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 nine months ended October 4, 2008:

º •
º Net sales increased 9.6% to $59.1 million in the current quarter from $53.9 million in the same period in 2007 and increased 6.9% to $189.9 million in the first nine months of 2008 from $177.7 million in the first nine months of 2007. These increases were a result of organic sales growth at new and 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 and the discontinuation of the Company's opening price point program at a major customer during the third quarter of 2008.

º •
º Net income increased to $3.9 million in the current quarter from approximately break even in the third quarter of 2007 and increased 200% to $10.2 million in the first nine months of 2008 from $3.4 million in the first nine 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 nine months of 2008.

º •
º Earnings per diluted share increased to $0.18 in the current quarter from break even in the third quarter of 2007 and increased 108.7% to $0.48 in the first nine months of 2008 from $0.23 in the first nine months of 2007.

º •
º Interest expense decreased $4.5 million, or 75.0%, from $6.0 million in the third quarter of 2007 to $1.5 million in the current quarter and decreased $12.7 million, or 73.0%, from $17.4 million in the first nine months of 2007 to $4.7 million in the first nine months of 2008. These decreases were the result of reductions in debt and lower borrowing costs.

º •
º Cash flow provided by operating activities was $24.9 million in the first nine months of 2008 compared to a use of $1.7 million in the 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                  Nine Months Ended
                                 October 4,       September 29,      October 4,       September 29,
                                    2008               2007             2008              2007
Net sales                               100.0 %             100.0 %         100.0 %            100.0 %
Cost of goods sold                       43.8                45.9            45.9               46.6

Gross profit                             56.2                54.1            54.1               53.4
Operating expenses:
Selling expenses                         31.1                29.9            30.9               29.7
General and administrative               10.0                 9.3             9.9                8.5
expenses
Amortization of acquired                  2.2                 2.9             2.1                2.6
intangibles
Abandoned lease charge                      -                   -               -                1.0

Operating income                         12.9                12.0            11.2               11.6
Other income (expense):
Interest expense                         (2.5 )             (11.2 )          (2.5 )             (9.8 )
Other income, net                        (0.4 )               0.1            (0.1 )              0.1

Income before income taxes               10.0                 0.9             8.7                1.9
and minority interest
Income tax expense (benefit)              3.2                 1.0             3.1                0.2

Income before minority                    6.8                (0.1 )           5.6                2.1
interest
Minority interest expense                (0.2 )                 -            (0.2 )             (0.1 )

Net income                                6.6 %                 - %           5.4 %              2.0 %

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

                               Three Months Ended                           Nine Months Ended
                        October 4,          September 29,           October 4,            September 29,
Segment                    2008                  2007                  2008                   2007
Non-prescription
reading glasses     $ 36,501      61.8 %  $ 30,935      57.4 %  $  95,054      50.1 %  $  86,073      48.5 %
Sunglasses and
prescription
frames                10,425      17.6       8,698      16.1       54,219      28.5       45,208      25.4
Costume jewelry        5,151       8.7       6,770      12.6       12,855       6.8       17,804      10.0
International          7,026      11.9       7,516      13.9       27,763      14.6       28,597      16.1

Net sales           $ 59,103     100.0 %  $ 53,919     100.0 %  $ 189,891     100.0 %  $ 177,682     100.0 %

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

                                 Three Months Ended                          Nine Months Ended
                          October 4,          September 29,           October 4,          September 29,
Segment                      2008                  2007                  2008                  2007
Non-prescription
reading glasses
    Net sales         $ 36,501     100.0 %  $ 30,935     100.0 %  $ 95,054     100.0 %  $ 86,073     100.0 %
    Cost of goods
    sold                13,412      36.7      11,837      38.3      37,349      39.3      35,715      41.5

    Gross profit      $ 23,089      63.3 %  $ 19,098      61.7 %  $ 57,705      60.7 %  $ 50,358      58.5 %

Sunglasses and
prescription frames
    Net sales         $ 10,425     100.0 %  $  8,698     100.0 %  $ 54,219     100.0 %  $ 45,208     100.0 %
    Cost of goods
    sold                 6,899      66.2       5,862      67.4      31,591      58.3      26,702      59.1

    Gross profit      $  3,526      33.8 %  $  2,836      32.6 %  $ 22,628      41.7 %  $ 18,506      40.9 %

