U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  FORM 10 - KSB

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

                   For the fiscal year ended December 31, 1999

                         Commission File Number 0-27561

                                EYECITY.COM, INC.
                 (Name of Small Business Issuer in Its Charter)

              DELAWARE                                      11-3327465
  (State or Other Jurisdiction of                        (I.R.S. Employer
   Incorporation or Organization)                       Identification No.)

                  79 Express Street, Plainview, New York 11803
                    (Address of Principal Executive Offices)

                                 (516) 822-5000
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock
$.001 par value per share

      Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
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-B 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-KSB or any amendment to
this Form 10-KSB. |X|

Issuer's revenues for the fiscal year ended December 31, 1999: $2,633,000.

The approximate aggregate market value of shares of Common Stock held by
non-affiliates of the registrant was approximately $16,765,000 as of March 24,
2000.

The number of shares of Common Stock outstanding was 10,604,181 as of March 24,
2000.

Transitional Small Business Disclosure Format. Yes |_|  No |X|

                       DOCUMENTS INCORPORATED BY REFERENCE

The registrant's Proxy Statement for its 2000 annual meeting of stockholders is
hereby incorporated by reference into Part III of this Form 10-KSB.

<PAGE>

                                     PART I

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This report contains certain forward looking statements, which may involve known
and unknown material risks, uncertainties and other factors not under EyeCity's
control including without limitation its ability to operate as a going concern,
the need for additional financing, the impact of competition, the management of
growth, compliance with applicable regulatory requirements, EyeCity's ability to
implement its long term business plan for acquiring complementary businesses and
EyeCity's ability to enter into agreements with marketing or distribution
partners, which may cause actual results, performance and achievements of
EyeCity to be materially different from EyeCity's expectations.
--------------------------------------------------------------------------------

ITEM 1. DESCRIPTION OF BUSINESS

General

      EyeCity.com, Inc. ("EyeCity") is engaged in the marketing, distribution
and retail sale over the Internet of a broad range of eyewear products and
optical accessories, including brand name sunglasses, contact lenses,
binoculars, prescription eyewear, telescopes, sports and lifestyle eyewear and
hunting glasses. The United States optical product market is estimated at $15.8
billion for 1998. EyeCity has effected an acquisition strategy within the highly
fragmented Internet optical industry, and in 1999 closed on the acquisition of
three companies retailing optical products over the Internet. EyeCity believes
that its acquired websites, including Peepers.com, EyeGlassPlace.com,
OpticalSite.com, SunglassSite.com and Abeam.com offer the largest online
selection of brand name sunglasses.

      Through this strategy, as well as internal expansion, EyeCity intends to
become the leading e-commerce retailer of eyewear and optical accessories and
related content on the Internet, providing one-stop shopping for domestic and
international customers in an easy-to-shop environment, 24 hours a day, seven
days a week. EyeCity intends to acquire additional complementary businesses as
opportunities arise from time to time.

      In addition, EyeCity recently announced that it intends to offer later
this year turnkey business-to-business-to-consumer ("B2B2C") e-commerce store
design and fulfillment services to professional eye care providers including
ophthalmologists, optometrists, and opticians who want to create their own
customized online stores, providing full e-commerce capabilities for their
patients and customers. Subject to obtaining appropriate financing, EyeCity
plans to provide the tools and systems necessary for eye care providers to
function in the e-commerce markets, including, merchandise selection and
sourcing, storefront creation, hosting, advertising, customer service, credit
card processing and fulfillment services.

      EyeCity's B2B2C e-commerce model is intended to help such eye care
providers retain customer relationships and increase sales. Unlike traditional
affiliate programs that refer customers to other web sites to shop, Eye-City's
B2B2C program is intended to enable eye care providers to drive traffic to their
own stores, thereby building loyalty and repeat sales. With EyeCity's e-commerce
service, such eye care providers will be able to customize their online store to
the unique interests of their audience. Products offered for sale would be
available through EyeCity's extensive database, with transaction processing that
creates a single unified shopping experience that is seamless to the customer.

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      EyeCity coordinates and processes order fulfillment and customer service
for all of its websites through EyeCity's centralized Minnesota distribution
facility. We believe optical product retailing is well positioned to benefit
from the attractive cost structures of online retail operations. While
traditional store-based optical retailers must make significant investments in
inventory, real estate and personnel for each store location, online retailers
such as EyeCity incur significantly lower related costs. Additionally,
traditional retailers are constrained in the amount of inventory they can carry
at each store and are therefore required to focus on a smaller selection.
However, online retailers such as EyeCity can offer consumers a broader range of
product offerings without having to incur as significant an investment in
inventory because on line retailers do not need to fill store shelves with
merchandise, which can lead to overstocking and can result in slower inventory
turn and strains on cash flow.

      EyeCity is in the process of designing and constructing its Internet
SuperSite, which will complement EyeCity's family of existing e-commerce web
sites. Each site targets various eyewear consumer niche markets. The new site,
www.eyecity.com, is anticipated to be launched in April 2000. In the short term,
the SuperSite will offer consumers one of the broadest online selections of
brand-name sunglasses, contact lenses, prescription eyewear and optical
products, as well as an extensive selection of lifestyle eyewear for golfing,
fishing and extreme sports and informative content relating to eyecare and
optical fashion and health. As part of its long term strategy, EyeCity also
intends to expand its online prescription lenses fulfillment service and,
subject to identifying and obtaining rights to the appropriate technology, may
in the future offer innovative "Try It On" technology, which mirrors the
in-store browsing experience by allowing consumers to choose the eyeglasses best
suited to the shape of their face. EyeCity expects to generate online traffic to
its SuperSite primarily by establishing strategic partnerships with traditional
optical companies and with major online retailers of non-optical merchandise and
by enhancing and expanding its existing portal relationships with heavily
trafficked online portals and search engines.

      In addition, in September 1999 EyeCity acquired a non-exclusive three-year
license from Yahoo! Inc. to use the "Yahoo!" name and logo for the distribution
and marketing of eyewear and eyewear accessories throughout the United States.
Contemporaneously with this transaction, EyeCity entered into a distributor
agreement with Sun Optics d/b/a Insight Eyeworks, Inc. under which Insight will
manufacture, market and distribute the Yahoo! eyewear and eyewear accessories in
traditional retail channels in the United States other than through the Internet
and other e-commerce channels.

      The SuperSite will also carry EyeCity's patented EyeTools computer
eyeglasses, which were developed to relieve Computer Vision Syndrome ("CVS"), a
potentially debilitating condition that results in headaches, blurred vision and
eyestrain often associated with CVS. EyeTools computer eyeglasses feature a
patented lens technology that enables the computer user to focus more clearly by
minimizing glare and equalizing all sources of ambient lighting, such as from
windows and overhead sources.

      From EyeCity's inception through December 1998, EyeCity's business
strategy was to become a leading producer, distributor and marketer of ergonomic
computer eyewear products designed to alleviate health-related problems
associated with CVS. In January 1999, EyeCity refocused its business strategy to
capitalize on the internet retailing opportunities associated with the optical
product industry. In this regard, in 1999 EyeCity acquired Eye Glass Place.com,
Inc., Peeper's Sunglasses and Accessories, Inc. and SunSource Technology, Inc.
See Note 6 of

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"Notes to Consolidated Financial Statements" for additional information
regarding these acquisitions.

      EyeCity was incorporated in May 1996 in New York under the name
Ergovision, Inc., and reincorporated in Delaware in April 1997 under the name
Ergovision, Inc. In May 1999, Ergovision, Inc. changed its name to EyeCity.com,
Inc. EyeCity's principal executive offices are located at 79 Express Street,
Plainview, New York 11803, and its telephone number is 516-822-5000.

Optical Industry Overview

      General. EyeCity believes that a substantial opportunity exists for
expanding retail sales of optical products on the Internet. The United States
optical industry serves approximately 161 million Americans with refractive
needs, approximately 101 million of whom made eyewear-related purchases within
the last year. According to the Jobson Optical Group Data Base ("Jobson"), U.S.
retail eyewear sales were approximately $15.4 billion in 1997, representing a
5.5% increase over the $14.6 billion that was spent in 1996, which 1996 sales
reflected a 5.5% increase over 1995. According to Jobson, U.S. retail sales of
optical products increased to approximately $15.8 billion in 1998, representing
a 2.6% increase over 1997.

      EyeCity believes that current demographic trends, technological
innovation, medical advances and relatively attractive profit margins are
fueling the optical industry's growth. EyeCity believes that as the United
States population ages and grows in size, the demand for vision correction and
eyewear products will increase. Moreover, EyeCity believes that advances in
optical technology will spur consumer interest in high-performance optical
products.

      Sunglasses. According to Jobson, United States retail sunglass sales were
approximately $3 billion in 1997, an increase of 2% and 10% over 1996 and 1995,
respectively.

      EyeCity believes that growth in sunglass sales has been primarily driven
by:

      o     Enhanced Fashion Lines by well-known fashion designers who have
            added sunglass lines and promoted sunglasses as a key fashion
            accessory;

      o     Heightened Health Concerns due to awareness of the harmful effects
            of ultraviolet light and the further depletion of the Earth's ozone
            layer, causing consumers to seek additional eye protection;

      o     Increased Variety of Specialized Sunglass Products to serve growing
            consumer demand for specially designed sunglasses for a variety of
            sports and activities; and

      o     Continuous Product Replacement by consumers who must continually
            replace lost, stolen or broken sunglasses.

      Contact Lenses. According to Jobson, in 1998 there were approximately 33
million contact lens wearers in the United States, generating domestic sales of
approximately $2.2 billion. Contact lenses have become a convenient, cost
effective alternative to eyeglasses and the number of contact lens wearers is
expected to increase as technology further improves the convenience, comfort and
fit of contact lenses. Growth in this market is due largely to the shift

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away from traditional soft lenses, which generally are replaced on an annual
basis, to disposable lenses, which are replaced on a daily, weekly, or bi-weekly
basis.

      Traditionally, contact lenses were almost exclusively sold to consumers by
eyecare practitioners, including ophthalmologists and optometrists. Eyecare
practitioners would typically supply a patient with his or her initial pair of
contact lenses in connection with providing the patient an eye examination and
all replacement lenses, regardless of whether the patient was given or required
another eye examination. Because the initial fitting of contact lenses requires
a prescription written by an eyecare practitioner, the initial sale of contact
lenses still takes place primarily in this manner.

      Over the last decade, however, a number of alternative sellers of
replacement contact lenses have emerged, including direct marketers. Purchasing
replacement contact lenses from a direct marketer offers the convenience of
shopping at home, rapid home delivery, quick and easy telephone or Internet
ordering and competitive pricing. In addition, the growth in popularity of
disposable contact lenses, which require patients to purchase replacement lenses
more frequently, has contributed to the growth of the direct marketing channel.

      Prescription Eyeglasses. The prescription eyeglass industry is highly
fragmented. In the last decade, general merchandise chains - both large discount
stores and warehouse clubs such as Wal-Mart, Price Club/Costco and Sam's
Distributors - entered the optical industry. EyeCity believes the increase in
market share of the warehouse club segment has caused both the superstore and
non-superstore chains to experience lower margins. Some chains have downsized
physically - the superstores of the late 1980's (those containing a surfacing
laboratory and offering one-hour service) have, in many instances, been replaced
by smaller stores that do not contain a surfacing laboratory to provide such
service. Accordingly, EyeCity believes non-superstore formats, including online
optical retailers, have been gaining market share at the superstores' expense.

      See "Government Regulation" and "Competition" for a discussion of certain
industry practices which may adversely impact the direct marketing of contact
lenses and prescription eyeglasses, including online marketing.

Business Strategy

      EyeCity's business strategy includes the following key elements:

      o     Offer Largest Online Selection of Optical Products and Related
            Merchandise: EyeCity intends to offer consumers one of the broadest
            online selections of optical products including sunglasses, contact
            lenses, prescription eyewear, lifestyle eyewear, reading glasses and
            over-the-counter eyecare pharmaceuticals and related items in an
            interactive and personalized environment.

      o     Offer Turnkey Business-to-Business-to-Consumer Solutions to 3 O's:
            EyeCity intends in the future to offer turnkey
            business-to-business-to-consumer "B2B2C" e-commerce store design and
            fulfillment services to professional eye care providers including
            ophthalmologists, optometrists and opticians. EyeCity's B2B2C
            program is intended to enable eye care providers to drive traffic to
            their own stores, thereby building loyalty and repeat sales.

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      o     Implement E-commerce Expansion through Acquisitions: EyeCity intends
            to continue to seek selective acquisitions of online optical product
            retailers in order to further build market share, broaden its
            product line and to benefit from operating efficiencies and
            economies of scale.

      o     Create Strong Brand Awareness of, and Customer Loyalty Towards, the
            EyeCity.com SuperSite: EyeCity believes that building brand
            awareness of, and strong customer loyalty towards, its SuperSite
            will be critical to attracting and expanding EyeCity's consumer
            base. Subject to obtaining necessary financing, EyeCity intends to
            promote its brand identity through online and traditional media and
            event sponsorships, by providing informative content and by
            establishing strategic relationships with other websites to act as
            their online optical retailer and related content provider. EyeCity
            expects that brand awareness will also be reinforced through
            sub-branding opportunities on its specialty niche websites.

                  In order to foster customer loyalty, EyeCity will strive to
            offer its customers compelling value through innovative use of
            simple and efficient navigation and search technology, broad product
            selection, high-quality content, competitive pricing and
            personalized customer service. EyeCity intends to increase market
            share and encourage customers to make repeat purchases through a
            Frequent Buyer's Club program that will reward customers with points
            that can be used as credits towards future purchases.

      o     Develop Strategic Industry, Website and Portal Alliances: EyeCity
            intends to establish strategic alliances with global optical
            companies and with online retailers of non-optical products to
            attract additional users to, and increase brand awareness of, the
            www.eyecity.com SuperSite. EyeCity also intends to expand and
            enhance its existing relationships with online portals and search
            engines to generate increased online traffic to the SuperSite.

      There can be no assurance that EyeCity will be able to identify, negotiate
or obtain financing for future acquisitions, or to integrate the acquisitions
with its current business, or that the process of integrating an acquired
business, technology, service or product into EyeCity will not result in
unforeseen operating difficulties and expenditures or that the anticipated
benefits of any acquisition will be realized. EyeCity cannot guarantee that its
branding efforts and alliance strategies will be successful.

Products

      EyeCity currently operates the following Web sites, offering the following
products:

      WebSites                               Products
      --------                               --------

      Peepers.com                            Brand name sunglasses

      Eyeglassplace.com                      Brand name sunglasses

      Sunglassite.com                        Brand name sunglasses

      Abeam.com                              Brand name sunglasses

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      Opticalsite.com         Prescription lenses; contact lenses; brand name
                              sunglasses

      Binoculars.com          Binoculars, telescopes, concert glasses, night
                              vision goggles and riflescopes

      Ergovision.com          Computer glasses and eyedrops

      Foggles.com             Sports and lifestyle glasses

      EyeCity's principal merchandising strategy is to distinguish its websites
by offering a larger and more focused selection of optical products than its
competitors. EyeCity currently carries the following merchandise lines:

      o     Sunglasses. EyeCity offers a wide variety of function, sport and
            fashion sunglasses. The term "function" sunglasses generally refers
            to the industry's more traditional and well-recognized brands and
            styles, including Ray-Ban's "Wayfarer" and classic aviator
            sunglasses, as well as the leading Serengeti, Revo and Vuarnet
            lines. In the sports category, EyeCity sells specialized lightweight
            and impact resistant sunglasses for cycling, skiing and a variety of
            other sports and activities. EyeCity also offers a broad selection
            of designer fashion frames for men, women and children.

      o     Prescription Eyeglasses. EyeCity, through its Peepers.com and
            Opticalsite.com websites, offers prescription eyeglasses to online
            consumers in a wide variety of fashion frames.

      o     Recreational Products. EyeCity's Binoculars.com website offers an
            array of brand-name vision enhancing recreational products including
            binoculars, telescopes, concert glasses, night vision goggles and
            riflescopes, as well as specialized eyewear for hunters and aviation
            pilots.

      o     Contact Lenses. Contact lenses can be divided into two categories,
            soft lenses and hard lenses, which represent approximately 80% and
            20% of U.S. wearers, respectively. EyeCity offers substantially all
            of the soft and hard contact lenses produced by the leading contact
            lens manufacturers, including Johnson & Johnson, CIBAVision, Wesley
            Jessen/Barnes-Hind, Bausch & Lomb and CooperVision.

      o     EyeTools Computer Eyewear Products. EyeCity offers three different
            styles of its patented EyeTools computer glasses. EyeTools are
            intended to relax the eyes and ameliorate visual discomfort, focus
            difficulties, headaches and other related problems associated with
            CVS. EyeCity also offers EyeTools computer eye drops which are
            designed to treat dry eye syndrome caused by prolonged computer use.

      o     Accessories. EyeCity sells cords, cleaning cloths, eyeglass cases
            and other related optical accessories. EyeCity intends to increase
            its optical accessory sales by devoting additional resources to
            improve the quality, breadth and visual presentation of such
            merchandise.

