Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

We are a leading designer and marketer of non-prescription reading glasses, sunglasses and costume jewelry with a portfolio of established, highly recognized eyewear brands including FosterGrant and Magnivision. We sell our FosterGrant brand in the U.S. popular priced sunglasses market and both our FosterGrant and Magnivision brands in the domestic non-prescription reading glasses market. Our products are sourced through low-cost Asian manufacturers and sold primarily through mass channels, which include mass merchandisers, chain drug stores, chain grocery stores and variety stores. Some of our products are sold to ophthalmic retailers, mid-tier department stores and other specialty retailers. We also sell costume jewelry to mass merchandisers, chain drug stores and variety stores and have recently begun offering more replenishable jewelry items at mid-tier department stores.

Our company-owned portfolio also includes the Anarchy, Angel and Gargoyles brands, which target different demographic groups and distribution channels at a premium price point (generally $50-$170). We believe our premium brands have a strong niche consumer appeal. We promote these brands through endorsements from well recognized action sports athletes and sponsorship of professional surfing contests and similar sporting events.

To complement our proprietary brands, we market both popular priced and premium eyewear under nationally-recognized licensed brands including Ironman Triathlon, Levi Strauss Signature, Body Glove, C9 by Champion and Daytona International Speedway. In addition, we sell a line of prescription frames, which we introduced in 2004 to supplement our product line.

We believe that we have the capital structure in place that will enable us to enhance our market leadership positions through the continued investment in our core brands. We will seek to continue to add to our domestic and international customer base as well as consider selective acquisitions that fit strategically into our business model. Our future results may be negatively affected by risks and trends, including without limitation those set forth in Part II, Item 1A., "Risk Factors" and elsewhere in this report.

Summary of Results

The following is a summary of the Company's operating results for the three and six months ended June 28, 2008:

º •
º Net sales increased 14.3% to $71.6 million in the current quarter from $62.6 million in the same period in 2007 and increased 5.7% to $130.8 million in the first six months of 2008 from $123.8 million in the first six months of 2007. These increases were a result of organic sales growth at existing customers within both the non-prescription reading glasses and sunglasses segments. The year-over-year improvement was negatively impacted by a non-anniversaried rollout at a major customer during the first quarter of 2007.

º •
º Net income increased 172.8% to $4.1 million in the current quarter from $1.5 million in the second quarter of 2007 and increased 83.7% to $6.3 million in the first six months of 2008 from $3.4 million in the first six months of 2007. The increase was primarily driven by higher sales and lower interest expense, which was partially offset by higher operating expenses during the first six months of 2008.

º •
º Earnings per diluted share increased 90.5% to $0.19 in the current quarter from $0.10 in the second quarter of 2007 and increased 28.1% to $0.29 in the first six months of 2008 from $0.23 in the first six months of 2007.

º •
º Interest expense decreased $4.4 million, or 75.2%, from $5.8 million in the second quarter of 2007 to $1.5 million in the current quarter and decreased $8.1 million, or 71.6%, from $11.3 million in the first six months of 2007 to $3.2 million in the first six months of 2008. The decreases were the result of reductions in debt and lower interest rates.

º •
º Cash flow provided by operating activities was $18.3 million in the first six months of 2008 compared to a use of $9.5 million in prior year period.

                             Results of Operations

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

                                           Three Months Ended                   Six Months Ended
                                    June 28, 2008      June 30, 2007     June 28, 2008     June 30, 2007
                                                                (Unaudited)
Net sales                                    100.0 %            100.0 %           100.0 %           100.0 %
Cost of goods sold                            47.5               46.0              46.9              47.0

Gross profit                                  52.5               54.0              53.1              53.0
Operating expenses:
   Selling expenses                           30.3               31.2              30.8              29.6
   General and administrative
   expenses                                    9.0                7.8               9.9               8.1
   Amortization of acquired
   intangibles                                 1.8                2.5               2.0               2.5
   Abandoned lease charge                        -                3.0                 -               1.5

        Operating income                      11.4                9.5              10.4              11.3
Other income (expense):
   Interest expense                           (2.0 )             (9.3 )            (2.5 )            (9.2 )
   Other income, net                             -                0.1                 -               0.1

   Income before income taxes
   and minority interest                       9.4                0.3               7.9               2.2
Income tax expense (benefit)                   3.5               (2.2 )             3.0              (0.7 )

Income before minority interest                5.9                2.5               4.9               2.9
Minority interest expense                      0.1                0.2               0.2               0.2

Net income                                     5.8 %              2.3 %             4.7 %             2.7 %

The following table sets forth, for the periods indicated, selected segment data as a percentage of net sales.

