borrower") issued a
promissory note (the "Promissory Note") to the Company for $594,000. The
Promissory Note is due the earlier of September 2, 2007 or the date upon which
the Borrower receives the proceeds of the sale of not less than 20,000 shares of
the shares acquired by the exercise of the stock options. Interest accrues at
the rate of 6.55%, compounding annually, and is payable on the earlier of the
maturity date of the Promissory Note or upon certain defined Events of Default.
The Borrower may prepay all or any part of the Note without penalty or premium.

<PAGE>

                          SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



(13)   OPERATING SEGMENT AND RELATED INFORMATION

  The following table presents certain operating segment information.

<TABLE>
<CAPTION>
                                                                  Laser Vision                             Consolidated
                                            Eye Care Centers    ------------------                      --------------------
                                          --------------------      Correction          All Other             Totals
                                                                ------------------  ------------------  --------------------
                                            1998       1997       1998      1997      1998      1997      1998       1997
                                            ----       ----       ----      ----      ----      ----      ----       ----
                                                                           (in thousands)
<S>                                      <C>         <C>        <C>       <C>      <C>       <C>        <C>        <C>
Revenues:
 External customers  ...................   $53,100    $42,510    $1,871    $2,066   $    --   $    --    $54,971    $44,576
Interest:
 Interest revenue  .....................         1         20        --        --       183       340        184        360
 Interest expense  .....................       (98)       (54)      (34)       --       (69)     (290)      (201)      (344)
                                           -------    -------    ------    ------   -------   -------    -------    -------
  Net interest revenue (expense)  ......       (97)       (34)      (34)       --       114        50        (17)        16
Depreciation and amortization  .........     2,426      1,971       113       164        57        48      2,596      2,183
Profit (loss) from operations  .........     1,423       (122)      253       (97)   (2,732)   (2,514)    (1,056)    (2,733)
Identifiable assets  ...................    28,644     26,700       587       624     2,914     7,183     32,145     34,507
Capital expenditures  ..................     1,316      1,808       296       140        --        --      1,612      1,948
</TABLE>

  Each operating segment is individually managed and has separate financial
results that are reviewed by the Company's chief operating decision-makers. Each
segment contains closely related products that are unique to the particular
segment.

  The principal products of the Company's eye care centers are eyeglasses,
frames, ophthalmic lenses and contact lenses. The Company also operates two
laser vision correction centers.

  Profit from operations is net sales less cost of sales and selling, general
and administrative expenses, but is not affected by nonoperating charges/income
or by income taxes.

  Nonoperating charges/income consists principally of net interest expense.

  In calculating profit from operations for individual operating segments,
certain administrative expenses incurred at the operating level that are common
to more than one segment are not allocated on a net sales basis.

  All intercompany transactions have been eliminated, and intersegment revenues
are not significant.


(14)   SUBSEQUENT EVENTS

  Effective January 1, 1999, the Company acquired one hundred percent of the
outstanding shares of stock of Shawnee Optical, Inc. ("Shawnee Optical"). The
purchase price paid in connection with this acquisition was $1,750,000 in cash,
the payment of notes payable in the aggregate amount of $300,000 and 70,000
shares of common stock. The related estimated goodwill is expected to be
approximately $2,155,000. Shawnee Optical operated nine eye care centers in Ohio
and western Pennsylvania. The acquisition was accounted for using the purchase
method of accounting.
<PAGE>

                           SIGHT RESOURCE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



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

  None.


                                    PART III

Item 10.   DIRECTORS AND OFFICERS OF THE REGISTRANT

  The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Management" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders.


ITEM 11.   EXECUTIVE COMPENSATION

  The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation" in the Company's
Proxy Statement for the 1999 Annual Meeting of Stockholders.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Share Ownership" in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Certain Transactions" in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders.


                                    PART IV

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


Item 14(a)(1).   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COVERED BY REPORT OF
INDEPENDENT AUDITORS

  The Consolidated Financial Statements of Sight Resource Corporation are
included in Item 8:

  --  Independent Auditors' Report

  --  Consolidated Balance Sheets as of December 31, 1998 and 1997

  --  Consolidated Statements of Operations for the Years Ended December 31,
      1998, 1997 and 1996

  --  Consolidated Statements of Stockholders' Equity for the Years Ended
      December 31, 1998, 1997 and 1996

  --  Consolidated Statements of Cash Flows for the Years Ended December 31,
      1998, 1997 and 1996

  --  Notes to Consolidated Financial Statements


ITEM 14(A)(2).   INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
 Sight Resource Corporation:

  Under date of March 19, 1999, we reported on the consolidated balance sheets
of Sight Resource Corporation and its subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998, which are included in the 10-K. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule in the 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.