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The EyeCity.com SuperSite

      www.eyecity.com, EyeCity's umbrella SuperSite, which is anticipated to be
launched in April 2000, is being designed to provide consumers with an
attractive, easy-to-shop, content-rich online optical shopping experience. As
with a physical retail store, online customers will be able to browse the
various departments of EyeCity, search for specific optical needs, view
specially promoted products, obtain product information, order products and
obtain customer service. In contrast to a physical retail store, however, an
EyeCity consumer's optical shopping experience will be had in the comfort and
convenience of his or her home or office. In addition, EyeCity intends that its
online SuperSite will have separate departments that cater to individual
interests, hobbies and lifestyles.

      The SuperSite, as well as the separate niche websites operated by EyeCity,
are linked to EyeCity's centralized Minnesota distribution facility, which
handles all purchasing, order processing, fulfillment, customer service and
inventory control. Customers will be able to satisfy their eyewear needs by
visiting the Peepers.com, Eyeglassplace.com, Sunglasssite.com, Abeam.com,
Opticalsite.com, Binoculars.com, Ergovision.com and Foggles.com websites and
directly through the EyeCity SuperSite when launched. See "Distribution,
Fulfillment and Inventory".

      The SuperSite is being designed to provide the following:

      o     Browsing Section: When launched, EyeCity will organize its optical
            product offerings into a simple set of departments and
            sub-departments. By clicking on the department name, the consumer
            will quickly target products of interest. This feature will also
            include special categories containing bestsellers and manufacturers'
            best picks.

      o     Searching Section: The SuperSite will, when launched, provide an
            interactive search engine and a selection of search tools that will
            allow customers to find items based on pre-selected criteria such as
            manufacturer, product model number, style, brand, price and frame or
            lens color.

      o     Personalized Customer Section: The SuperSite will welcome customers
            to the site, where they can provide demographic information which
            will be used to recommend a choice of eyewear customized for that
            particular user. EyeCity will automatically e-mail order
            confirmations thanking the customer for the order. Customers also
            will be given the option of being informed of new products and
            special promotional offers.

      o     Ask the Doctor Section: EyeCity intends in the future to make
            available an "Ask the Doctor" content section which will provide
            consumers with product information and with the opportunity to
            engage in Q&A sessions with eyecare professionals, including
            optometrists and ophthalmologists. These eyecare professionals will
            provide customers with general information regarding eye disorders,
            eyecare, laser vision correction and contact lens usage, and with
            answers to product-specific questions. Articles relating to these
            and other topics will be prominently featured on this portion of the
            website.

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      o     Children's Forum Section: When launched, The SuperSite's "Children's
            Forum" section will contain eyecare tests and interactive games
            intended to educate children about their eyes and eye care. Children
            will have the opportunity to ask questions, post messages and
            interact with one another.

      o     "Try it on" Section: EyeCity intends in the future, subject to
            identifying and obtaining rights to the appropriate technology, to
            license or independently develop technology that will allow users to
            scan their photographs and to superimpose any style of glasses from
            EyeCity's vast product line onto the scanned photograph. This
            feature is intended to provide the online consumer with a true
            "in-store" experience. This software package will also enable the
            customer to try on multiple pairs of glasses simultaneously, a
            feature that cannot be achieved in a physical store.

      See "Technology and Security" for a discussion of customer security and
privacy protocols.

      EyeCity believes that the aggregate costs which it will incur in
connection with developing the initial launch of the SuperSite will be
approximately $565,000; these costs to date have been approximately $322,000.
There can be no assurance that the implementation of the SuperSite or other
contemplated expansions of EyeCity's operations will be completed in a
cost-effective or timely manner, that consumers will react positively to
EyeCity's sales strategy, SuperSite or family of websites or that any such plans
will be successful. Expansion of EyeCity's operations would also require
significant additional financing and operating expenses and could strain
EyeCity's management, financial and operational resources. Furthermore, any new
business or service launched by EyeCity that is not favorably received by
consumers could have an adverse effect on EyeCity's reputation and diminish the
value of its brand name.

Marketing and Promotion

      EyeCity's marketing plan is to distinguish itself by offering the largest
variety of products, shopping convenience, ease-of-use and more advanced
technology than any current online optical retailer, an enhanced user experience
as compared to in-store purchasing, strategic partnerships with major online
retailers and portal relationships with exclusive key words to build significant
site traffic, and additional marketing strategies discussed below.

      EyeCity's marketing strategy includes promoting and increasing EyeCity's
brand visibility and acquiring new customers by developing distribution
alliances with major portal sites, advertising on leading sites and other
traditional media, expanding EyeCity's affiliates network, and targeting linking
programs and direct marketing to existing and potential customers. EyeCity may
determine in the future to continue the flow of traffic to the acquired sites or
to point all traffic to the www.eyecity.com SuperSite.

      The key features of EyeCity's current marketing strategy are:

      o     Customer Retention: EyeCity intends to implement a Frequent Buyer's
            Club program, allowing members to receive discounts and free
            merchandise based on a certain volume of purchases. This program
            will also provide EyeCity with the ability to collect user
            demographics to facilitate targeted marketing of a member's

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            on-line optical purchases. A key strategy is to incentivise contact
            lens users to purchase other optical products. EyeCity intends to
            use an existing technology known as a "cookie," to track basic user
            actions and sessions on the EyeCity website. The "cookie" technology
            will be able to restore a customer's shopping basket and on-line
            session even if the customer leaves EyeCity and returns later.
            EyeCity believes that the use of this technology will facilitate and
            encourage customers to spontaneously visit and return to EyeCity's
            website.

      o     Consumer Database Marketing. EyeCity will use database marketing to
            learn its customers' lifestyle and preferences. After collecting
            consumer data, EyeCity will send customers e-mail messages
            containing discount coupons, information regarding new product
            releases and special sales, in each case geared towards the
            customer's previous purchasing and browsing patterns. EyeCity
            intends to implement collaborative filtering software to personalize
            the EyeCity website to each individual customer and provide product
            recommendations derived from each customer's historical buying and
            browsing patterns.

      o     Online and Traditional Advertising: EyeCity intends to direct online
            traffic to www.eyecity.com by advertising on other websites,
            including HotBot, Yahoo, Excite, Lycos and Infoseek. EyeCity intends
            to use ad-server technology which will allow it to change its
            advertising by delivering program code directly to the websites
            hosting EyeCity's ads. Advertising websites will be chosen based on
            their cost relative to their ability to generate traffic for EyeCity
            and the likely audience to be targeted by advertising on such
            websites. Additionally, EyeCity intends to participate in numerous
            in-house and manufacturer sponsored promotions. EyeCity expects that
            these promotions will be web-based and will be geared to specific
            manufacturers, product categories and buyer segments. In the longer
            term, subject to obtaining additional financing, EyeCity will also
            utilize more traditional advertising, including television, radio
            and print.

      o     Linking and Affiliate Programs: To direct traffic to
            www.eyecity.com, EyeCity intends to aggressively expand and enhance
            its existing marketing linking program to create inbound links to
            its website from other sites on the Web. These links allow potential
            customers to simply click on the link and be connected to EyeCity
            from other search engines, manufacturers' websites, community and
            affinity sites and home pages. Affiliates become registered through
            entering into contractual referral arrangements with EyeCity.
            Registered affiliates are generally paid a referral of 5% of the net
            invoice amount of any sale generated via the affiliate's link to
            EyeCity.

      o     Direct Internet Marketing: EyeCity intends to implement various
            direct marketing programs that will allow it to communicate on a
            regular basis with its customers. These programs will be custom
            tailored to its customers' demographic profiles. An e-mail will be
            sent out to all customers on a regular basis informing them of
            product specials and new product arrivals. This proactive marketing
            approach will allow EyeCity to alert existing customers to new
            buying opportunities.

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      EyeCity also participated in an "in the box" marketing program in which
EyeTools direct-sell marketing materials are inserted in Hewlett Packard
shipping packages containing new computers. This program has generated orders
from Hewlett Packard end users. EyeCity also sells the EyeTools product line via
the Internet to major corporations, and sells its Foggles optical products for
the aviation, hunting and shooting industries through distributors, catalogues,
direct advertising, retail stores and the Internet.

      EyeCity believes that continuing to strengthen the EyeCity brand is
critical to achieving widespread acceptance, particularly in light of the
competitive nature of EyeCity's market. In order to implement this strategy,
EyeCity will need to effect additional significant financings. However, there
can be no assurance that EyeCity will be able to obtain financing or will be
able to do so on favorable terms. See "Management's Discussion and Analysis or
Plan of Operation." There can be no assurance that the foregoing marketing and
brand promotion activities will yield increased revenues or that any such
revenues would offset the expenses incurred by EyeCity in building this brand.
Further, there can be no assurance that any new users attracted to the SuperSite
will conduct transactions through the SuperSite or EyeCity's family of websites
on a regular basis. If EyeCity fails to promote and maintain its brand or if it
incurs substantial expenses in an attempt to promote and maintain its brand
without generating significant revenues, or if EyeCity's existing or future
strategic relationships fail to increase brand awareness, EyeCity's business,
results of operations and financial condition could be materially adversely
affected.

Distribution, Fulfillment and Inventory

      EyeCity utilizes a centralized order processing, distribution,
fulfillment, customer service and warehousing facility located in Duluth,
Minnesota.

      During April 2000, the acquired sites and the completed SuperSite will be
linked with one back end, which is currently under construction as part of the
SuperSite initiative. The back end will store all marketing intelligence, order
processing, inventory needs and financial data for all of EyeCity's divisions
and specific niche sites. This back end will allow for complete monitoring of
the sites. EyeCity intends to use an integrated packing and shipping system with
an on-line connection to EyeCity's management information system. This system
will monitor the in-stock status of each item ordered, process the order and
generate warehouse selection tickets and packing slips for order fulfillment
operations.

      Currently, EyeCity's websites operate as independent entities and orders
are accumulated and processed by a single point of sale order fulfillment
system. Under the present system, once an order is received, EyeCity's
point-of-sale computer system checks the order against its inventory. If the
item ordered is in stock, the point-of-sale system prints an order request and a
mailing label, which are retrieved by EyeCity's staff on an ongoing basis during
business hours. Orders are shipped through one of several channels, as selected
by the customer, including regular U.S. mail, United Parcel Service, second-day
air or overnight courier, with shipping charges varying by the carrier selected.
Orders are shipped the same day that they are placed if the product is in stock.
An e-mail is also sent the same day thanking the customer for shopping at
EyeCity. If the product is not in stock, the customer is notified on the website
and alternative product suggestions are offered. If the customer desires to
order the currently out-of-stock product, it is back-ordered and is shipped to
the customer as soon as it is available.

                                       10
<PAGE>

      EyeCity expects that it generally will purchase product directly from
manufacturers and distributors on an as-needed basis to fill orders. EyeCity has
analyzed its customers' buying patterns and will carry a minimal level of
inventory, stocking only the most popular items to ensure timely delivery to the
customer. EyeCity currently purchases the limited inventory it does carry
primarily directly from manufacturers, including Ray-Ban Sun-Optics, a Luxottica
Group Company, and Canon and, to a lesser extent, from buying groups and
distributors. To the extent that EyeCity needs inventory not in stock at the
time, EyeCity contacts the manufacturer, buying group or distributor which
supplies the product and it is shipped to EyeCity. EyeCity believes that this
inventory and distribution strategy enables it to achieve favorable pricing and
optical product availability. One supplier, Ray-ban Sun-Optics, accounted for
approximately 33.3% of EyeCity's retail sales revenues in 1998 and approximately
23.3% of EyeCity's retail sales revenues for 1999. EyeCity does not have
contractual fulfillment arrangements with its suppliers and purchases product in
the ordinary course of business on a purchase order basis. In the event that any
of these suppliers could no longer supply EyeCity with optical products, EyeCity
may not be able to secure other adequate sources of supply on a timely basis, or
may not be able to obtain its inventory on terms as favorable to EyeCity as its
current supply. Either circumstance could adversely affect EyeCity by increasing
its costs or, in the event adequate replacement supply cannot be secured, could
cause EyeCity to lose sales and customers.

      EyeCity fulfills orders for prescription eyeglasses through eyeglass
grinding laboratories in the United States with whom EyeCity has non-contractual
arrangements. When an order is placed with EyeCity, EyeCity provides the
laboratory with the prescription information provided by the customer and the
frames that have been selected by the customer. Lenses are usually manufactured
by the laboratory within two to three business days if the necessary materials
are in stock; otherwise, orders are processed as soon as possible after the
materials become available.

      EyeCity cannot provide assurance that it has anticipated all of the
changing demands that its expanding operations will impose on its receiving and
distribution system or that events beyond EyeCity's control, such as disruptions
in operations due to inadequate financing, labor disagreements, shipping
problems, fires or natural disasters, will not result in a material adverse
effect on EyeCity's business, results of operations and financial condition.

      EyeCity's success depends, in part, on its ability to provide prompt,
accurate and complete service to its customers on a competitive basis, and its
ability to purchase and promote products, manage inventory, ship products,
manage sales and marketing activities and maintain efficient operations through
its management information systems and particularly its various websites. A
significant disruption in EyeCity's management information systems or websites
could adversely affect EyeCity's relations with its customers and its ability to
manage its operations and would have a material adverse effect on EyeCity's
business, financial condition and results of operations. EyeCity's ability to
compete effectively and to manage future growth, if any, will require EyeCity to
continue to improve its financial and management controls and its reporting
systems and procedures on a timely basis and to expand, train and manage its
employee base. EyeCity's failure or inability to accomplish any of these goals
could have a material adverse effect on its business, financial condition and
results of operations.

Customer Service

      EyeCity intends to offer state of the art customer service to generate
repeat customers and grow market share. The Customer Service area of the
SuperSite will contain extensive

                                       11
<PAGE>

information about shopping for, ordering and returning products. Shipping
charges, payment options, and other policies will be explained for the customer.
Help buttons on every page of the site will take customers to the specific
customer service topic they need. Customers will be able to track the current
status of their orders, including getting the shipper tracking numbers. Because
the concept of Internet retail is new to many people, EyeCity will prominently
display its toll-free number throughout the site. Customer service agents
currently are and will be available to answer customer questions about products
and the shopping process.

      EyeCity is also considering implementing, subject to obtaining appropriate
financing, commercially available technology which will enable the end user to
communicate via the internet live with customer service representatives during
specially posted hours. This interactive customer service feature will enable
real time communication with the end user and allow for one to one customer
service and marketing. The system will allow the customer service representative
to respond to all customer questions as well as recommend certain web pages to
the customer to answer all of their questions.

      Currently, customers of EyeCity's websites order products by accessing
EyeCity's websites via the World Wide Web on the Internet. Once there, a
customer selects the category of products that they wish to browse (e.g.,
sunglasses, binoculars, etc.). A list of brands is then presented, from which
the customer chooses one to browse. Within each page devoted to a brand will be
either pictures and descriptions of products or a list of "catalogs," each
containing pictures and descriptions of a particular brand's products. If a
customer does not see a product that they like in a given catalog, they can
easily go back to the list of catalogs, the list of brands or to the main page
of the site. Customers who have selected all of the products that they wish to
purchase are prompted to confirm their selection and to provide billing and
shipping information through a secure Internet connection.

      When ordering prescription products, customers can either enter their
prescription information online, with their doctor's name and number so that an
EyeCity employee can attempt to confirm the prescription, or the customer may
fax or mail a hard copy of their doctor's written prescription. Once the
prescription information is confirmed, if the customer is ordering prescription
eyeglasses, the frames selected by the customer are shipped to an eyeglass
grinding laboratory, where the lenses are cut, glazed, and inserted into the
frames and then shipped back to EyeCity. EyeCity then ships the finished product
to the customer.

      EyeCity maintains a toll-free telephone number for taking orders, handling
customer service (including assisting customers and suggesting styles or brands
of products that might suit the customer's taste) and receiving credit card
information from those customers who choose not to provide this information via
the internet. EyeCity also accepts orders by fax and accepts payments by money
order or check.