                                   Three Months Ended                          Six Months Ended
Segment                    June 28, 2008        June 30, 2007         June 28, 2008         June 30, 2007
                                                  (Unaudited, dollars in thousands)
Non-prescription         $ 31,266      43.7 % $ 27,562      44.0 % $  58,553      44.8 % $  55,137      44.6 %
reading glasses
Sunglasses and             25,675      35.9     19,670      31.4      43,794      33.4      36,510      29.5
prescription frames
Costume jewelry             4,309       6.0      5,062       8.1       7,704       5.9      11,035       8.9
International              10,315      14.4     10,320      16.5      20,737      15.9      21,081      17.0

Net sales                $ 71,565     100.0 % $ 62,614     100.0 % $ 130,788     100.0 % $ 123,763     100.0 %

The following table sets forth, for the periods indicated, selected operating results by segment.

                                       Three Months Ended                         Six Months Ended
Segment                        June 28, 2008        June 30, 2007        June 28, 2008        June 30, 2007
                                                     (Unaudited, dollars in thousands)
Non-prescription reading
glasses
    Net sales                $ 31,266     100.0 % $ 27,562     100.0 % $ 58,553     100.0 % $ 55,137     100.0 %
    Cost of goods sold         12,447      39.8     11,297      41.0     23,937      40.9     23,875      43.3

    Gross profit             $ 18,819      60.2 % $ 16,265      59.0 % $ 34,616      59.1 % $ 31,262      56.7 %

Sunglasses and
prescription frames
    Net sales                $ 25,675     100.0 % $ 19,670     100.0 % $ 43,794     100.0 % $ 36,510     100.0 %
    Cost of goods sold         15,152      59.0     11,216      57.0     24,692      56.4     20,841      57.1

    Gross profit             $ 10,523      41.0 % $  8,454      43.0 % $ 19,102      43.6 % $ 15,669      42.9 %

Costume jewelry
    Net sales                $  4,309     100.0 % $  5,062     100.0 % $  7,704     100.0 % $ 11,035     100.0 %
    Cost of goods sold          2,551      59.2      2,589      51.2      5,154      66.9      6,032      54.7

    Gross profit             $  1,758      40.8 % $  2,473      48.8 % $  2,550      33.1 % $  5,003      45.3 %

International
    Net sales                $ 10,315     100.0 % $ 10,320     100.0 % $ 20,737     100.0 % $ 21,081     100.0 %
    Cost of goods sold          3,868      37.5      3,711      36.0      7,579      36.6      7,377      35.0

    Gross profit             $  6,447      62.5 % $  6,609      64.0 % $ 13,157      63.4 % $ 13,704      65.0 %

Three Months Ended June 28, 2008 Compared to Three Months Ended June 30, 2007

Net Sales. Net sales increased by $9.0 million, or 14.3%, from $62.6 million in the three months ended June 30, 2007 to $71.6 million in the three months ended June 28, 2008.

In the non-prescription reading glasses segment, net sales increased by $3.7 million, or 13.4%, from $27.6 million in the three months ended June 30, 2007 to $31.3 million in the three months ended June 28, 2008. This increase in net sales was primarily due to organic growth at existing customers and the rollout of new reader programs at two national retailers.

In the sunglasses and prescription frames segment, net sales increased by $6.0 million, or 30.5%, from $19.7 million in the three months ended June 30, 2007 to $25.7 million in the three months ended June 28, 2008. This increase was due to organic growth at existing customers and higher sales related to the continued expansion of a promotional pallet program at a major customer.

In the costume jewelry segment, net sales decreased by $0.8 million, or 14.9%, from $5.1 million in the three months ended June 30, 2007 to $4.3 million in the three months ended June 28, 2008. This decrease was primarily the result of lower sales at a major customer and lower demand for basic replenishable offerings at mid-tier retailers, which were partially offset by the launch of a new jewelry program at an existing customer.

In the international segment, net sales were $10.3 million in the three month periods ended both June 30, 2007 and June 28, 2008. The lack of quarter over quarter growth in sales was attributed to lower sunglasses sales in the United Kingdom, offset by higher sales across all product lines in Canada.