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


                                  /s/   KPMG Peat Marwick LLP

                                  KPMG Peat Marwick LLP

Boston, Massachusetts
March 19, 1999
<PAGE>

                          SIGHT RESOURCE CORPORATION

                SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                            (dollars in thousands)


                 FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                            Additions (Deductions)
                                                                            ----------------------
                                                              Balance         Charged
                                                              -------         -------
                                                                 at         (Credited) to                             Balance at
                                                             ----------     -------------                             ----------
                                                             Beginning       Costs and                                  End of
                                                             ----------      ---------                                  ------
                        Description                           of year        Expenses                   Other Net       Period
-----------------------------------------------------------  ----------     -----------                 ---------       -------
<S>                                                          <C>            <C>                        <C>        <C>
Valuation and qualifying accounts deducted from assets:
Allowances for accounts receivable  .......................   $  478           $  215                       $55        $  748
Valuation allowance for deferred tax assets  ..............    8,869              (59)                       --         8,810
</TABLE>


                 FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                            Additions (Deductions)
                                                                            ----------------------
                                                              Balance         Charged
                                                              -------         -------
                                                                 at         (Credited) to                             Balance at
                                                             ----------     -------------                             ----------
                                                             Beginning       Costs and                                  End of
                                                             ----------      ---------                                  ------
                        Description                           of year        Expenses                   Other Net       Period
-----------------------------------------------------------  ----------     -----------                 ---------       -------
<S>                                                          <C>            <C>                        <C>        <C>
Valuation and qualifying accounts deducted from assets:
Allowances for accounts receivable  .......................   $  353           $   97                       $28        $  478
Valuation allowance for deferred tax assets  ..............    7,600            1,269                        --         8,869
</TABLE>


                 FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                            Additions (Deductions)
                                                                            ----------------------
                                                              Balance         Charged
                                                              -------         -------
                                                                 at         (Credited) to                             Balance at
                                                             ----------     -------------                             ----------
                                                             Beginning       Costs and                                  End of
                                                             ----------      ---------                                  ------
                        Description                           of year        Expenses                   Other Net       Period
-----------------------------------------------------------  ----------     -----------                 ---------       -------
<S>                                                          <C>            <C>                        <C>        <C>
Valuation and qualifying accounts deducted from assets:
Allowances for accounts receivable  .......................   $  277           $   16                       $60        $  353
Valuation allowance for deferred tax assets  ..............    4,591            3,009                        --         7,600
</TABLE>
<PAGE>

ITEM 14(a)(3)   EXHIBITS

  The exhibits listed on the Exhibit Index below are filed or incorporated by
reference as part of this report and such Exhibit Index is hereby incorporated
herein by reference.


                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
-------
Number                                                    Description
------       ------------------------------------------------------------------------------------------------------
<S>          <C>
(3.1)        Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 of the
             Company's Registration Statement filed with the Securities and Exchange Commission on Form SB-2
             File No. 33-56668)

(3.2)*       By-Laws of the Company, as amended

(3.3)        Certificate of Designation for Series A Junior Participating Preferred Stock (incorporated herein by
             reference to Exhibit 1 of the Company's Report on Form 8-K filed with the Securities and Exchange
             Commission on May 13, 1997)

(3.4)        Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock
             (incorporated herein by reference to Exhibit 4.1 of the Company's Report on Form 8-K filed with the
             Securities and Exchange Commission on December 9, 1997)

(4.1)        Article 4 of the Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 of the
             Company's Registration Statement filed with the Securities and Exchange Commission on Form SB-2
             File No. 33-56668)

(4.2)        Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.2 of the Company's
             Registration Statement filed with the Securities and Exchange Commission on Form SB-2 File No.
             33-56668)

(4.3)        Warrant Agreement dated August 24, 1994 between the Registrant and American Stock Transfer and
             Trust Company (incorporated herein by reference to Exhibit 4.5 of the Company's Registration
             Statement filed with the Securities and Exchange Commission on Form S-1 File No. 33-77030)

(4.4)        Form of Redeemable Warrant Certificate (included in 4.3 above)

(4.5)        Form of Class A Warrant (incorporated herein by reference to the Company's Form 10-K for the year
             ended December 31, 1994 filed with the Securities and Exchange Commission as Exhibit 4.7)

(4.6)        Form of Class 1 (Mirror) Warrants (incorporated herein by reference to Exhibit 4.2 of the Company's
             Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 1997)

(4.7)        Form of Class II Warrants (incorporated herein by reference to Exhibit 4.3 of the Company's Report
             on Form 8-K filed with the Securities and Exchange Commission on December 9, 1997)

(10.1)/1/    Employment Agreement, dated as of December 1, 1992, between the Registrant and William G.
             McLendon, as amended (incorporated by reference herein to Exhibit 10.5 of the Company's
             Registration Statement filed with the Securities and Exchange Commission on Form S-1 File No. 33-
             77030)

(10.2)/1/*    1992 Employee, Director and Consultant Stock Option Plan, as amended

(10.3)/1/    Employment Agreement for Stephen M. Blinn, as amended (incorporated by reference herein to
             Exhibit 10.18 of the Company's Registration Statement filed with the Securities and Exchange
             Commission on Form S-1 File No. 33-77030)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Exhibit
-------
Number                                                    Description
------       ------------------------------------------------------------------------------------------------------
<S>          <C>
(10.4)/1/    Employment Agreement, dated as of February 24, 1995, between the Registrant and Elliot S.
             Weinstock, O.D. (incorporated herein by reference to the Company's Form 10-K for the year ended
             December 31, 1994 filed with the Securities and Exchange Commission as Exhibit 10.9)