      EyeCity ships products to customers by United States mail and other
overnight delivery and surface services. In addition, EyeCity uses direct
mailings to advertise its products and receives a majority of its payments from
customers using credit cards. Any increases in shipping, postal or credit card
processing rates could have an adverse effect on EyeCity's operating results as
EyeCity may not be able to effectively pass such increases on to its customers.
Similarly, strikes or other service interruptions by these shippers could
adversely affect EyeCity's ability to market or deliver its products on a timely
basis.

                                       12
<PAGE>

      Once the merchandise is delivered, the customer may return it for a full
refund for any reason if it is shipped back to EyeCity within seven days, and
for a credit against other purchases if it is shipped back within thirty days.
To date, returns have not been material to EyeCity's results of operations.

Technology and Security

      Subject to obtaining additional financing, EyeCity intends to license
additional commercially available technology and integrate such technology with
EyeCity's proprietary technology solutions. EyeCity will focus its efforts on
automating as many processes as possible and increasing customer satisfaction.

      In connection with the development of the SuperSite and the integration of
the back end, EyeCity's management information system is being designed to
provide the following:

      o     Selling System. EyeCity's Internet site will use a packaged
            e-commerce solution that will be customized to handle transactional
            events, queries and updates to the database. All transactions will
            be secured by using Secure Sockets Layer ("SSL") encryption which
            will protect information while it is transmitted between the
            customer and EyeCity's website.

      o     Ordering System. EyeCity's ordering system will retrieve ordering
            information from its selling system, validate credit cards, process
            orders, create and issue purchase orders to manufacturers and handle
            all post-sale marketing efforts. The ordering system will also
            permit orders to be taken over the telephone. The ordering system
            software will be designed by EyeCity to give customer service
            representatives instant access to all customer information, to
            automatically update all changes to a customer's order and to inform
            the customer of order status by automated e-mail communications. The
            customer service and marketing departments will be able to access
            this customer profile information to search and analyze customer
            demographics and buying patterns in order to suggest new product
            offerings to customers. The ordering system will also communicate
            with EyeCity's warehousing facilities in real time for updates on
            order shipments and inventory status.

      o     Publishing System. The publishing system will contain information
            about all products offered on EyeCity's websites, including retail
            price, cost, color and size characteristics, group information and
            all manufacturer related information.

      EyeCity employs systems administrators and network managers to monitor and
operate EyeCity's Internet site, network operations and transaction-processing
systems. The continued uninterrupted operation of EyeCity's Internet site and
transaction-processing systems is essential to its business, and failure of
these systems would have a material adverse effect on EyeCity. EyeCity expects
that its Internet connectivity will be supplied by a provider who will be
capable of offering scaleable business solutions to high volume Internet sites.

      A critical issue for the success of online retailing is maintaining the
integrity of information, particularly the security of credit card numbers
furnished by consumers. EyeCity intends to secure credit card numbers while they
travel over phone lines by using SSL

                                       13
<PAGE>

encryption. To deter the theft of credit card numbers residing in EyeCity's
information systems, EyeCity intends to employ secure "fire walls" installed in
EyeCity's hardware. EyeCity believes that these firewalls will protect EyeCity's
systems against "hacker" break-ins, although there can be no assurance that
these precautions will be effective. However, any penetration of EyeCity's
network security or other misappropriation of its customers' personal
information could subject EyeCity to liability.

Competition

      The optical retail industry is very competitive and fragmented. EyeCity
has a variety of competitors, including ophthalmologists, opticians and
optometrists in private practice, traditional optical retail stores, including
national optical chains such as Sunglass Hut, Pearle Vision Center, Sterling
Optical, LensCrafters and National Vision Association and mass merchandisers
such as Wal-Mart, Sam's and Costco. In addition, EyeCity expects to compete with
non-traditional optical retailers, such as television retailers, mail order
catalogs, direct marketers such as 1-800 Contacts, and with other online optical
retailers such as Shades.com, a subsidiary of Sunglass Hut. EyeCity expects
there to be many more online competitors in the future, as barriers to entry are
minimal, and new competitors can launch competing websites at a relatively low
cost.

      EyeCity believes that the principal competitive factors in its online
market are brand recognition, product selection, convenience, price,
accessibility, customer service, quality of search tools, quality of site
content and reliability and speed of fulfillment. Many of EyeCity's current and
potential competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than EyeCity. In addition, competitive online optical retailers
may be acquired by, receive investments from, or enter into other commercial
relationships with, larger, well-established and well-financed companies as use
of the Internet and other online services increases. Certain of EyeCity's
competitors may be able to secure merchandise from manufacturers on more
favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing, inventory availability and delivery
policies and devote substantially more resources to website and systems
development than EyeCity. Increased competition may result in reduced operating
margins, loss of market share and a diminished brand franchise. New technologies
and the expansion of existing technologies may increase the competitive
pressures on EyeCity.

      Historically, sales of contact lenses by direct marketers have been
impeded by eyecare practitioners and contact lens manufacturers. Many eyecare
practitioners have been reluctant to provide patients with a copy of their
prescription or to release such information to direct marketers upon request,
thereby prohibiting such patients from purchasing lenses from a direct marketer.
In addition, substantially all of the major manufacturers of contact lenses have
historically refused to sell contact lenses directly to direct marketing
companies and have sought to prohibit their distributors from doing so. These
traditional barriers to the direct marketing of contact lenses may be reduced or
eliminated in the future, although there can be no assurance of that result. The
Federal Trade Commission has solicited comments regarding whether eyecare
practitioners should be required to release contact lens prescriptions to their
patients. In addition, the Attorneys General for more than 30 states have joined
in a lawsuit against the major contact lens manufacturers and certain eyecare
practitioners and their trade associations alleging that the

                                       14
<PAGE>

manufacturers' policy not to sell to direct marketers was adopted in conspiracy
with eyecare practitioners to eliminate alternative channels of trade from the
contact lens market.

      EyeCity's prescription eyewear operations also compete with alternative
technologies such as surgical refractive procedures, including new refractive
laser procedures such as PRK, or photo refractive keratectomy, and LASIK, or
laser in situ keratomileusis. If surgical refractive procedures become
increasingly accepted as an effective and safe technique for permanent vision
correction, they could substantially reduce the demand for prescription eyewear
by enabling patients to avoid the ongoing cost and inconvenience of prescription
eyewear, which could have a material adverse affect on EyeCity's prescription
eyewear business.

Government Regulation

      General. EyeCity is not currently subject to direct federal, state or
local regulation or laws or regulations applicable to access to or commerce on
the Internet, other than as discussed below and other than regulations
applicable to businesses generally. However, due to the increasing popularity
and use of the Internet and other online services, it is possible that a number
of laws and regulations may be adopted with respect to the Internet or other
online services covering issues such as user privacy, freedom of expression,
pricing, content, quality of products and services, taxation, advertising,
intellectual property rights and information security. The adoption of any such
laws or regulations might decrease the rate of growth of Internet use, which in
turn could decrease the demand for EyeCity's products or increase its cost of
doing business or in some other manner have a material adverse effect on
EyeCity's business, results of operations and financial condition. In addition,
applicability to the Internet of existing laws governing issues such as
regulatory licensing or permit requirements, property ownership, copyrights and
other intellectual property issues, taxation, libel, obscenity and personal
privacy is uncertain. The vast majority of such laws were adopted prior to the
advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies.

      At present, EyeCity does not collect sales or other similar taxes in
connection with the sale of its products to consumers located outside the state
of Minnesota. From time to time, various states have sought to impose state
sales tax collection obligations on out-of-state direct marketing or
internet-based companies such as EyeCity. A successful assertion by one or more
states that EyeCity should have collected or should be collecting sales taxes on
the sale of its products could result in additional costs and administrative
expenses to EyeCity and corresponding price increases to its customers, which
could adversely affect EyeCity's business, financial condition and results of
operations.

      Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy polices. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues, including some recently proposed changes, could create uncertainty in
the marketplace that could reduce demand for EyeCity's products or increase the
cost of doing business as a result of litigation costs or increased costs, or
could in some other manner have a material adverse effect on EyeCity's business,
results of operations and financial condition.

                                       15
<PAGE>

      In addition, because EyeCity's websites can be accessed worldwide and
EyeCity intends to sell goods to consumers worldwide, other jurisdictions may
claim that EyeCity is subject to taxes or is required to qualify to do business
as a foreign corporation in a particular state or foreign country. EyeCity has
filed the requisite documentation to be qualified to do business as a foreign
corporation (i.e., a corporation organized under the laws of another state,
Delaware) in New York and its Peeper's subsidiary has filed the requisite
documentation to be qualified to do business as a foreign corporation in
Minnesota, and failure by EyeCity to qualify as a foreign corporation in a
jurisdiction where it is required to do so could subject EyeCity to penalties
for the failure to qualify and could result in the inability of EyeCity to
enforce contracts in such jurisdictions. At this time, EyeCity has not applied
to be qualified to do business in any other jurisdiction. Any such new
legislation or regulation, or the application of laws or regulations of
jurisdictions whose laws do not currently apply to EyeCity's business, could
have a material adverse effect on EyeCity's business, results of operations and
financial condition.

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

      Federal Regulation of Prescription Eyewear. Contact lenses and eyeglasses
are separately regulated by the Federal government. Contact lenses are regulated
by the Food and Drug Administration as "medical devices." The Food and Drug
Administration classifies medical devices as Class I, Class II or Class III and
regulates them to varying degrees, with Class I medical devices subject to the
least amount of regulation and Class III medical devices subject to the most
stringent regulations. Generally, contact lenses are classified as Class II
medical devices if intended only for daily wear and as Class III medical devices
if intended for extended wear. These regulations generally apply only to
manufacturers of contact lenses, and therefore do not directly impact EyeCity.
Federal regulations also require the labels on "medical devices" to contain
adequate instructions for their safe and proper use. However, there is an
exemption from this requirement for medical devices the use of which is not safe
except under the supervision of a practitioner licensed by law to direct the use
of such device. Devices which fall in this exception must contain as part of
their labeling the statement "Caution: Federal law restricts this device to sale
by or on the order of ," the blank to be filled in with the word physician or
other practitioner authorized by the law of the state in which the practitioner
practices to use or order the use of the device. EyeCity believes that this
exception is often misconstrued as being a federal requirement that the device
be sold only pursuant to a prescription. The Food and Drug Administration
considers contact lenses to qualify for this labeling exemption; however, there
is no federal law that requires that contact lenses be sold only pursuant to a
prescription.

      Federal law requires that all dress eyewear (i.e., sunglasses or
prescription eyeglasses) be tested for impact resistance. This testing is
generally conducted by the lens manufacturer, but eyewear must be retested if a
protective or other coating is applied after initial manufacture. So long as a
retailer or optician does not manufacture or coat the eyewear, the retailer or
optician is entitled to rely on representations from the manufacturer or
laboratory, as applicable, as to the

                                       16
<PAGE>

completion of all necessary impact resistance tests on any given piece of
eyewear. EyeCity's operating practice has been to rely on these types of
representations from manufacturers or laboratories, as applicable.

      State Regulation of Prescription Eyewear. Because there is no applicable
federal law that regulates the distribution of prescription eyewear, the sale
and delivery of prescription eyewear to the consumer is subject to state laws
and regulations. EyeCity intends to sell prescription eyewear to customers in
all 50 states and each sale may be subject to the laws of the state where the
customer is located. The laws and regulations governing the sale and delivery of
prescription eyewear vary from state to state, but generally can be classified
in four categories: (i) laws that require prescription eyewear only be dispensed
pursuant to a prescription; (ii) laws that require the dispenser to be licensed
by the state as an optician, optometrist, ophthalmologist or other professional
authorized to dispense prescription eyewear; (iii) laws that require
prescription eyewear be dispensed only in a face-to-face transaction and (iv)
laws with requirements that are unclear or do not specifically address the sale
and delivery of prescription eyewear. Many of the states requiring that
prescription eyewear be dispensed in face-to-face meetings or by a person
licensed by such state to dispense prescription eyewear also require that
prescription eyewear only be dispensed pursuant to a valid prescription.

      The laws and regulations in a significant number of states require that
prescription eyewear only be sold to a consumer pursuant to a valid
prescription. In some states, satisfying this prescription requirement obligates
the dispenser only to verify the customer's prescription with the customer's
prescriber, while other states specifically require that a written prescription
(which, in some states, must be an original) be obtained before providing the
prescription eyewear to the customer or that the prescription must have been
written within a specified period (e.g., two years) prior to fulfillment.
EyeCity's operating practice will be to attempt to obtain a valid prescription
from each of its customers or his/her eyecare practitioner. If the customer does
not have a copy of his/her prescription, EyeCity will attempt to contact the
customer's doctor to obtain a copy of, or verify the customer's prescription.
With respect to contact lenses, if EyeCity is unable to obtain a copy of or
verify the customer's prescription, EyeCity intends to complete the sale and
ship the lenses to the customer based on the prescription information provided
by the customer. EyeCity intends to retain copies of the written prescriptions
that it will receive and maintain records of its communications with the
customer's prescriber.

      EyeCity expects that its ability to comply with state laws and regulations
requiring a valid prescription will be hampered because EyeCity's customers will
often be unable to get a copy of their prescription. EyeCity believes that
optometrists, ophthalmologists and other contact lens prescribers have
historically refused to release copies of a patient's contact lens prescription
to the patient. In addition, such providers have refused to release or verify
prescriptions at the request of mail order companies. Federal law requires
prescribers to release prescriptions for eyeglasses to a patient, but the issue
of whether or not a prescriber must release a contact lens prescription to the
patient, or at the patients request, is currently governed by state law. There
are approximately 22 states that require contact lens prescribers to release the
prescriptions for contact lenses to the patient. However, even in states with a
mandatory release law, EyeCity believes that many prescribers will continue to
refuse to release prescriptions to their patients or to online or mail order
contact lens distributors, including EyeCity.

      In addition to requiring a valid prescription, a substantial number of
states also require that prescription eyewear only be dispensed by a person
licensed to do so under that state's laws.

                                       17
<PAGE>

A dispenser may be required to be licensed as an optometrist, ophthalmologist,
optician, ophthalmic dispenser or prescription eyewear dispenser, depending on
the state in which the customer is located. Also, certain states require that
prescriptions only be filled in facilities registered with such states. EyeCity
currently employs an optician at its Duluth, Minnesota facility; however,
neither EyeCity nor any of its employees is a licensed or registered dispenser
of contact lenses in any of the other states in which EyeCity expects to do
business nor are any of EyeCity's facilities registered with any state in
connection with the dispensing of prescription eyewear. EyeCity has not
initiated the application or registration process in any jurisdiction, but it
intends to do so where appropriate. The laws in a number of states effectively
prohibit the sale of prescription eyewear through the mail by requiring that a
person licensed under that state's law to dispense prescription eyewear be in
personal attendance at the place of sale. Lastly, there are several states in
which the laws and regulations do not specifically address the issue of who may
dispense prescription eyewear or are unclear with respect to the requirements
for dispensing prescription eyewear. For many of the laws described in this
paragraph, it is not clear whether some or all of these laws would be applicable
to EyeCity or whether the states that have enacted these laws would have
jurisdiction over EyeCity.

      Any action brought against EyeCity based on its failure to comply with
applicable state laws and regulations could result in significant fines or
criminal penalties to EyeCity, EyeCity being prohibited from making sales in a
particular state and/or EyeCity being required to comply with such laws. Such
required compliance could result in: (i) increased costs to EyeCity; (ii) the
loss of a substantial portion of customers for whom EyeCity is unable to obtain
or verify their prescription; and (iii) the inability to sell to customers at
all in a particular state if EyeCity cannot comply with such state's laws. The
occurrence of any of the above results could have a material adverse effect on
EyeCity's ability to sell prescription eyewear and continue to operate
profitably. Furthermore, there can be no assurance that states will not enact or
impose laws or regulations that prohibit mail order or online dispensing of
prescription eyewear or otherwise impair EyeCity's ability to sell prescription
eyewear and continue to operate profitably. EyeCity has not obtained an opinion
of counsel with regard to its compliance with applicable state laws and
regulations, and information contained herein regarding EyeCity's compliance
with applicable state laws and regulations should not be construed as being
based on an opinion of counsel.

      EyeCity has received a marketing clearance (as a device substantially
equivalent to an existing category of ophthalmic device) for its EyeTools(TM)
line of computer glasses from the Federal Food and Drug Administration following
a "Section 510(k) Submission."