Gross Profit. Gross profit increased $3.7 million, or 11.1%, from $33.8 million in the three months ended June 30, 2007 to $37.5 million in the three months ended June 28, 2008. As a percentage of net sales, gross profit decreased from 54.0% to 52.5% during the corresponding periods.

In the non-prescription reading glasses segment, gross profit increased by $2.6 million, or 15.7%, from $16.3 million in the three months ended June 30, 2007 to $18.8 million in the three months ended

June 28, 2008. As a percentage of net sales, gross profit increased from 59.0% in the second quarter of 2007 to 60.2% during the current quarter. The dollar increase in gross profit and the increase in gross profit as a percentage of net sales were primarily due to increased sales and a greater proportion of higher margin styles sold to several of our customers during the current quarter.

In the sunglasses and prescription frames segment, gross profit increased by $2.1 million, or 24.5%, from $8.5 million in the three months ended June 30, 2007 to $10.5 million in the three months ended June 28, 2008. As a percentage of net sales, gross profit decreased from 43.0% to 41.0% during the corresponding periods. The dollar increase in gross profit was primarily due to the increase in net sales. The decrease in gross profit as a percentage of net sales was primarily due to the expansion of a lower margin pallet program at a major customer.

In the costume jewelry segment, gross profit decreased by $0.7 million, or 28.9%, from $2.5 million in the three months ended June 30, 2007 to $1.8 million in the three months ended June 28, 2008. As a percentage of net sales, gross profit decreased from 48.8% to 40.8% during the corresponding periods. The dollar decrease in gross profit was primarily due to the decrease in net sales. The decrease in gross profit as a percentage of net sales was primarily due to a lower margin jewelry program at an existing customer.

In the international segment, gross profit decreased by $0.2 million, or 2.5%, from $6.6 million in the three months ended June 30, 2007 to $6.4 million in the three months ended June 28, 2008. As a percentage of net sales, gross profit decreased from 64.0% to 62.5% in the corresponding periods. The dollar decrease in gross profit and the decrease in gross profit as a percentage of net sales were primarily due to our unfavorable mix of sales in the United Kingdom partially offset by favorable sales mix in Canada.

Selling Expenses. Selling expenses increased by $2.2 million, or 11.0%, from $19.6 million in the three months ended June 30, 2007 to $21.7 million in the three months ended June 28, 2008. As a percentage of net sales, selling expenses decreased from 31.2% to 30.3% in the corresponding periods. The dollar increase in variable selling expenses was primarily due to higher freight costs of $0.6 million; increased field service costs of $0.5 million due to the increased number of customer store locations; incremental personnel costs of $0.5 million to support the growth of the business; and higher depreciation expenses of $0.4 million related to the increased number of display fixtures placed in service.

General and Administrative Expenses. General and administrative expenses increased by $1.5 million, or 31.5%, from $4.9 million in the three months ended June 30, 2007 to $6.4 million in the three months ended June 28, 2008. As a percentage of net sales, general and administrative expenses increased from 7.8% to 9.0% in the corresponding periods. This increase was primarily the result of costs associated with being a public company, which included Sarbanes-Oxley implementation costs and other consulting costs incurred in the current quarter.

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased by $0.2 million, or 16.0%, from $1.5 million in the three months ended June 30, 2007 to $1.3 million in the three months ended June 28, 2008. This decrease was due to certain intangible assets associated with the acquisition of Magnivision being amortized on an accelerated basis over their economic lives in the prior year quarter.

Interest Expense. Interest expense decreased $4.4 million, or 75.2%, from $5.8 million in the three months ended June 30, 2007 to $1.5 million in the three months ended June 28, 2008. The decreases were primarily the result of reductions in debt and lower interest rates.

Abandoned Lease Charge. During the three months ended June 30, 2007, the Company recorded a $1.9 million abandoned lease charge as a result of the continued vacancy of our Miramar, Florida

facility. This charge assumes that the remaining space of this facility will remain vacant through the end of the lease term in April 2011.

Income Taxes. Provision for income taxes was $2.5 million, or 37.8% of income before income taxes and minority interest in the three months ended June 28, 2008, compared to a benefit of $1.4 million in the three months ended June 30, 2007. The tax benefit in the prior year quarter was the result of the release of a portion of the valuation allowance we had previously recorded against U.S. deferred tax assets. The benefit for income taxes was partially offset by an income tax charge resulting from the amalgamation of our Canadian operations.