(10.5)/1/    Amendment Number 1 to Employment Agreement, dated as of January 2, 1997, between the
             Registrant and Elliot S. Weinstock, O.D. (incorporated herein by reference to Exhibit 10.1 of the
             Company's Form 10-Q filed with the Securities and Exchange Commission on May 6, 1997)

(10.6)/1/*   Employment Agreement, dated as of January 26, 1998, between the Registrant and William T.
             Sullivan

(10.7)/1/*   Amendment No. 1 to Employment Agreement, dated as of December 4, 1998, between the
             Registrant and William T. Sullivan

(10.8)/1/    Letter Agreement, dated as of July 27, 1998, between the Registrant and William G. McLendon
             (incorporated herein by reference to Exhibit 10b of the Company's Report on Form 10-Q filed with
             the Securities and Exchange Commission on November 12, 1998)

(10.9)/1/    Letter Agreement, dated as of August 3, 1998, between the Registrant and Stephen M. Blinn
             (incorporated herein by reference to Exhibit 10c of the Company's Report on Form 10-Q filed with
             the Securities and Exchange Commission on November 12, 1998)

(10.10)/1/   Employment Agreement, dated as of August 17, 1998, between the Registrant and James W. Norton
             (incorporated herein by reference to Exhibit 10a of the Company's Report on Form 10-Q filed with
             the Securities and Exchange Commission on November 12, 1998)

(10.11)*     Form of Management Agreement between certain of the Registrant's subsidiaries and their related
             optometric professional corporations

(10.12)*     Form of Stock Restrictions and Pledge Agreement between certain of the Registrant's subsidiaries,
             their related optometric professional corporations and the nominee shareholders.

(10.13)      Asset Purchase Agreement dated February 24, 1995 between the Registrant, CEA Acquisition
             Corporation, Cambridge Eye Associates, Inc. and Elliot S. Weinstock, O.D. (incorporated herein by
             reference to Exhibit 2.1 of the Company's Form 8-K filed with the Securities and Exchange
             Commission on March 8, 1995)

(10.14)      Credit Agreement, dated February 20, 1997, between the Company and Creditanstalt Corporate
             Finance Corporation, Inc. (incorporated herein by reference to Exhibit 10.1 of the Company's
             Form 8-K filed with the Securities Exchange Commission on March 7, 1997)

(10.15)      Asset Purchase Agreement dated August 24, 1995 between the Registrant, Douglas Vision World, Inc.,
             S.J. Haronian, Kathleen Haronian, Lynn Haronian, Shirley Santoro and Tri-State Leasing Company
             (incorporated herein by reference to Exhibit 2.1 of the Company's Form 8-K filed with the Securities
             and Exchange Commission on September 8, 1995)

(10.16)      Asset Transfer and Merger Agreement dated as of July 1, 1996 by and among Sight Resource Corporation,
             E.B. Acquisition Corp., The E.B. Brown Optical Company, Brown Optical Laboratories, Inc., E.B. Brown
             Opticians, Inc., Gordon Safran and Evelyn Safran (incorporated herein by reference to Exhibit 2.1 of
             the Company's Form 8-K filed with the Securities and Exchange Commission on October 3, 1996.)

(10.17)      Form of Rights Agreement dated as of May 15, 1997 between the Company and American Stock
             Transfer & Trust Company (incorporated herein by reference to Exhibit 1 of the Company's Form 8-K
             filed with the Securities and Exchange Commission on May 13, 1997)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
-------
Number                                                    Description
------       ------------------------------------------------------------------------------------------------------
<S>          <C>
(10.18)      Stock Purchase Agreement dated as of July 1, 1997 by and among Marjory O. Greenberg, As
             Testamentary Executrix of the Succession of Tom I. Greenberg, Peter Brown, and Vision Plaza Corp.
             (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q filed with the
             Securities and Exchange Commission on November 12, 1997)

(10.19)      Promissory Note dated as of September 2, 1997 between Sight Resource Corporation and Mr.
             Stephen Blinn (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q filed
             with the Securities and Exchange Commission on November 12, 1997)

(10.20)      Series B Convertible Preferred Stock Agreement (incorporated herein by reference to Exhibit 10.1 of
             the Company's Form 8-K filed with the Securities and Exchange Commission on December 9, 1997)

(21)*        Subsidiaries of the Company

(27)*        Financial Data Schedule
</TABLE>

----------------
* Previously filed with the Commission on March 31, 1999.

/1/    Management contract or compensatory plan, contract or arrangement.


ITEM 14(b)   REPORTS ON FORM 8-K

  No reports on Form 8-K were filed during the quarter ended December 31, 1998.
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Holliston,
Massachusetts on August 26, 1999.


                                  Sight Resource Corporation


                                  By: /s/ William T. Sullivan
                                      -------------------------
                                      WILLIAM T. SULLIVAN
                                      President and Chief Executive Officer