Intellectual Property

      EyeCity holds rights, title and interest to five U.S. patents for various
specialized eyeglasses, as set forth in Table I below.

      EyeCity holds rights, title and interest in the United States to two
registered trademarks (Beamblockers and Design #1,196,550, filed October 13,
1998; Foggles #1,210,355 filed September 18, 1982), and to 19 trademark
applications pending in the U.S. Patent and Trademark Office, used or intended
to be used in connection with its products and services, or for which it has
obtained rights at common-law, based on use in interstate commerce, including
the "Peeper's" mark (see Table II below). EyeCity believes that such marks
represent significant value and goodwill to the company in marketing its
products and services. EyeCity

                                       18
<PAGE>

has entered into confidentiality and invention assignment agreements with its
employees and contractors, and nondisclosure agreements with parties with whom
it conducts business, in order to limit access to and disclosure of its
proprietary information. However, there can be no assurance that these
contractual arrangements or the other steps taken by EyeCity will prove
sufficient to prevent misappropriation of EyeCity's technology or to deter
independent third-party development of similar technologies.

      EyeCity has rights in over thirteen domain names, certain of which it
presently uses to market its services, as set forth below in Table III. EyeCity
believes that such domain names represent significant value and goodwill to the
company in marketing its products and services. If third parties obtain rights
to use similar domain names, these third parties may confuse EyeCity's customers
and cause its customers to inadvertently place orders with these third parties,
which could result in lost sales for EyeCity and could damage its brand. Due to
the unique nature of domain names, EyeCity may have only limited proprietary
rights in its domain names, except to the extent greater protection is granted
under trademark or tradename law. As a result, EyeCity cannot assure you that it
will be able to retain the use of certain of its domain names, which could have
a material adverse affect on EyeCity's business.

      EyeCity is not aware of any material adverse claims regarding any of its
trademarks or domain names with the exception of its "Peeper's" mark and
peepers.com domain name. Rights in this mark and domain name have been
challenged in an action now pending entitled American Eyewear, Inc. v. Peeper's
Sunglasses and Accessories, Inc. and EyeCity.com, Inc. which was commenced in
July 1999 in the United States District Court for the Northern District of
Texas. Peepers, Inc. and EyeCity have moved to dismiss the action. The motion is
now pending. EyeCity has substantial defenses and may counter-claim to limit
American Eyewear's claimed rights in the trademark Peeper's. The parties are
also discussing settlement. It is premature to assess the likely outcome of the
proceeding.

      The following tables set forth a list of EyeCity's material intellectual
properties:

                                     TABLE I
                                     PATENTS

             Title                      Issued     Expiration     Patent Number

Eyewear With Translucent                9/11/84      1/11/02        4,470,673
Superior field of view

Eyewear With Translucent                9/24/85      9/24/02        4,542,964
Superior Field of View

Visual Occlusion Apparatus For          10/6/87      10/6/04        4,698,022
Pilot Training

Eyewear Having Translucent              7/11/95      1/10/14        5,432,568
Superior And Inferior Fields of
View

Night Driving Glasses                   6/27/95      6/27/12        5,428,409

                                       19
<PAGE>

                                    TABLE II
                         PENDING TRADEMARK APPLICATIONS

      Mark Name                 App #
                                App. Date

ABEAM                           75/777533
                                August 16, 1999

EYECITIES                       75/682277
                                April 13, 1999

EYECITIES.COM                   75/682278
                                April 13, 1999

EYECITY                         75/673817
                                April 05, 1999

EYECITY.COM                     75/673816
                                April 05, 1999

EYETOOLS                        75/527195
                                July 29, 1998

EYETOOLS                        75/459288
                                March 30, 1998

ICITY                           75/673815
                                April 05, 1999

ICITY.COM                       75/673814
                                April 05, 1999

INTERNET EYES                   75/525354
                                July 24, 1998

INTERNET GLASSES                75/525355
                                July 24, 1998

ON-LINE                         75/527196
                                July 29, 1998

OPTICAL DEPOT                   75/579290
                                October 29, 1998

OPTICALDEPOT.COM                75/650961
                                February 26, 1999

                                       20
<PAGE>

OPTICALSITE                     75/721891
                                June 4, 1999

SOLUTIONS IN SIGHT              75/545184
                                August 31, 1998

SUNGLASSSITE                    75/777534
                                August 16, 1999

GOLF                            75/566222
                                October 06, 1998

SHOOTING                        75/566223
                                October 06, 1998

                                    TABLE III
                           DOMAIN NAMES PRESENTLY USED

abeam.com                                         foggles.com
binoculars.com                                    icity.com
ergovision.com                                    opticalsite.com
eyecity.com                                       peepers.com
eyeglassplace.com                                 sunglasssite.com
eyeopticalzone.com

      In addition, EyeCity recently acquired a three year non-exclusive license
from Yahoo! Inc. to use the "Yahoo!" name and logo for the distribution and
marketing of eyewear and eyewear accessories throughout the United States. In
connection with this license, EyeCity is required to pay to Yahoo! Inc. an
amount equal to the greater of (i) a percentage-based royalty, or (ii) a minimum
guaranteed royalty. Contemporaneously with this transaction, EyeCity entered
into a distributor agreement with Sun Optics d/b/a Insight Eyeworks, Inc., under
which Insight will manufacture, market and distribute the Yahoo! eyewear and
eyewear accessories in traditional retail channels in the United States other
than through the Internet and other e-commerce channels.

Employees

      As of March 1, 2000, EyeCity employed 34 full-time and 2 part-time
employees. None of EyeCity's employees are covered by collective bargaining
agreements and EyeCity believes that its relations with its employees are good.
EyeCity is dependent to a large degree on the services of its senior management
team, particularly Mark H. Levin, its President and Chief Executive officer,
Mark R. Suroff, its Chief Operating Officer, Executive Vice President, Secretary
and Treasurer, and Daniel D. Thralow, its Vice President of Operations. The loss
of any of EyeCity's key executives could have a material adverse effect on
EyeCity. EyeCity does not maintain key man insurance coverage on any of its
employees.

                                       21
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

      EyeCity maintains its corporate headquarters in approximately 4,405 square
feet of commercial office space at 79 Express Street in Plainview, New York,
pursuant to a five year lease providing for rent at a rate (excluding common
charges) of $49,550 per annum for the first year, with annual percentage
increases during the term, for a rate of $58,000 in the fifth year. EyeCity has
one option to extend the lease for 2 years. The rent for the extension period is
$5,027.86 per month for the first 12 months and $5,228.98 per month for the
second 12 months.

      EyeCity, through its wholly-owned subsidiary, Peeper's, Inc., maintains
approximately 10,770 square feet of office and warehouse space at 1203 London
Road in Duluth, Minnesota, pursuant to a five year lease providing for rent at
an annual rate of $51,156 through June 30, 2000, at an annual rate of $61,927
through June 30, 2001 and at a rate of $72,696 through June 30, 2004. This space
is used for customer service, sales, warehousing, shipping, order fulfillment
and general office purposes. EyeCity has five options to extend the lease for
consecutive 3-year terms each. During the renewal terms, the rent would increase
4% annually on July 1st of each year.

ITEM 3. LEGAL PROCEEDINGS

      EyeCity is not aware of any material adverse claims regarding any of its
trademarks or domain names with the exception of its "Peeper's" mark and
peepers.com domain name. Rights in this mark and domain name have been
challenged in an action now pending entitled American Eyewear, Inc. v. Peeper's
Sunglasses and Accessories, Inc. and EyeCity.com, Inc. which was commenced in
July 1999 in the United States District Court for the Northern District of
Texas. Peepers, Inc. and EyeCity have moved to dismiss the action. The motion is
now pending. EyeCity has substantial defenses and may counter-claim to limit
American Eyewear's claimed rights in the trademark Peeper's. The parties are
also discussing settlement. It is premature to assess the likely outcome of the
proceeding.

      A wholly owned subsidiary of EyeCity, Peeper's was named as a defendant in
an action entitled Oakley, Inc. v. Peeper's Sunglasses & Accessories Inc. and
Son Dad Boards Ltd. d/b/a Freestyle of Duluth and Larry Leege, which was
commenced in October 1999 in the Superior Court of California, Orange County.
This action, which is principally a contract claim against the third parties,
Son Dad Boards Ltd. and Larry Leege, also alleges that Peeper's, Inc. interfered
with the plaintiff's contractual relationship with these third parties when it
purchased sunglasses from them and then re-sold the merchandise. Peeper's, Inc.
believes the claim against it has no merit and has moved to dismiss the action
against it. However, it is premature to assess the likely outcome of the
proceeding.

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

No matters were submitted to a vote of security holders.

                                       22
<PAGE>

                                    PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED OTHER STOCKHOLDER MATTERS

      EyeCity's common stock is listed by NASDAQ on the Over The Counter
Bulletin Board under the trading symbol ICTY. Trading of EyeCity's common stock
on the Over The Counter Bulletin Board market commenced in March 1998. The
following table reflects the high and low bid prices for EyeCity's common stock
for each quarterly period ended since trading commenced in March 1998 and ending
on December 31, 1999. These quotations are based on information supplied by
market makers of EyeCity's common stock. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.

                              1999                              1998
                           Price Range                      Price Range
                           -----------                      -----------
                     Low               High            Low               High
                     ---               ----            ---               ----

1st Quarter         $0.625            $6.125          $0.875            $1.000
2nd Quarter          3.125             9.875           0.875             1.5625
3rd Quarter          3.063             6.750           0.6875            1.625
4th Quarter          1.125             4.625           0.6875            1.875

      As of March 24, 2000, there are 139 holders of record of EyeCity's common
stock.

      EyeCity has never declared any dividends and is not likely to do so in the
near future.

RECENT SALES OF UNREGISTERED SECURITIES

      Under its 1997, 1998 and 1999 Stock Option Plans, EyeCity has granted an
aggregate of 2,628,250 options to various consultants and employees to purchase
shares of EyeCity's common stock at exercise prices ranging from $1.00 to $7.75
including options issued through March 24, 2000. No commissions were paid in
connection with those grants. EyeCity relied on exemptions from registration
under Section 4(2) of the Securities Act of 1933.

      1996

      There were no sales of unregistered securities by EyeCity in 1996.

      1997

      In October 1997, EyeCity completed a non-underwritten private sale of
550,000 shares of its common stock to 74 individual investors. These shares were
sold at a price of $1.00 per share pursuant to Rule 504 of Regulation D of the
Securities Act of 1933.

      1998

      In February 1998, EyeCity privately issued 300,000 shares of its common
stock to Carousel Consulting Inc. in consideration for the provision of
marketing consulting services valued at approximately $195,000. EyeCity relied
on exemptions from registration under Section 4(2) of the Securities Act of
1933.

                                       23
<PAGE>

      In April 1998, EyeCity completed a non-underwritten private sale of
450,000 shares of its common stock to 10 individual investors. These shares were
sold at a price of $1.00 per share pursuant to Rule 504 of Regulation D of the
Securities Act of 1933.

      In August 1998, EyeCity privately issued 214,000 shares of its common
stock in connection with the acquisition of all of the outstanding capital stock
of Foggles, Inc. by EyeCity. These shares of EyeCity were issued in equal
amounts to the four individual stockholders of Foggles, Inc. EyeCity relied on
exemptions from registration under Section 4(2) of the Securities Act of 1933.

      In August 1998, EyeCity privately sold $362,500 of subordinated
convertible promissory notes in a non-underwritten offering to seven individual
investors (EyeCity later repurchased $25,000 of the notes held by two of these
investors at their request). These notes may be converted on or after October 1,
1999 into shares of common stock of EyeCity at a conversion price of $1.25 per
share. EyeCity relied on Rule 506 of Regulation D under the Securities Act of
1933. All of these individual investors represented that they were accredited
investors as defined under Rule 501 of Regulation D under the Securities Act of
1933.

      In September 1998, EyeCity privately issued 15,000 shares of its common
stock in connection with the acquisition of all of the outstanding capital stock
of Gilead Enterprises, Inc. by EyeCity. These shares of EyeCity were issued in
equal amounts to the three individual stockholders of Gilead Enterprises, Inc.
EyeCity relied on exemptions from registration under Section 4(2) of the
Securities Act of 1933.

      In November 1998, EyeCity privately issued 10,000 shares of its common
stock to Adam Levin Consulting in consideration for the provision by Levin
Consulting of marketing consulting services valued at approximately $10,000.
EyeCity relied on exemptions from registration under Section 4(2) of the
Securities Act of 1933.

      1999

      In March 1999, EyeCity privately issued 100,000 shares of its common stock
in connection with the acquisition of all of the outstanding capital stock of
EyeGlassPlace.com, Inc. by EyeCity. These shares of EyeCity were issued to the
one individual stockholder of EyeGlassPlace.com, Inc. EyeCity relied on
exemptions from registration under Section 4(2) of the Securities Act of 1933.

      In March 1999, EyeCity privately issued 20,000 shares of its common stock
to Rosenman & Colin LLP, counsel to EyeCity, in consideration for the provision
of legal services valued at approximately $20,000. EyeCity relied on exemptions
from registration under Section 4(2) of the Securities Act of 1933.

      In March 1999, EyeCity privately issued 250,000 shares of its common stock
to Nikos Mouyiaris. These shares were sold for $1.00 per share, for a total
offering price of $250,000. EyeCity relied on exemptions from registration under
Section 4(2) of the Securities Act of 1933. Mr. Mouyiaris represented that he
was an accredited investor as defined under Rule 501 of Regulation D of the
Securities Act of 1933.

      In April 1999, EyeCity privately issued 10,000 shares of its common stock,
valued at $10,000, to Jerrold S. Pine in partial consideration for the exercise
of EyeCity's option to grant to EyeCity an exclusive license to use certain
patented computer security technology. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933.

                                       24
<PAGE>

      In May 1999, EyeCity privately issued 130,000 shares of its common stock
to Stanley Altschuler and 130,000 shares of its common stock to Richard Cooper
in consideration for services rendered by Strategic Growth International, Inc,
valued at approximately $260,000. EyeCity relied on exemptions from registration
under Section 4(2) of the Securities Act of 1933.

      In May 1999, EyeCity privately issued 1,210,159 shares of its common stock
as partial consideration for all of the capital stock of Peeper's Sunglasses and
Accessories, Inc. in connection with the merger of Peeper's Sunglasses and
Accessories, Inc. with and into Peeper's, Inc, a wholly owned subsidiary of
EyeCity. These shares of EyeCity were issued to the one individual stockholder
of Peeper's Sunglasses and Accessories, Inc. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933.

      In May 1999, EyeCity privately issued 2,105 shares of its common stock
valued at approximately $3,000 to Thomas Gilligan as partial consideration for
an assignment of all of Mr. Gilligan's rights to an internet domain name.
EyeCity relied on exemptions from registration under Section 4(2) of the
Securities Act of 1933.

      In May 1999, EyeCity privately sold 1,500,000 shares of its common stock
to 11 individual investors at a price of $1.00 per share for a total offering
price of $1,500,000. In connection with these sales, EyeCity paid to James J.
Armenakis a commission in the form of options to purchase 300,000 shares of
EyeCity common stock at an exercise price of $1.00 per share under the 1998
Stock Option Plan. EyeCity relied on exemptions from registration under Section
4(2) of the Securities Act of 1933. Each of these investors represented that he
or she was an accredited investor as defined under Rule 501 of Regulation D of
the Securities Act of 1933.

      In June, 1999, EyeCity privately issued 283,334 shares of its common stock
as partial consideration for all of the capital stock of SunSource Technology,
Inc. in connection with the merger of SunSource Technology, Inc. with and into
SunglassSite, Inc., a wholly owned subsidiary of EyeCity. These shares of
EyeCity were issued to the one individual stockholder of SunSource Technology,
Inc. EyeCity relied on exemptions from registration under Section 4(2) of the
Securities Act of 1933.

      In June 1999, EyeCity privately sold 50,000 shares of its common stock to
one individual investor. These shares were sold for $1.50 per share for a total
offering price of $75,000. EyeCity paid James J. Armenakis a commission in the
form of options to purchase 15,000 shares of EyeCity common stock at an exercise
price of $1.50 per share under the 1998 Stock Option Plan. EyeCity relied on
exemptions from registration under Section 4(2) of the Securities Act of 1933.
Such individual investor represented that he was an accredited investor as
defined under Rule 501 of Regulation D of the Securities Act of 1933.