Net Income. For the reasons described above, our net income increased by $2.6 million, or 172.8%, from $1.5 million during the three months ended June 30, 2007 to $4.1 million for the three months ended June 28, 2008.

Six Months Ended June 28, 2008 Compared to Six Months Ended June 30, 2007

Net Sales. Net sales increased by $7.0 million, or 5.7%, from $123.8 million in the six months ended June 30, 2007 to $130.8 million in the six months ended June 28, 2008.

In the non-prescription reading glasses segment, net sales increased by $3.4 million, or 6.2%, from $55.1 million in the six months ended June 30, 2007 to $58.6 million in the six months ended June 28, 2008. This increase was due to organic growth at existing customers and the rollout of new reader programs at two national retailers. The year-over-year improvement was negatively impacted by a non-anniversaried rollout at a major customer during the first quarter of 2007.

In the sunglasses and prescription frames segment, net sales increased by $7.3 million, or 20.0%, from $36.5 million in the six months ended June 30, 2007 to $43.8 million in the six months ended June 28, 2008. This increase was due to organic growth at existing customers and higher sales related to the continued expansion of a promotional pallet program at a major customer.

In the costume jewelry segment, net sales decreased by $3.3 million, or 30.2%, from $11.0 million in the six months ended June 30, 2007 to $7.7 million in the six months ended June 28, 2008. This decrease was primarily the result of lower sales at a major customer and lower demand of basic replenishable offerings at mid-tier retailers, which were partially offset by the launch of a new jewelry program at an existing customer.

In the international segment, net sales decreased by $0.3 million, or 1.6%, from $21.1 million in the six months ended June 30, 2007 to $20.7 million in the six months ended June 28, 2008. This decrease the result of a non-prescription reading glasses roll-out in the United Kingdom that was launched during the first quarter of 2007 that was not repeated in 2008 as well as lower sunglasses sales in the United Kingdom, which were offset by higher sales across all product lines in Canada.

Gross Profit. Gross profit increased $3.8 million, or 5.8%, from $65.6 million in the six months ended June 30, 2007 to $69.4 million in the six months ended June 28, 2008. As a percentage of net sales, gross profit increased from 53.0% to 53.1% during the corresponding periods.

In the non-prescription reading glasses segment, gross profit increased by $3.4 million, or 10.7%, from $31.3 million in the six months ended June 30, 2007 to $34.6 million in the six months ended June 28, 2008. As a percentage of net sales, gross profit increased from 56.7% to 59.1% during the corresponding periods. The dollar increase in gross profit and the increase in gross profit as a percentage of net sales were primarily due to increased sales and a greater proportion of higher margin styles sold to several of our customers during the first six months of 2008 as well as favorable cost reductions negotiated with our suppliers.

In the sunglasses and prescription frames segment, gross profit increased by $3.4 million, or 21.9%, from $15.7 million in the six months ended June 30, 2007 to $19.1 million in the six months ended

June 28, 2008. As a percentage of net sales, gross profit increased from 42.9% to 43.6% during the corresponding periods. The dollar increase in gross profit was primarily due to the increase in net sales. The increase in gross profit as a percentage of net sales was primarily due to favorable product mix of higher margin styles sold to a new customer during the first six months of 2008. This was partially offset by the expansion of a lower margin pallet program at a major customer.

In the costume jewelry segment, gross profit decreased by $2.5 million, or 49.0%, from $5.0 million in the six months ended June 30, 2007 to $2.6 million in the six months ended June 28, 2008. As a percentage of net sales, gross profit decreased from 45.3% to 33.1% during the corresponding periods. The dollar decrease in gross profit was primarily due to the decrease in net sales. The decrease in gross profit as a percentage of net sales was primarily due to a lower margin jewelry program at an existing customer.

In the international segment, gross profit decreased by $0.5 million, or 4.0%, from $13.7 million in the six months ended June 30, 2007 to $13.2 million in the six months ended June 28, 2008. As a percentage of net sales, gross profit decreased from 65.0% to 63.4% in the corresponding periods. The dollar decrease in gross profit and the decrease in gross profit as a percentage of net sales were primarily due to our unfavorable mix of sales in the United Kingdom offset by favorable sales mix in Canada.