      In June 1999, EyeCity privately sold 230,000 shares of its common stock to
10 individual investors. These shares were sold for $3.00 per share, for a total
offering price of $690,000. In connection with the sale of $490,000 of these
shares, EyeCity paid to James J. Armenakis a commission in the form of options
to purchase 98,000 shares of EyeCity common stock at an exercise price of $3.00
per share under the 1999 Stock Option Plan. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933. Each of these
investors represented that he or she was an accredited investor as defined under
Rule 501 of Regulation D of the Securities Act of 1933.

                                       25
<PAGE>

      In July 1999, EyeCity privately issued 13,000 shares of its common stock
to the 1996 Joel Lebovitz Trust and 13,000 shares of its common stock to Manley
Goldfine in connection with certain improvements, valued at approximately
$78,000, to certain real estate in Duluth, Minnesota leased by EyeCity through
its wholly owned subsidiary, Peeper's, Inc. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933.

      In July and August 1999, EyeCity privately sold 47,334 shares of its
common stock to seven individual investors. These shares were sold for $3.00 per
share, for a total offering price of $142,004. In connection with the sale of
$35,000 of these shares, EyeCity will pay to James J. Armenakis a commission in
the form of options to purchase 7,000 shares of EyeCity common stock at an
exercise price of $3.00 per share under the 1999 Stock Option Plan. EyeCity
relied on exemptions from registration under Section 4(2) of the Securities Act
of 1933. Each of these investors represented that he or she was an accredited
investor as defined under Rule 501 of Regulation D of the Securities Act of
1933.

      In August 1999, EyeCity privately issued 10,000 shares of its common stock
in connection with the exercise of stock options at $1.00 per share by Robert B.
Greenberg. These shares of EyeCity were issued in equal amounts to four family
members of Mr. Greenberg. EyeCity relied on exemptions from registration under
Section 4(2) of the Securities Act of 1933.

      In August 1999, EyeCity privately issued 15,000 shares of its common stock
to Rosenman & Colin LLP, counsel to EyeCity, in consideration for the provision
of legal services valued at approximately $45,000. EyeCity relied on exemptions
from registration under Section 4(2) of the Securities Act of 1933.

      In September 1999, EyeCity privately issued 166,667 shares of its common
stock valued at approximately $500,000 as partial consideration for certain
assets of Impact Eyewear, LLC. These shares of EyeCity were issued to Impact
Eyewear, LLC. EyeCity relied on exemptions from registration under Section 4(2)
of the Securities Act of 1933.

      In September 1999, EyeCity privately issued 40,000 shares of its common
stock in connection with the exercise of stock options at $1.00 per share by
Robert B. Greenberg. EyeCity relied on exemptions from registration under
Section 4(2) of the Securities Act of 1933.

      In October 1999, EyeCity privately issued 33,333 shares of its common
stock to one individual investor. These shares were sold for $3.00 per share for
a total offering price of $100,000. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933. The investor
represented that he was an accredited investor as defined under Rule 501 of
Regulation D of the Securities Act of 1933.

      In October 1999, one of the investors in the subordinated convertible
promissory notes sold in EyeCity's August 1998 offering converted $12,500 of his
notes into 10,000 shares of EyeCity common stock. EyeCity relied on exemptions
from registration under Section 4(2) of the Securities Act of 1933. Such
individual investor represented that he was an accredited investor as defined
under Rule 501 of Regulation D of the Securities Act of 1933.

      In November 1999, EyeCity privately issued 160,000 shares of its common
stock to Rosenman & Colin LLP, counsel to EyeCity, in consideration for the
provision of legal services valued at approximately $160,000. EyeCity relied on
exemptions from registration under Section 4(2) of the Securities Act of 1933.

                                       26
<PAGE>

      In December 1999, EyeCity privately sold 30,000 shares of its common stock
to two individual investors at a price of $1.00 per share for a total offering
price of $30,000. In connection with these sales, EyeCity paid to James J.
Armenakis a commission in the form of ten percent in cash and options to
purchase 3,000 shares of EyeCity common stock at an exercise price of $1.00 per
share under the 1999 Stock Option Plan. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933. Each of these
investors represented that he or she was an accredited investor as defined under
Rule 501 of Regulation D of the Securities Act of 1933.

      In the case of the transactions referred to above as relying on the
Section 4(2) exemption, EyeCity did not engage in any general solicitation or
advertising; the investors were either accredited investors or experienced and
sophisticated investors or sellers in sale of business transactions or service
providers, there were a small number of investors overall, and the investors
were known to EyeCity or its advisors.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

General

      EyeCity is engaged in the online marketing, distribution and retail sale
over the Internet of a broad range of eyewear products and optical accessories,
including brand name sunglasses, contact lenses, binoculars, prescription
eyewear, telescopes, sports and lifestyle eyewear, and hunting glasses. The
United States optical product market is estimated at $15.8 billion for 1998.
EyeCity has effected an acquisition strategy within the highly fragmented
Internet optical industry, and in 1999 closed on the acquisition of three
companies retailing optical products over the Internet. Through this strategy,
as well as internal expansion, EyeCity intends to become the leading retailer of
eyewear and optical accessories on the Internet, providing one-stop shopping for
domestic and international customers in an easy-to-shop environment, 24 hours a
day, seven days a week. EyeCity intends to acquire additional complementary
businesses as opportunities arise from time to time.

Overview

      From EyeCity's inception through December 1998, its business strategy
primarily focused on becoming a leading producer, distributor and marketer of
ergonomic computer eyewear products designed to alleviate health related
problems associated with Computer Vision Syndrome and, to a lesser extent, on
becoming a leading producer, distributor and marketer of Foggles(R) branded
optical products designed for the aviation, hunting and shooting industries.

      In January 1999, EyeCity refocused its business strategy to capitalize on
the Internet retailing opportunities associated with the optical product
industry. In this regard, EyeCity acquired EyeGlassPlace.com, Inc., Peeper's
Sunglasses and Accessories, Inc. and SunSource Technology, Inc. in March 1999,
May 1999 and June 1999, respectively. In connection with these acquisitions,
EyeCity recorded goodwill of approximately $4.2 million which will be amortized
over three years from the dates of such acquisitions. In addition, in September
1999 EyeCity acquired certain assets of Impact Eyewear, LLC, including a
non-exclusive license from Yahoo! Inc. to use the "Yahoo!" name and logo for the
distribution and marketing of eyewear

                                       27
<PAGE>

and eyewear accessories throughout the United States, and recorded an intangible
asset in the amount of $646,000 which will be amortized over three years from
the closing. In August 1999, EyeCity caused its EyeGlassPlace.com and SunSource
subsidiaries to be merged into its Peeper's subsidiary (references herein to the
performance of EyeCity's Peeper's subsidiary give effect to this merger).

      EyeCity has incurred substantial losses and has had significant negative
cash flow since its inception. The independent auditor's report included in this
Form 10-KSB includes an explanatory paragraph regarding substantial doubt about
EyeCity's ability to continue as a going concern without additional financing
due to recurring losses from operations and a working capital deficiency. See
Note 1 of "Notes to Consolidated Financial Statements". Although EyeCity has
obtained financing in the past, EyeCity will require additional funding to cover
current operations, repay indebtedness and enable it to fund its business plan.
EyeCity is currently seeking from potential investors additional financing, but
there is no assurance that such financing will be sufficient or available, or if
available, will be available on acceptable terms.

      Although EyeCity was formed in May 1996, it only initiated its current
business plan for online retail distribution of optical products in the first
quarter of 1999. Further, EyeCity only closed on the acquisitions forming the
core components of this current business during the second quarter of 1999.
EyeCity's SuperSite, www.eyecity.com is expected to launch in April 2000. As a
result, there is only limited current relevant financial and operating
information available for a potential investor to evaluate an investment in
EyeCity's common stock. In addition, EyeCity's limited operating history and
recent growth in net sales since implementing its acquisition strategy make it
difficult to forecast future operating results and reduce the relevance of
historical annual and quarter-to-quarter comparisons.

      EyeCity cannot predict whether the recent rate of growth in annual net
sales will decrease in future periods, which could have an adverse effect on
EyeCity's performance to the extent significant anticipated increased expenses
do not generate commensurate increases in sales.

      In this regard, EyeCity expects to continue to incur significant losses as
a result of, among other things, substantially higher general and administrative
expenses attributable to growth in overhead as EyeCity expands its business, and
increased depreciation and amortization expense attributable to its
acquisitions. In addition, in order to promote EyeCity's brand, it will need to
increase its marketing expenditures and otherwise increase its financial
commitment to creating and maintaining brand loyalty among users, which will
further adversely affect profitability. There can be no assurance that EyeCity
will be able to obtain requisite financing or achieve profitability.

      EyeCity's gross profit on sunglasses are significantly higher than its
gross profit on its other products. As EyeCity implements its business plan to
increase the scope of its product offerings, to the extent sales of such other
products become a greater portion of total sales, EyeCity's gross profits could
be adversely affected.

Results of Operations

Fiscal Year Ended December 31, 1999 Compared to Fiscal Year Ended December 31,
1998.

      Net revenues for the fiscal year ended December 31, 1999 were
approximately $2,633,000 as compared to net revenues in 1998 of approximately
$96,000. The increase in

                                       28
<PAGE>

revenues of approximately $2,537,000 is principally attributable to the
acquisitions of Peepers's Sunglasses and Accessories, Inc. ("Peepers") in May
1999, SunSource Technology, Inc. ("SunSource") in June 1999 and Foggles, Inc.
("Foggles") in August 1998. Peepers and SunSource are both online optical
product retailers and had revenues in 1999 of approximately $2,399,000. Foggles
is a producer, distributor and marketer of optical products for the aviation,
hunting and shooting industries and had revenues in 1999 of $178,000.

      Cost of revenues for 1999 were approximately $1,888,000 as compared to
approximately $53,000 in 1998. The increase of approximately $1,835,000 is due
primarily to costs associated with increased sales volume and costs associated
with product sales by Peepers and Foggles.

      Gross profit amounted to approximately $745,000 in 1999 (28.2% of net
revenues) as compared to approximately $43,000 in 1998 (44.3% of net revenues).
The dollar increase was primarily due to increased sales levels. The percentage
decrease was attributable to the higher margins on the ergonomic computer
eyewear products (constituting substantially all of 1998 sales) as compared to
the lower margin on the sunglasses and other eyewear products (constituting
substantially all of 1999 sales).

      General and administrative expenses were approximately $3,053,000 in 1999
as compared to approximately $1,125,000 in 1998. The overall increase is
principally attributable to increases in salaries and related expenses of
$667,000 and increases in legal, accounting and professional fees of $737,000.
These salary increases are due to an increase in headcount and the increased
fees are attributable to various acquisitions including Peeper's and SunSource
and EyeCity becoming a reporting company under the Securuties Exchange Act of
1934 in the fourth quarter of 1999.

      Depreciation and amortization expenses were approximately $1,056,000 in
1999 as compared to approximately $25,000 in 1998. The increase is principally
attributable to amortization of goodwill and other intangible assets resulting
from various acquisitions including Peepers and SunSource.

      Technology and development expenses were approximately $251,000 in 1999.
There were no expenses related to technology and development in 1998. This
expense is associated with the development of the eyecity.com supersite.

      Interest expense was approximately $195,000 in 1999 as compared to
approximately $10,000 in 1998. This increase is primarily related to the
subordinated convertible promissory notes issued during 1998 as well as
accretion recorded on the discount of the non-interest bearing promissory notes
issued in conjunction with the acquisitions of Peepers and SunSource. See
"Liquidity and Capital Resources".

Liquidity and Capital Resources

      EyeCity believes that its currently available funds, including the net
proceeds of $1,377,950 raised in connection with the private placement of common
stock subsequent to December 31, 1999, will be sufficient to meet its
anticipated working capital needs through at least April 2000. Thereafter,
EyeCity will need to raise substantial additional funds to implement anticipated
capital expenditures and business expansion and repay indebtedness due in the
second quarter of fiscal 2000.

                                       29
<PAGE>

      Historically, EyeCity has financed its cash requirements primarily through
private placements of its securities. As of December 31, 1999, EyeCity has
raised $1.0 million in a 1997-1998 offering of shares of its common stock and
$2,624,000, net of expenses of $163,000 in private placements of shares of its
common stock. The proceeds of the private placements are being or have been used
to complete the acquisitions of Peepers.com, Binoculars.com, EyeGlassPlace.com,
SunglassSite.com, OpticalSite.com, Abeam.com and certain assets of Impact
Eyewear, to build the EyeCity SuperSite, for initial marketing and advertising
of the SuperSite, as well as general corporate purposes.

      During 1998, EyeCity issued $362,500 of subordinated convertible
promissory notes. The notes bear interest at a rate of 10% per annum, payable
quarterly, commencing January 1, 1999. The notes are convertible into EyeCity's
common stock at a price of $1.25 per share at the option of the holder at any
time after October 1, 1999 (the "Conversion Date"). EyeCity has the right to
call, redeem and prepay the notes if the market price of EyeCity's common stock
equals or exceeds $2.50 per share for ten consecutive trading days at any time
after the Conversion Date. The notes are repayable in twelve quarterly principal
payments commencing on October 1, 2000. In March 1999, $25,000 of the notes was
repaid prior to maturity. In October 1999, $12,500 of the notes were converted
into 10,000 shares of common stock.

      A portion of the consideration paid by EyeCity in connection with its
acquisition of Peeper's Sunglasses and Accessories, Inc. and SunSource
Technology, Inc. was in the form of promissory notes in the amounts of $875,000
and $212,500, respectively. The $875,000 note accrues no interest, is secured by
certain assets formerly owned by Peeper's Sunglasses and Accessories, Inc. and
is immediately due and payable on the earlier of May 7, 2000 or the consummation
by EyeCity of a public financing transaction which results in gross proceeds in
excess of $10,000,000. The $212,500 note accrues no interest, is unsecured and
is immediately due and payable on the earlier of June 30, 2000 or the
consummation by EyeCity of a public financing transaction which results in gross
proceeds in excess of $10,000,000. There can be no assurance that EyeCity will
have available funds to satisfy these notes at maturity, in which event the
holders could claim that EyeCity is in breach of its obligations. Such holders
could commence proceedings against EyeCity, which could have a material adverse
affect on EyeCity's operations.

      Subsequent to December 31, 1999, EyeCity sold 1,485,500 shares of its
common stock to several investors at a price of $1.00 per share, resulting in
net proceeds of $1,377,950. EyeCity will need to raise in the short term
approximately $1,500,000 in additional funds to satisfy its current obligations,
an additional amount of approximately $500,000 for it to continue its current
operations through June 2000, and approximately $1,500,000 in supplementary
funds to further fund its business plan. There is no assurance that such funds
will be available, or if available, will be on terms satisfactory to EyeCity.

      For the year ended December 31, 1999, EyeCity used approximately
$1,390,000 in connection with its operating activities, principally to fund its
net loss before non-cash charges of approximately $2,230,000, as well as
increases in operating assets such as inventories and prepaid expenses. The use
of cash was offset in part by increases in accounts payable and accrued
expenses, due primarily to the acquisitions of EyeGlassPlace.com, Inc., Peeper's
Sunglasses and Accessories, Inc. and SunSource Technology, Inc. EyeCity used
$597,000 in cash to fund operations in 1998.

                                       30
<PAGE>

      For the year ended December 31, 1999, net cash used in investing
activities approximated $1,443,000. This is primarily attributable to cash paid
for the acquisitions of Peepers ($809,000, net of cash acquired) and SunSource
($190,000, net of cash acquired), the rights, title and interest in and to
certain assets of Impact Eyewear LLC ($146,000) and the purchases of property
and equipment. EyeCity used $10,000 in cash for investing activities in 1998.

      For the year ended December 31, 1999, net cash provided by financing
activities approximated $2,784,000, primarily from the sale of common stock.

      As of December 31, 1999, EyeCity had approximately $175,000 of cash and
cash equivalents. As of December 31, 1999, EyeCity's principal commitments
consisted of:

      o     non-interest bearing promissory notes issued to sellers in
            connection with prior acquisitions by EyeCity in the aggregate
            amount of $1.1 million which mature at the earlier of dates ranging
            from May 7, 2000 to June 30, 2000 or consummation by EyeCity of a
            public financing transaction or transactions for gross proceeds in
            excess of $10,000,000;

      o     $327,000 of 10% subordinated convertible promissory notes, due
            October 1, 2003;

      o     $327,000 of deferred salary for officers. Included in this amount is
            deferred salaries owed to Mark Levin of $150,000, Mark Suroff of
            $150,000 and Daniel Thralow of $27,000;

      o     $8,000 outstanding on a non-interest bearing note issued in
            connection with the acquisition of certain patent display technology
            payable in equal monthly installments commencing June 15, 1999;

      o     obligations outstanding under operating leases. See "Description of
            Property" and note 12 to the Financial Statements Attached hereto;
            and.

      o     obligations outstanding under capital leases. See note 12 to the
            Financial Statements attached hereto.

      As of December 31, 1999, EyeCity had a working capital deficiency of
approximately $2,092,000. EyeCity will need to raise additional funds in order
to satisfy EyeCity's current obligations and to fund its business plan,
including more rapid expansion, to develop new or enhanced services or products,
to respond to competitive pressures or to acquire complementary products,
businesses or technologies. If EyeCity raises additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
its current stockholders will be reduced, its stockholders may experience
additional dilution and such securities may have rights, preferences and
privileges senior to those of its common stock. There can be no assurance that
additional financing will be available on terms favorable to EyeCity or at all.
If adequate funds are not available or are not available on acceptable terms,
EyeCity may not be able to meet its financial obligations or to continue to
implement its business plan. This inability could have a material adverse effect
on EyeCity's business, results of operations and financial condition.

Seasonality

      EyeCity believes that its results of operations are somewhat seasonal in
nature, with the highest volume of purchases by consumers occurring in the
second and fourth quarters.

                                       31
<PAGE>

EyeCity's limited operating history makes it difficult to fully assess the
impact of seasonality or whether or not EyeCity's business is susceptible to
cyclical fluctuations in the U.S. economy. In addition, EyeCity believes that
its rapid growth may have overshadowed whatever seasonal or cyclical factors
might have influenced its business to date. EyeCity intends to expense all
advertising costs, including all direct-mail advertising costs, when the
advertising first takes place. As a result, quarter-to-quarter comparisons will
be impacted by the timing of advertisements and related expenses within and
between quarters. There can be no assurance that seasonal or cyclical variations
in EyeCity's operations will not become more pronounced over time or that they
will not materially adversely affect its results of operations in the future.

Other Matters

Year 2000 computer issue

      We initiated a firm-wide program to address the Year 2000 computer issue
in order to prepare our computer systems and applications to accurately process
dates after December 31, 1999. This program consisted of a series of steps to
identify all critical and non-critical systems, determine Year 2000 compliance
through inquiries and testing and to change non-compliant systems. In addition,
we contacted all of our vendors regarding this issue, and received assurances
from all of them that they did not anticipate any Year 2000 problems. Our
program was substantially in place as of December 1, 1999, and, to our
knowledge, has prevented any problems associated with the Year 2000 computer
issue. Our entire program cost less than $50,000. As a result of those planning
and implementation efforts, we did not experience any significant disruptions in
our essential information technology and non-information technology systems. We
believe that our systems successfully responded to the Year 2000 date change. We
are not aware of any material problems resulting from Year 2000 issues, either
with our products, our internal systems or the products and services of third
parties. We will continue to monitor our essential computer systems and
applications and those of our suppliers and licensors throughout the year 2000
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.

ITEM 7. FINANCIAL STATEMENTS

      The required Financial Statements and the notes thereto are contained in a
separate section of this report beginning with the page following the signature
page.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

      None.

                                    PART III

      The information called for by Part III (Items 9, 10, 11 and 12 of Form
10-KSB) is incorporated herein by reference to such information which will be
contained in EyeCity's Proxy Statement to be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934 with respect to EyeCity's 2000 Annual
Meeting of Stockholders.

                                       32
<PAGE>

Item 13. Exhibits and Reports on Form 8K

                  (a) Exhibits

Exhibit No.       Description

   1.1            Certification of Incorporation. Incorporated herein by
                  reference to Exhibit 2(a) to EyeCity.com's Form 10-SB/A, File
                  No.0-27561.

   1.2            Amendment to Certificate of Incorporation. . Incorporated
                  herein by reference to Exhibit 2(b) to EyeCity.com's Form
                  10-SB/A, File No.0-27561.

   1.3            Bylaws, as amended. Incorporated herein by reference to
                  Exhibit 2(c) to EyeCity.com's Form 10-SB/A, File No.0-27561.

   4.1(a)         Form of Subscription Agreement used in connection with
                  offering of 450,000 and 550,000 shares of common stock under
                  Rule 504 of Securities Act of 1933. Incorporated herein by
                  reference to Exhibit 3(a) to EyeCity.com's Form 10-SB/A, File
                  No.0-27561.

   4.1(b)         Form of Subscription Agreement used in connection with
                  offering of 10% Subordinated Convertible Promissory Notes.
                  Incorporated herein by reference to Exhibit 3(b) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   4.1(c)         Form of 10% Subordinated Convertible Promissory Note.
                  Incorporated herein by reference to Exhibit 3(c) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   4.1(d)         Purchase and Investment Agreement with Nikos P. Mouyiaris.
                  Incorporated herein by reference to Exhibit 3(d) to
                  EyeCity.com's on Form 10-SB/A, File No.0-27561.

   4.1(e)         Form of Purchase and Investment Agreement with other investors
                  in May 1999 $1,500,000 offering. Incorporated herein by
                  reference to Exhibit 3(e) to EyeCity.com's Form 10-SB/A, File
                  No.0-27561.

   4.1(f)         Form of Purchase and Investment Agreement with investors in
                  June 1999 $690,000 offering. Incorporated herein by reference
                  to Exhibit 3(f) to EyeCity.com's Form 10-SB/A, File
                  No.0-27561.

   10.1(a)        Stock Purchase Agreement between Ergovision, Inc. and
                  shareholders of Foggles, Inc. Incorporated herein by reference
                  to Exhibit 6(a) to EyeCity.com's Form 10-SB/A, File
                  No.0-27561.

   10.1(b)        Stock Purchase Agreement between Ergovision, Inc. and
                  shareholders of Gilead Enterprises, Inc. Incorporated herein
                  by reference to Exhibit 6(b) to EyeCity.com's Form 10-SB/A,
                  File No.0-27561.

   10.1(c)        Stock Purchase Agreement by and between Ergovision, Inc. and
                  EyeGlassPlace.com, Inc. Incorporated herein by reference to
                  Exhibit 6(c) to EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(d)        Severance and Consultancy Agreement with Robert B. Greenberg.
                  Incorporated herein by reference to Exhibit 6(d) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

                                       33
<PAGE>

   10.1(e)        Amendments to Severance and consultancy Agreement with Robert
                  B. Greenberg. . Incorporated herein by reference to Exhibit
                  6(e) to EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(f)        Agreement and Plan of Merger by and among Ergovision, Inc.,
                  Peeper's Sunglasses and Accessories, Inc., Peeper's, Inc. and
                  Daniel D. Thralow. Incorporated herein by reference to Exhibit
                  6(f) to EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(g)        Purchase Agreement between EyeCity.com, Inc. and StarSystems.
                  Incorporated herein by reference to Exhibit 6(f) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(h)        Agreement and Plan of Merger by and among EyeCity.com, Inc.,
                  SunglassSite, Inc., SunSource Technology, Inc. and G. Robert
                  Wilson. Incorporated herein by reference to Exhibit 6(h) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(i)        Asset Purchase and Assignment Agreement by and among
                  EyeCity.com, Inc., Impact Eyewear, LLC and Thomas Seltzer. .
                  Incorporated herein by reference to Exhibit 6(i) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(j)        Agreement between EyeCity.com and IEM, Inc. Incorporated
                  herein by reference to Exhibit 6(l) to Eyecity.com's Form
                  10-SB/A, File No.0-27561.

   10.1(k)+       Employment Agreement between Ergovision, Inc. and Mark H.
                  Levin. . Incorporated herein by reference to Exhibit 6(m) to
                  Eyecity.com's Form 10-SB/A, File No.0-27561.

   10.1(l)+       Amendment to Employment Agreement between Ergovision, Inc. and
                  Mark H. Levin. . Incorporated herein by reference to Exhibit
                  6(n) to EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(m)+       Employment Agreement between Ergovision, Inc. and Mark R.
                  Suroff. Incorporated herein by reference to Exhibit 6(o) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(n)+       Amendment to Employment Agreement between Ergovision, Inc. and
                  Mark R. Suroff. Incorporated herein by reference to Exhibit
                  7(p) to EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(o)+       Employment Agreement between Ergovision, Inc. and Daniel D.
                  Thralow. Incorporated herein by reference to Exhibit 6(q) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(p)        Finders Agreement between Ergovision, Inc. and James J.
                  Armenakis. Incorporated herein by reference to Exhibit 6(r) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(q)*       Amendment to Finders Agreement between EyeCity.com, Inc. and
                  James J. Armenakis dated December 29, 1999.

                                       34
<PAGE>

   10.1(r)        Consulting Agreement between Ergovision, Inc. and James J.
                  Armenakis. Incorporated herein by reference to Exhibit 6(s) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(s)        Amendment to Consulting Agreement between Ergovision, Inc. and
                  James J. Armenakis. Incorporated herein by reference to
                  Exhibit 6(t) to EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(t)        1997 Qualified Stock Option Plan. Incorporated herein by
                  reference to Exhibit 6(w) to EyeCity.com's Form 10-SB/A, File
                  No.0-27561.

   10.1(u)        1998 Stock Option Plan. Incorporated herein by reference to
                  Exhibit 6(x) to EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(v)        1999 Stock Option Plan. Incorporated herein by reference to
                  Exhibit 6(y) to EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(w)        Lease between First Industrial, LP and EyeCity.com, Inc.
                  Incorporated herein by reference to Exhibit 6(z) to
                  EyeCity.com's Form 10-SB/A, File No.0-27561.

   10.1(x)        Lease between Plaza Associates and Peeper's, Inc. Incorporated
                  herein by reference to Exhibit 6(aa) to EyeCity.com's Form
                  10-SB/A, File No.0-27561.

   21*            List of Subsidiaries

   27*            Financial Data Schedule

     *            Filed herewith. All other exhibits are incorporated by
                  reference to the document following the description thereof.

     +            Management contract or compensatory plan.

    (b)           Reports on Form 8-K

                  None

                                       35
<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.

                                     EYECITY.COM, INC.


March 28, 2000                       By:   /s/ Mark H. Levin
                                           -------------------------------------
                                           Mark H. Levin, President,
                                           Chief Executive Officer (principal
                                           executive officer) and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

March 28, 2000                       /s/ Mark H. Levin
                                     -------------------------------------------
                                     Mark H. Levin, President,
                                     Chief Executive Officer (principal
                                     executive officer) and Director


March 28, 2000                       /s/ Mark R. Suroff
                                     -------------------------------------------
                                     Mark R. Suroff, Director


March 28, 2000                       /s/ Daniel D. Thralow
                                     -------------------------------------------
                                     Daniel D. Thralow, Director


March 28, 2000                       /s/ Nikos P. Mouyiaris
                                     -------------------------------------------
                                     Nikos P. Mouyiaris, Director


March 28, 2000                       /s/ Barbara Novick
                                     -------------------------------------------
                                     Barbara Novick, Director

                                       36
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

                              Financial Statements

                                    Contents

Report of Independent Auditors...............................................F-1

Consolidated Balance Sheet as of December 31, 1999...........................F-2

Consolidated Statements of Operations for the Years
Ended December 31, 1999 and 1998.............................................F-4

Consolidated Statements of Stockholders'
Equity (Deficit) for the Years Ended December 31, 1999 and 1998..............F-5

Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999 and 1998.............................................F-6

Notes to Consolidated Financial Statements...................................F-7

<PAGE>

                         Report of Independent Auditors

The Stockholders
EyeCity.com, Inc.

We have audited the accompanying consolidated balance sheet of EyeCity.com, Inc.
and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of EyeCity.com, Inc.
and subsidiaries at December 31, 1999, and the consolidated results of their
operations and their cash flows for the years ended December 31, 1999 and 1998,
in conformity with accounting principles generally accepted in the United
States.

As discussed in Note 1 to the consolidated financial statements, the Company's
recurring losses from operations and working capital deficiency raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans as to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Melville, New York
March 13, 2000

                                                    /s/ Ernst & Young LLP

                                      F-1
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries
                           Consolidated Balance Sheet
                                December 31, 1999

ASSETS

Current assets:
  Cash and cash equivalents                                           $  175,155
  Accounts receivable, net of allowance
    of $9,150                                                             24,782
  Inventories                                                            488,240
  Prepaid expenses and other current assets                               91,651
                                                                      ----------
Total current assets                                                     779,828

Property and equipment, net of accumulated
  depreciation of $48,410                                                358,888

Intangibles, net of accumulated
  amortization of $1,032,739                                           4,060,065

Website development costs                                                 16,000

Security deposits                                                          8,259
                                                                      ----------
Total assets                                                          $5,223,040
                                                                      ==========

See accompanying notes.

                                      F-2
<PAGE>

LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses                             $ 1,337,226
  Accrued payroll and related taxes                                      72,569
  Deferred salaries to officers                                         326,538
  Current portion of capital lease obligations                           24,805
  Current portion of notes payable                                    1,083,733
  Current portion of subordinated convertible promissory notes           27,083
                                                                    -----------
Total current liabilities                                             2,871,954

Capital lease obligations, less current portion                          73,606
Subordinated convertible promissory notes, less current portion         297,917
                                                                    -----------

Total liabilities                                                     3,243,477
                                                                    -----------

Stockholders' equity:
  Preferred stock - $.001 par value:  authorized, 1,000,000
    shares: no shares issued and outstanding                                 --
  Common stock - $.001 par value:  20,000,000 shares authorized,
    8,992,932 shares issued and outstanding                               8,993
  Additional paid-in capital                                          8,094,967
  Accumulated deficit                                                (6,073,801)
  Unamortized compensation component of stock options                   (50,596)
                                                                    -----------
Total stockholders' equity                                            1,979,563
                                                                    -----------
Total liabilities and stockholders' equity                          $ 5,223,040
                                                                    ===========

See accompanying notes.

                                      F-3
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries
                      Consolidated Statements of Operations

                                                     Year Ended December 31,
                                                     -----------------------
                                                     1999               1998
                                                     ----               ----

Net revenues                                      $ 2,632,664       $    95,974
Cost of revenues                                    1,888,161            53,378
                                                  -----------       -----------
Gross profit                                          744,503            42,596
                                                  -----------       -----------

Operating expenses:
  Marketing and sales                                 334,204           303,298
  General and administrative                        3,052,858         1,125,260
  Depreciation and amortization                     1,055,798            24,754
  Technology and development                          251,351                --
                                                  -----------       -----------
  Total operating expenses                          4,694,211         1,453,312
                                                  -----------       -----------

Operating loss                                     (3,949,708)       (1,410,716)
                                                  -----------       -----------

Other income (expense):
  Interest and investment income                       14,308            10,865
  Interest expense                                   (195,432)          (10,473)
                                                  -----------       -----------
Net other income (expense)                           (181,124)              392
                                                  -----------       -----------
Net loss                                          $(4,130,832)      $(1,410,324)
                                                  ===========       ===========

Basic and diluted net loss
  per common share                                $      (.57)      $      (.33)
                                                  ===========       ===========
Shares used in the calculation of  basic
  and diluted net loss per common share             7,213,272         4,259,773
                                                  ===========       ===========

See accompanying notes.