Selling Expenses. Selling expenses increased by $3.6 million, or 9.8%, from $36.7 million in the six months ended June 30, 2007 to $40.2 million in the six months ended June 28, 2008. As a percentage of net sales, selling expenses increased from 29.6% to 30.8% in the corresponding periods. The dollar increase in variable selling expenses was primarily due to higher depreciation expenses of $1.0 million related to the increased number of display fixtures placed in service; higher freight costs of $0.9 million; increased field service costs of $0.6 million due to the increased number of customer store locations; and incremental personnel costs of $0.8 million to support the growth of the business.

General and Administrative Expenses. General and administrative expenses increased by $2.9 million, or 28.7%, from $10.0 million in the six months ended June 30, 2007 to $12.9 million in the six months ended June 28, 2008. As a percentage of net sales, general and administrative expenses increased from 8.1% to 9.9% in the corresponding periods. This increase was primarily the result of costs associated with being a public company, which included Sarbanes-Oxley implementation costs and other consulting costs incurred in the first six months of 2008.

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased by $0.5 million, or 16.0%, from $3.1 million in the six months ended June 30, 2007 to $2.6 million in the six months ended June 28, 2008. This decrease was due to certain intangible assets associated with the acquisition of Magnivision being amortized on an accelerated basis over their economic lives in the prior year period.

Abandoned Lease Charge. During the six months ended June 30, 2007, the Company recorded a $1.9 million abandoned lease charge as a result of the continued vacancy of our Miramar, Florida facility. This charge assumes that the remaining space of this facility will remain vacant through the end of the lease term in April 2011.

Interest Expense. Interest expense decreased $8.1 million, or 71.6%, from $11.3 million in the six months ended June 30, 2007 to $3.2 million in the six months ended June 28, 2008. The decreases were primarily the result of reductions in debt and lower interest rates.

Income Taxes. Provision for income taxes was $3.9 million, or 37.7% of income before income taxes and minority interest in the six months ended June 28, 2008, compared to a benefit of $0.9 million in the six months ended June 30, 2007. The tax benefit in the prior year period was the result of the release of a portion of the valuation allowance we had previously recorded against U.S. deferred tax assets. The benefit for income taxes in the prior period was partially offset by an income tax charge resulting from the amalgamation of our Canadian operations.

Net Income. For the reasons described above, our net income increased by $2.9 million, or 83.7%, from $3.4 million during the six months ended June 30, 2007 to $6.3 million for the six months ended June 28, 2008.

Liquidity and Capital Resources

Our primary liquidity needs are for working capital, capital expenditures (specifically display fixtures) and debt service. Our primary sources of cash have been cash flow from operations, proceeds from our initial public offering and borrowings under our credit facility. As of June 28, 2008, we had $4.0 million of cash and $65.2 million available under our revolving credit facility.

We believe that our cash flow from operations, available cash and borrowings available under our credit facility will be adequate to meet our liquidity needs through at least fiscal 2009. However, our ability to make scheduled payments of principal, pay the interest on or refinance our indebtedness or fund planned capital expenditures will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control.

Our strategy involves making strategic business acquisitions if and when we believe that they will help grow or otherwise improve our business. To the extent we decide to pursue one or more acquisitions, we may need to incur additional indebtedness or sell additional equity to finance those acquisitions.

Cash Flows

    The following table summarizes our cash flow activities for the periods
indicated:

                                                         Six Months Ended
                                                     June 28,         June 30,
                                                       2008             2007
                                                     (Unaudited, in thousands)
    Net cash provided by (used in):
        Operating activities                       $      18,310      $    (9,486 )
        Investing activities                              (6,902 )         (7,938 )
        Financing activities                             (11,910 )         12,929
    Effect of exchange rates on cash balances                (73 )             (9 )

    Decrease in cash                               $        (575 )    $    (4,504 )

We purchase finished goods from our contract manufacturers in Asia and typically take title upon delivery to the freight consolidator. Transit times range from 10 to 30 days. Our payment terms with our eyewear suppliers range from 30 to 120 days, while payment terms with our costume jewelry suppliers range from 30 to 60 days. As a result of increases in our operating cash flow, we have used cash to fund inventories, which have been offset by higher payments on our revolving credit facility and repurchases of our outstanding ordinary shares under our stock repurchase program.

Operating Activities. Net cash provided by operating activities increased by $27.8 million from a use of $9.5 million of cash in the six months ended June 30, 2007 to $18.3 million of cash provided in the six months ended June 28, 2008. The increase in operating cash flow was primarily due to changes in the . . .