                                      F-4
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries
            Consolidated Statements of Stockholders' Equity (Deficit)
                     Years ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                Unamortized       Total
                                          Common Stock           Additional                    Compensation   Stockholders'
                                    ------------------------      Paid-In      Accumulated     Component of      Equity
                                      Shares        Amount        Capital         Deficit      Stock Options    (Deficit)
                                    ------------------------    -----------   -------------    -------------  -------------
<S>                                 <C>          <C>            <C>            <C>             <C>             <C>
Balance at January 1, 1998          3,550,000    $     3,550    $   533,950    $  (532,645)    $        --     $     4,855
Issuance of common stock for
  cash, net of expenses of
  $14,736                             450,000            450        434,814             --              --         435,264
Issuance of common stock for
  consulting services                 310,000            310        204,690             --              --         205,000
Issuance of common stock in
  connection with acquisitions        229,000            229        173,204             --              --         173,433
Issuance of stock options                  --             --        410,070             --        (410,070)             --
Amortization of compensation
  component of stock options               --             --             --             --         246,851         246,851
Net loss for the year ended
  December 31, 1998                        --             --             --     (1,410,324)             --      (1,410,324)
                                    ---------    -----------    -----------    -----------     -----------     -----------
Balance at December 31, 1998        4,539,000          4,539      1,756,728     (1,942,969)       (163,219)       (344,921)
Issuance of common stock for
  cash net of expenses of
  $163,000                          2,140,667          2,141      2,621,861             --              --       2,624,002
Issuance of common stock for
  services                            481,000            481        562,519             --              --         563,000
Issuance of common stock in
  connection with acquisitions      1,772,265          1,772      2,874,599             --              --       2,876,371
Issuance of common stock for
  conversion of debt                   10,000             10         12,490             --              --          12,500
Issuance of stock options                  --             --        216,820             --        (216,820)             --
Exercise of stock options              50,000             50         49,950             --              --          50,000
Amortization of compensation
  component of stock options               --             --             --             --         329,443         329,443
Net loss for the year ended
  December 31, 1999                        --             --             --     (4,130,832)             --      (4,130,832)
                                    ---------    -----------    -----------    -----------     -----------     -----------
Balance at December 31, 1999        8,992,932    $     8,993    $ 8,094,967    $(6,073,801)    $   (50,596)    $ 1,979,563
                                    =========    ===========    ===========    ===========     ===========     ===========
</TABLE>

See accompanying notes.


                                      F-5
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                           -----------------------
                                                                            1999            1998
                                                                            ----            ----
<S>                                                                     <C>             <C>
Cash flows from operating activities
Net loss                                                                $(4,130,832)    $(1,410,324)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation and amortization                                           1,055,798          24,754
  Provision for doubtful accounts                                             8,100              --
  Amortization of discount                                                  157,083              --
  Amortization of compensation component of stock options                   329,443         246,851
  Issuance of stock for consulting services                                 350,000         205,000
Changes in operating assets and liabilities, excluding the
   effect of acquisitions:
Accounts receivable                                                          12,789         (32,710)
Inventories                                                                (303,112)        (60,547)
Prepaid expenses and other current assets                                   (14,832)          4,558
Accounts payable and accrued expenses                                     1,006,089         188,059
Accrued payroll and related taxes                                           (22,118)         71,860
Deferred salary to officers                                                 161,538         165,000
                                                                        -----------     -----------
Net cash used in operating activities                                    (1,390,054)       (597,499)
                                                                        -----------     -----------

Cash flows from investing activities
Purchase of intangibles                                                     (17,000)             --
Capitalized website development costs                                       (16,000)             --
Cash paid for acquisitions, net of cash acquired and related
   expenses                                                              (1,175,531)          3,443
Purchases of property and equipment                                        (226,588)        (13,596)
Security deposits                                                            (8,259)
                                                                        -----------     -----------
Net cash used in investing activities                                    (1,443,378)        (10,153)
                                                                        -----------     -----------

Cash flows from financing activities
Exercise of options                                                          50,000              --
Repayment of notes payable                                                  (20,000)        (50,000)
Repayment of convertible subordinated notes                                 (25,000)             --
Proceeds from issuance of stock, net of expenses in 1998                  2,787,002         435,264
Proceeds from issuance of convertible subordinated notes                         --         362,500
Repayment of capital lease obligations                                       (8,163)             --
                                                                        -----------     -----------
Net cash provided by financing activities                                 2,783,839         747,764
                                                                        -----------     -----------

Net (decrease) increase in cash and cash equivalents                        (49,593)        140,112
Cash and cash equivalents at beginning of year                              224,748          84,636
                                                                        -----------     -----------
Cash and cash equivalents at end of year                                $   175,155     $   224,748
                                                                        ===========     ===========
Supplemental disclosures
Cash paid for interest                                                  $    38,035     $        --
                                                                        ===========     ===========
</TABLE>

See accompanying notes.


                                      F-6
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                December 31, 1999

1. Description of Business and Basis of Presentation

EyeCity.com, Inc. and its subsidiaries (collectively "EyeCity") are engaged in
one business segment: the online marketing, distribution and sale of a broad
range of optical products and accessories, including brand name sunglasses,
contact lenses, binoculars, prescription eyewear, telescopes, sports and
lifestyle eyewear and hunting glasses.

EyeCity has incurred operating losses since its inception and its working
capital is insufficient to cover continuing operating expenses. Accordingly,
EyeCity requires additional funding from financing or other sources to cover
operating expenses until sufficient revenues are generated to cover such
expenses. EyeCity believes that its currently available funds, including the net
proceeds of $1,377,950 raised in connection with a common stock offering
subsequent to December 31, 1999 (see Note 13), will be sufficient to meet its
anticipated working capital needs through at least April 2000. Thereafter,
EyeCity will need to raise substantial additional funds to implement anticipated
capital expenditures, debt repayment relating to the acquisition of its Peepers,
Inc. and SunSource subsidiaries and operating expenses. There is no assurance
that such funds will be available, or if available, will be on terms
satisfactory to EyeCity.

The foregoing conditions raise substantial doubt as to EyeCity's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
EyeCity.com, Inc. and its wholly-owned subsidiaries, Ergovision, Inc., Foggles,
Inc., Gilead Enterprises, Inc., and Peeper's, Inc. (see Note 6). All material
intercompany balances and transactions have been eliminated in consolidation.

Cash Equivalents

EyeCity considers all highly liquid investments with a maturity of three months
or less at the date of purchase to be cash equivalents.

Revenue Recognition

Net revenues are generated by online and retail operations and primarily consist
of the selling price of merchandise, net of returns and credits, and shipping
charges. Net revenues are recognized upon shipment of the order to the
recipient. EyeCity provides an allowance for sales returns in the period of sale
based upon historical experience.


                                      F-7
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Cost of Revenues

Cost of revenues includes the cost of merchandise sold from inventory and the
associated cost of inbound freight and outbound shipping.

Concentration of Credit Risk

EyeCity sells its products to a broad range of customers throughout the United
States. A significant portion of customers pay for their products through the
use of major credit cards. The timing of the cash realization and related fees
are determined based upon agreements with such major credit card companies.
Accordingly, credit losses related to the sale of merchandise are limited.

Inventories

Inventories are stated at the lower of cost (using the weighted-average cost
method) or market.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the related assets,
ranging from 5 to 7 years.

Intangibles

Intangibles consist of: (i) goodwill - the excess of the purchase price over the
fair value of the net assets acquired, (ii) display technology, (iii) patents
and trademarks, (iv) internet domain names and (v) licenses. Amortization
expense relating to such intangibles is amortized on a straight-line basis over
three years.


                                      F-8
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Long-Lived Assets

EyeCity follows the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This standard establishes the accounting
for the impairment of long-lived assets, certain identifiable intangibles and
the excess of cost over net assets acquired, related to those assets to be held
and used in operations, whereby impairment losses are required to be recorded
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. SFAS No. 121 also addresses the accounting for long-lived assets and
certain identifiable intangibles that are expected to be disposed of.

When impairment indicators are present, EyeCity reviews the carrying value of
its assets in determining the ultimate recoverability of their unamoritized
values using future undiscounted cash flow analysis expected to be generated by
the asset. If such assets are considered impaired, the impairment recognized is
measured by the amount by which the carrying amount of the assets exceeds the
future discounted cash flows. Assets to be disposed of are reported at the lower
of the carrying amount or fair value, less costs to sell.

EyeCity evaluates the periods of amortization continually in determining whether
later events and circumstances warrant revised estimates of useful lives. If
estimates are changed, the unamortized costs will be allocated to the increased
or reduced number of remaining periods in the revised useful life.

Website Development Costs

The Company accounts for website development costs in accordance with the AICPA
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. Website development costs consist of
external costs incurred to purchase and implement the website software and
significant enhancements used in the Company's business. These costs are
capitalized and amortized using the straight-line method over the estimated
useful life of the asset of three years. Product development costs, preliminary
project and past implementation product costs are expensed as incurred.

Advertising Costs

EyeCity's policy is to expense advertising costs as incurred. For the years
ended December 31, 1999 and 1998, advertising expense was approximately $145,000
and $12,000, respectively.


                                      F-9
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Income Taxes

Income taxes are provided using the liability method. Accordingly, deferred tax
assets and liabilities are recognized for future tax consequences attributable
to differences between the carrying amount of assets and liabilities for
financial statement and income tax purposes, as determined under enacted tax
laws and rates that will be in effect when the differences are expected to
reverse.

Stock-Based Compensation

EyeCity accounts for its stock-based employee compensation agreements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year
financial statement presentation.

3. Property and Equipment

Property and equipment consist of the following:

                                                             December 31, 1999
                                                             -----------------

Office equipment                                                  $286,948
Furniture and fixtures                                              34,597
Leasehold Improvements                                              78,000
Molds                                                                7,753
                                                                  --------
                                                                   407,298
Less accumulated depreciation and
  amortization                                                      48,410
                                                                  --------
                                                                  $358,888
                                                                  ========


                                      F-10
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

4. Basic and Diluted Net Loss per Share

The following sets forth the computation of basic and diluted net loss per
share:

                                                     Year ended December 31,
                                                 ------------------------------
                                                     1999               1998
                                                 -----------        -----------
Numerator:
  Net loss                                       $(4,130,832)       $(1,410,324)
                                                 ===========        ===========

Denominator for basic and diluted
  net loss per share--weighted
  average shares                                   7,213,272          4,259,773
                                                 ===========        ===========
Basic and diluted net loss per
share                                            $      (.57)       $      (.33)
                                                 ===========        ===========

The calculation of diluted net loss per share excludes the effect of employee
stock options (see Note 9), as the effect of such exercises would be
antidilutive.

5. Subordinated Convertible Promissory Notes

During 1998, EyeCity issued $362,500 of subordinated convertible promissory
notes. The notes bear interest at 10% per annum and interest is payable
quarterly commencing January 1, 1999. The notes may be converted into shares of
EyeCity common stock at the option of the holder at a conversion price of $1.25
per share any time after October 1, 1999 (the "Conversion Date"). EyeCity has
the right to call, redeem or prepay the notes if the market price of EyeCity
common stock equals at least $2.50 per share for ten consecutive trading days at
any time after the Conversion Date. The notes are payable in 12 quarterly
principal payments commencing on October 1, 2000. EyeCity repaid $25,000 of such
notes in March 1999 and, on October 1, 1999, $12,500 of such notes were
converted into 10,000 shares of EyeCity common stock.

Principal payments for years ending on December 31 are as follows:

                      2000                  $ 27,083
                      2001                   108,333
                      2002                   108,334
                      2003                    81,250
                                            --------
                                            $325,000
                                            ========


                                      F-11
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

6. Acquisitions

EyeCity has closed on the acquisitions described below, each of which has been
accounted for as a purchase. Accordingly, the consolidated financial statements
include the operating results of each business from the respective date of
acquisition.

On April 24, 1998, EyeCity entered into a one-year agreement whereby it licensed
the use of certain patented display technology for an initial cash payment of
$10,000 and monthly payments of $350. On April 30, 1999, EyeCity acquired such
technology for a cash payment of $10,000, the issuance of 10,000 shares of
common stock and 15 monthly payments of $1,000 beginning on June 15, 1999. In
connection with the acquisition of this technology, EyeCity recorded an
intangible asset of $35,000. Had this acquisition been consummated on January 1,
1999, the unaudited pro forma consolidated net revenues and results of
operations would not have been considered material for the year ended December
31, 1999.

On August 5, 1998, EyeCity acquired the common stock of Foggles, Inc.
("Foggles") in exchange for 214,000 shares of EyeCity's common stock. Foggles is
a distributor of specialty eyeglasses that are used in the aviation and sporting
industry. The fair value of EyeCity's common stock issued to Foggles
shareholders was approximately $165,000. The purchase has been allocated to the
assets acquired and the liabilities assumed based on the fair values at the date
of acquisition. The excess of the purchase price over the estimated fair values
of the net assets acquired of approximately $156,000 has been recorded as
goodwill.

On September 17, 1998, EyeCity acquired all the common stock of Gilead
Enterprises, Inc. ("Gilead") in exchange for 15,000 shares of EyeCity's common
stock and options to purchase 2,500 shares of common stock at an exercise price
of $3.00 per share. (The exercise price of the options was in excess of the fair
value of the common stock on the date of grant). Gilead's assets primarily
consist of a patent and trademark relating to night driving glasses. The fair
value of EyeCity's common stock and options issued to Gilead shareholders was
approximately $8,000. Accordingly, the entire purchase price of approximately
$8,000 has been recorded as intangibles. Had this acquisition been consummated
on January 1, 1998, the unaudited pro forma consolidated net revenues and
results of operations would not have been considered material for the year ended
December 31, 1998.

On March 12, 1999, EyeCity acquired all of the outstanding shares of
EyeGlassPlace.com, Inc., an Internet retailer of optical products and
accessories, for 100,000 shares of EyeCity common stock. The fair value of
EyeCity's common stock issued in connection with this acquisition was
approximately $94,000. As the acquired entity had minimal operating assets and
liabilities, the entire purchase price has been recorded as goodwill. On August
5, 1999, EyeGlassPlace.com,


                                      F-12
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

6. Acquisitions (continued)

Inc. was merged into Peeper's, Inc. Had this acquisition been consummated on
January 1, 1998 or on January 1, 1999, the unaudited pro forma consolidated net
revenues and results of operations would not have been considered material for
the years ended December 31, 1998 or 1999.

On May 7, 1999, Peeper's Sunglasses and Accessories, Inc. ("Peeper's") merged
into Peeper's, Inc., a wholly-owned subsidiary of EyeCity, for merger
consideration consisting of a cash payment of $875,000, issuance of a
non-interest bearing secured promissory note of $875,000 (see Note 7) and the
issuance of 1,210,159 shares of common stock. Peeper's is an Internet retailer
of eyewear, optical products and accessories. The total consideration paid in
connection with this merger was approximately $3,279,000 including acquisition
costs of $35,000. The merger consideration has been allocated to the assets
acquired and the liabilities assumed based on the fair values at the date of
merger. The excess of the merger consideration over the estimated fair values of
the net assets acquired of $3,151,000 has been recorded as goodwill.

In May 1999, EyeCity acquired the rights to an Internet domain name in exchange
for the issuance of 2,105 shares of common stock and a cash payment of $30,000.
The total consideration paid in connection with this acquisition was
approximately $33,000 and has been recorded as intangibles.

On June 30, 1999, SunSource Technology, Inc. ("SunSource") merged into
SunglassSite, Inc., a wholly-owned subsidiary of EyeCity. Pursuant to the
agreement, all issued and outstanding shares of SunSource common stock were
converted in exchange for the following merger consideration: cash of $212,500,
a promissory note in the amount of $212,500 (see Note 7) and the issuance of
283,334 shares of common stock; for total consideration of $979,000, including
acquisition costs of $26,000. The merger consideration has been allocated to the
assets acquired and the liabilities assumed based on the fair values at the date
of merger and, accordingly, EyeCity recorded $970,000 of goodwill. On August 5,
1999, SunglassSite, Inc. was merged into Peeper's Inc.

On September 28, 1999, EyeCity entered into an agreement with Impact EyeWear,
LLC whereby it acquired the rights, title and interest in and to certain assets,
including a merchandise license agreement with Yahoo!, Inc. for $120,000 in cash
and the issuance of 166,667 shares of EyeCity common stock. The total
consideration paid in connection with this acquisition was approximately
$646,000, including acquisition costs of $26,000 and has been recorded as
intangibles. Simultaneously, the Company entered into a distributor agreement
with Sun Optics d/b/a Insight Eyeworks, Inc. ("Insight") under which Insight
will manufacture, market and distribute the Yahoo! eyewear and eyewear
accessories.


                                      F-13
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

6. Acquisitions (continued)

The following table summarizes the intangibles recorded relating to the
above-described acquisitions:

                                                               December 31,
                                                                    1999
                                                               ------------

      Foggles, Inc.                                             $  156,000
      Gilead Enterprises, Inc.                                       8,000
      EyeGlassPlace.com, Inc.                                       94,000
      Peeper's Sunglasses and Accessories, Inc.                  3,151,000
      SunSource Technology, Inc.                                   970,000
      Impact EyeWear license agreement et al                       646,000
      Other acquisitions                                            68,000
                                                                ----------
                                                                 5,093,000
      Less accumulated amortization                              1,033,000
                                                                ----------

                                                                $4,060,000
                                                                ==========

The following table reflects unaudited pro forma results of operations of
EyeCity on the basis that the Foggles, Peeper's and SunSource acquisition and
mergers had taken place as of January 1, 1998:

                                                      Year ended December 31,
                                                   ----------------------------
                                                      1999              1998
                                                   -----------      -----------

Net revenues                                       $ 3,661,597      $ 1,834,185
                                                   ===========      ===========
Net loss                                           $(4,667,097)     $(2,949,130)
                                                   ===========      ===========
Basic and diluted net loss per share               $      (.60)     $      (.50)
                                                   ===========      ===========
Shares used in calculation of basic
  and diluted net loss per share                     7,768,089        5,880,493
                                                   ===========      ===========

In management's opinion, the unaudited pro forma results of operations are not
indicative of the actual results that would have occurred had the acquisition
and mergers been consummated on


                                      F-14
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

6. Acquisitions (continued)

January 1, 1999 or January 1, 1998 or of the future operations of the combined
companies under the management of EyeCity.

7. Debt

EyeCity's debt obligations at December 31, 1999 are as follows:

   Notes payable to vendors (1)                                       $   78,650
   Seller financed acquisition and merger obligations (2)              1,005,083
                                                                      ----------
   Total                                                              $1,083,733
                                                                      ==========

(1)   In 1999, EyeCity issued a note payable to a vendor in return for
      advertising services. The note is payable as follows: $1,330 on October 1,
      1999 and the remaining $40,000 in equal monthly installments of $10,000
      commencing November 1, 1999. The outstanding balance at December 31, 1999
      is $20,000.

      In December 1999, EyeCity financed an insurance premium due on an
      insurance policy at a rate of 12% per annum. Such debt is payable in nine
      monthly principal and interest payments of $6,845 commencing in January
      2000. The balance outstanding at December 31, 1999 is $58,650.

(2)   In connection with the acquisition of certain patented display technology
      on April 30, 1999 (see Note 6), EyeCity issued a $15,000 non-interest
      bearing note. The note is payable in 15 equal monthly installments
      commencing June 15, 1999. The balance outstanding at December 31, 1999 is
      $8,000.

      In connection with the merger of Peeper's in May 1999 (see Note 6),
      EyeCity issued a secured promissory note in the amount of $875,000. The
      note is non-interest bearing and is due upon the earlier of the
      anniversary date or the consummation of a public offering resulting in
      gross proceeds in excess of $10,000,000. The carrying value of the note is
      recorded net of the unamortized discount of $200,000 which is being
      amortized over the term of the note. For the year ended December 31, 1999,
      $133,333 of amortization expense has been recorded.

      In connection with the merger of SunSource in June 1999 (see Note 6),
      EyeCity issued a secured promissory note in the amount of $212,500. The
      note is non-interest bearing and is


                                      F-15
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

7. Debt (continued)

      due upon the earlier of the anniversary date or the consummation of a
      public offering resulting in gross proceeds in excess of $10,000,000. The
      carrying value of the note is recorded net of the unamortized discount of
      $47,500 which is being amortized over the term of the note. For the year
      ended December 31, 1999, $23,750 of amortization expense has been
      recorded.

8. Stockholders' Equity

EyeCity is authorized to issue 21,000,000 shares of stock, of which 20,000,000
is designated as common stock, par value $.001 per share, and 1,000,000 is
designated as preferred stock, par value $.001 per share. As of December 31,
1999, EyeCity has not issued any shares of preferred stock.

In April 1998, EyeCity completed a private placement of 450,000 shares of its
common stock to several investors at a price of $1.00 per share, resulting in
net proceeds of approximately $435,000.

During 1998, EyeCity entered into several agreements with one consultant,
whereby EyeCity exchanged 300,000 shares of common stock, in addition to 12
monthly cash payments of $3,000, in return for consulting services. EyeCity
estimated the total value of the stock consideration paid to be $195,000. The
agreement commenced on February 1, 1998 and terminated on January 31, 1999. In
addition, 10,000 shares of common stock were issued to another consultant and
the consideration paid was valued at approximately $10,000.

On March 12, 1999, EyeCity sold 250,000 shares of its common stock, at a price
of $1.00 per share, for proceeds of $250,000.

In May 1999, EyeCity sold 1,500,000 shares of its common stock to several
investors at a price of $1.00 per share for proceeds of $1,500,000. In
connection with this transaction, EyeCity granted 300,000 options to an
investment advisor to purchase common stock at an exercise price of $1.00 per
share.

In June 1999, EyeCity sold 50,000 shares to one investor at a price of $1.50 per
share, for proceeds of $75,000. In connection with this transaction, EyeCity
granted 15,000 options to an investment advisor to purchase common stock at an
exercise price of $1.50 per share.

In June 1999, EyeCity sold 230,000 shares of its common stock to several
investors. These shares were sold at a price of $3.00 per share, for proceeds of
approximately $690,000. In connection with this transaction, EyeCity granted
98,000 options to an investment advisor to purchase common stock at an exercise
price of $3.00 per share.


                                      F-16
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

8. Stockholders' Equity (continued)

In July, August and October 1999, EyeCity privately sold 80,667 shares of its
common stock to eight individual investors. These shares were sold for $3.00 per
share, for a total offering price of $242,000.

In December 1999, EyeCity privately sold 30,000 shares of its common stock to
two individual investors. These shares were sold for $1.00 per share, for a
total offering price of $30,000.

During 1999, EyeCity issued 481,000 shares of its common stock with a value of
$563,000 in exchange for legal, consulting and leasehold improvements at its
Minnesota office space. The Company granted options to purchase 423,000 shares
of its common stock at exercise prices ranging from $1.00 to $3.00 per share in
exchange for services in connection with certain equity financings.

The Company granted stock options to purchase 375,000 shares of its common stock
at exercise prices ranging from $1.00 to $4.38 per share in exchange for
consulting services. The Company is recording an expense related to these stock
options at their fair value on the dates of vesting in accordance with the
provisions of Emerging Issues Task Force Number 96-18 in the amounts of $329,443
and $246,851 for the years ended December 31, 1999 and 1998, respectively.

9. Stock Options

EyeCity has three stock option plans (the "Plans")--The 1997 Stock Option Plan
(the "1997 Plan") provides for the granting of either incentive stock options or
nonstatutory stock options, and the 1998 and 1999 Stock Option Plans provide for
the granting of nonstatutory stock options. The 1997 Plan provides for the
granting of up to 500,000 options and the 1998 and 1999 Plans each provide for
the granting of 1,500,000 options to key employees of EyeCity (including
directors and officers) and consultants (including members of EyeCity's advisory
board) for the purchase of EyeCity common stock. Stock options granted under the
Plans may vest immediately and have a term not greater than ten years from the
date of grant or five years for a holder of more than 10% of EyeCity common
stock. Incentive stock options may be granted at an exercise price not less than
the fair market value of the underlying shares at the date of grant or for the
1997 Plan, less than 110% of the fair market value for a holder of more than 10%
of EyeCity common stock at the date of grant. The per share price of
nonstatutory stock options granted to Non-Insiders (as defined) shall be
determined by the Board of Directors. All options under the above plans have
been granted at exercise prices equal to or greater than the fair market value
of the underlying common shares at the date of grant.


                                      F-17
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

9. Stock Options (continued)

The following table summarizes activity in stock options:

<TABLE>
<CAPTION>
                                           Year ended                       Year ended
                                      December 31, 1999                 December 31, 1998
                                 -------------------------------   --------------------------------
                                                     Weighted                          Weighted
                                 Shares under        Average       Shares under         Average
                                   Options        Exercise Price      Options        Exercise Price
                                 ------------     --------------   ------------      --------------
<S>                               <C>                  <C>           <C>                  <C>
Balance, beginning of year          752,000            $1.06                --            $  --
Granted                           1,876,250            $2.34         1,677,000            $1.03
Forfeitures/expirations              (1,250)           $6.54           925,000            $1.00
Exercised                           (50,000)           $1.00                --               --
                                  ---------                          ---------
Balance, end of year              2,577,000            $1.99           752,000            $1.06
                                  =========                          =========

Weighted-average fair value
   of options issued during
   the period                                          $ .79                              $ .67
</TABLE>


                                      F-18
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

9. Stock Options (continued)

The following tables summarize information about the stock options outstanding
at December 31, 1999:

                                        Weighted-Average
                                          Remaining
                                         Contractual
           Exercise         Options          Life          Options
             Price       Outstanding                     Exercisable
           ------------------------------------------------------------

             $1.00         1,276,500         6.4 years      894,000
             $1.10           400,000         3.6 years      300,000
             $1.50            56,000         6.9 years       56,000
             $1.72             6,750         9.8 years           --
             $1.75            60,000         2.2 years       60,000
             $3.00           107,500         2.7 years      107,500
             $3.30            36,000         9.9 years        3,000
             $3.75           270,000         9.8 years       45,000
             $4.38             5,000         9.3 years        1,250
             $4.50           325,000         9.6 years       60,000
             $7.75            34,250         9.4 years        8,750
                           ---------                      ---------
                           2,577,000                      1,535,500
                           =========                      =========

EyeCity has reserved 3,710,000 shares of common stock for issuance of all
options and the conversion of subordinated convertible promissory notes at
December 31, 1999.

Fair Value Disclosures

Pro forma information regarding net loss and net loss per share is required by
SFAS 123, which also requires that the information be determined as if EyeCity
has accounted for its stock options under the fair value method of that
statement. The fair value for these options was estimated using the
Black-Scholes method with the following assumptions: no dividend yield,
weighted-average expected life of the option of five years, volatility factor of
the expected market price of the common stock of .46, and risk-free interest
rates of 6% for the year ended December 31, 1999 and 5% for the year ended
December 31, 1998.


                                      F-19
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

9. Stock Options (continued)

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. EyeCity's pro forma
financial information is as follows:

                                        Year ended December 31,
                                    ------------------------------
                                         1999             1998
                                    -------------    -------------
             Net loss
             As reported            $  (4,130,832)   $  (1,410,324)
                                    =============    =============
             Pro forma              $  (4,740,834)   $  (1,501,014)
                                    =============    =============

             Net loss per share
             As reported            $        (.57)   $        (.33)
                                    =============    =============
             Pro forma              $        (.66)   $        (.35)
                                    =============    =============

10. Income Taxes

Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted rates expected to be recovered
or settled. Significant components of EyeCity's deferred tax assets are as
follows:

                                                        December
                                                        31, 1999
                                                      -----------

             Net operating loss carryforward          $ 1,975,000
             Other                                        393,000
                                                      -----------
             Total deferred tax assets                  2,368,000
             Valuation allowance for deferred tax
               assets                                  (2,362,000)
                                                      -----------
             Net deferred tax assets                        6,000
             Deferred tax liability                        (6,000)
                                                      -----------
             Net deferred tax assets/liabilities      $        --
                                                      ===========

As a result of losses from operations, at December 31, 1999, EyeCity has
available a net operating loss carryforward ("NOL") of approximately $4,939,000
for Federal income tax purposes that expire in 2017 to 2019. At December 31,
1999 and 1998, EyeCity had a valuation allowance for deferred tax assets of
approximately $2,362,000 and $593,000, respectively.


                                      F-20
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

10. Income Taxes (continued)

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which the NOL's can be utilized and the temporary differences become deductible.
Since EyeCity has incurred losses since inception, EyeCity has established a
full valuation allowance for net deferred tax assets at December 31, 1999 and
1998.

11. Related Party Transactions

EyeCity subleased office space on a month-to-month basis from a related entity.
A major stockholder of EyeCity also is a major stockholder of this entity. Rent
expense paid to the related entity for the years ended December 31, 1999 and
1998 was approximately $11,000 and $16,000, respectively. During August 1999,
EyeCity relocated its operations and no longer subleases office space from such
related entity.

During 1999, EyeCity paid an aggregate of $90,000 to an entity, beneficially
owned by a family member of EyeCity's Chief Operating Officer for consulting
services rendered during 1998 and 1999. As of December 31, 1999, EyeCity owed
such entity $10,000.

12. Commitments

Employment Contracts

On July 1, 1998 and December 31, 1998, EyeCity amended and extended its existing
employment contracts with its president and executive vice president,
respectively, through June 30, 2004. The contracts provide for each executive to
receive a minimum annual salary of $100,000 for the year ended December 31, 1999
and for each year thereafter. Officer salaries for 1999 and1998 in the amount of
$327,000 have been accrued at December 31, 1999.

Additionally, during May, July and September 1999, EyeCity entered into
three-year employment agreements with three executives with base salaries
ranging from $100,000 - $130,000 per annum, increasing to $100,000 - $180,000 in
the final year.

EyeCity entered into a severance and consulting agreement with a former officer
effective December 31, 1998 and amended July 1, 1999 and September 15, 1999. The
former officer received $75,000 as full settlement of his employment agreement;
cash of $40,000 payable in equal monthly installments of $5,000 commencing
October 1, 1999, and a $35,000 credit against the exercise of 35,000 options. In
addition, in consideration for consulting services provided, EyeCity paid
$45,000 in cash and $15,000 was credited against the exercise of 15,000 options.
The former officer had retained options to purchase 50,000 shares of common
stock at an exercise price of $1.00 per share that expires on March 31, 2000
(10,000 of which have been exercised pursuant to the amended agreement on July
1, 1999 and 40,000 of which have been exercised pursuant to the amended
agreement on September 30, 1999) and options to purchase 925,000 shares of
common stock were canceled.


                                      F-21
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

12. Commitments (continued)

In connection with the extension of the expiration date of the vested options to
the former officer, EyeCity recorded a compensation charge of $75,000 resulting
from the new measurement date.

Operating Leases

The Company has entered into various operating leases which expire at various
times through 2004. The minimum annual rental payments under the provisions of
these leases for years ending December 31 are as follows:

              2000                                               147,000
              2001                                               160,000
              2002                                               164,000
              2003                                               163,000
              2004                                                89,000
                                                               ---------
                                                               $ 723,000
                                                               =========

Rent expense, including amounts paid to a related entity (see Note 11), was
approximately $63,000 and $17,000 for the years ended December 31, 1999 and
1998, respectively.

Capital Leases

Future minimum lease payments under capital leases for equipment with a net book
value of approximately $93,000, included in property and equipment for the years
ending December 31 are as follows:

                                                               $  40,000
              2000                                                36,000
              2001                                                29,000
              2002                                                16,000
              2003                                                 4,000
                                                               ---------
              Total minimum lease payments                       125,000
              Less:  Amount representing interest                 27,000
                                                               ---------
              Present value of minimum lease payments          $  98,000
                                                               =========


                                      F-22
<PAGE>

                       EyeCity.com, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

13. Legal Proceedings

EyeCity is not aware of any material adverse claims regarding any of its
trademarks or domain names with the exception of its "Peeper's" mark and
peepers.com domain name. Rights in this mark and domain name have been
challenged in an action now pending entitled American Eyewear, Inc. v. Peeper's
Sunglasses and Accessories, Inc. and EyeCity.com, Inc. which was commenced in
July 1999 in the United States District Court for the Northern District of
Texas. Peepers, Inc. and EyeCity have moved to dismiss the action. The motion is
now pending. EyeCity has substantial defenses and may counter-claim to limit
American Eyewear's claimed rights in the trademark Peeper's. The parties are
also discussing settlement. It is premature to assess the likely outcome of the
proceeding.

A wholly owned subsidiary of EyeCity, Peeper's was named as a defendant in an
action entitled Oakley, Inc. v. Peeper's Sunglasses & Accessories Inc. and Son
Dad Boards Ltd. d/b/a Freestyle of Duluth and Larry Leege, which was commenced
in October 1999 in the Superior Court of California, Orange County. This action,
which is principally a contract claim against the third parties, Son Dad Boards
Ltd. and Larry Leege, also alleges that Peeper's, Inc. interfered with the
plaintiff's contractual relationship with these third parties when it purchased
sunglasses from them and then re-sold the merchandise. Peeper's, Inc. believes
the claim against it has no merit and has moved to dismiss the action against
it. However, it is premature to assess the likely outcome of the proceeding.

The Company has other asserted claims arising in the normal course of business.
The Company believes the asserted claims are without merit and the Company will
vigorously defend any litigation that is brought.

14. Subsequent Events

Subsequent to December 31, 1999, the Company sold 1,485,500 shares of its common
stock to several investors at a price of $1.00 per share, resulting in net
proceeds of $1,377,950.

During January and February 2000, the Company issued 107,000 shares of its
common stock in consideration for legal and consulting services valued at
approximately $107,000.

In connection with the settlement of a dispute with a web design services firm,
the Company paid an aggregate of $25,000 during February and March 2000 and
issued 18,750 shares of its common stock.


                                      F-23