Costume jewelry
    Net sales         $  5,151     100.0 %  $  6,770     100.0 %  $ 12,855     100.0 %  $ 17,804     100.0 %
    Cost of goods
    sold                 3,178      61.7       3,855      56.9       8,332      64.8       9,886      55.5

    Gross profit      $  1,973      38.3 %  $  2,915      43.1 %  $  4,523      35.2 %  $  7,918      44.5 %

International
    Net sales         $  7,026     100.0 %  $  7,516     100.0 %  $ 27,763     100.0 %  $ 28,597     100.0 %
    Cost of goods
    sold                 2,391      34.0       3,208      42.7       9,971      35.9      10,584      37.0

    Gross profit      $  4,635      66.0 %  $  4,308      57.3 %  $ 17,792      64.1 %  $ 18,013      63.0 %

Three Months Ended October 4, 2008 Compared to Three Months Ended September 29, 2007

Net Sales. Net sales increased by $5.2 million, or 9.6%, from $53.9 million in the three months ended September 29, 2007 to $59.1 million in the three months ended October 4, 2008.

In the non-prescription reading glasses segment, net sales increased by $5.6 million, or 18.1%, from $30.9 million in the three months ended September 29, 2007 to $36.5 million in the three months ended October 4, 2008. This increase in net sales was primarily organic growth at new and existing customers.

In the sunglasses and prescription frames segment, net sales increased by $1.7 million, or 19.5%, from $8.7 million in the three months ended September 29, 2007 to $10.4 million in the three months ended October 4, 2008. This increase was organic growth at existing customers and higher sales related to a promotional pallet program at a major customer.

In the costume jewelry segment, net sales decreased by $1.6 million, or 23.5%, from $6.8 million in the three months ended September 29, 2007 to $5.2 million in the three months ended October 4, 2008. This decrease was primarily the result of a loss of sales at a major customer.

In the international segment, net sales decreased by $0.5 million, or 6.5%, from $7.5 million in the three months ended September 29, 2007 to $7.0 million in the three months ended October 4, 2008. The decrease in net sales was attributed to lower sunglasses sales and higher product returns in the United Kingdom, partially offset by higher sales across all product categories in Canada.

Gross Profit. Gross profit increased $4.1 million, or 13.9%, from $29.2 million in the three months ended September 29, 2007 to $33.2 million in the three months ended October 4, 2008. As a percentage of net sales, gross profit increased from 54.1% to 56.2% during the corresponding periods.

In the non-prescription reading glasses segment, gross profit increased by $4.0 million, or 20.9%, from $19.1 million in the three months ended September 29, 2007 to $23.1 million in the three months ended October 4, 2008. As a percentage of net sales, gross profit increased from 61.7% in the third quarter of 2007 to 63.3% 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 shift in product mix to higher margin styles sold to several of our customers during the current quarter.

In the sunglasses and prescription frames segment, gross profit increased by $0.7 million, or 24.4%, from $2.8 million in the three months ended September 29, 2007 to $3.5 million in the three months ended October 4, 2008. As a percentage of net sales, gross profit increased from 32.6% to 33.8% 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 a mix of more profitable programs.

In the costume jewelry segment, gross profit decreased by $0.9 million, or 32.3%, from $2.9 million in the three months ended September 29, 2007 to $2.0 million in the three months ended October 4, 2008. As a percentage of net sales, gross profit decreased from 43.1% to 38.3% during 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 the decrease in net sales coupled with lower margin jewelry programs representing a higher percentage of segment net sales.

In the international segment, gross profit increased by $0.3 million, or 7.6%, from $4.3 million in the three months ended September 29, 2007 to $4.6 million in the three months ended October 4, 2008. As a percentage of net sales, gross profit increased from 57.3% to 66.0% in 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 a favorable sales mix in Canada partially offset by higher product returns in the United Kingdom.

Selling Expenses. Selling expenses increased by $2.3 million, or 14.1%, from $16.1 million in the three months ended September 29, 2007 to $18.4 million in the three months ended October 4, 2008. As a percentage of net sales, selling expenses increased from 29.9% to 31.1% in the corresponding periods. The dollar increase in variable selling expenses was primarily due to increased field service costs of $0.8 million due to a higher number of customer store locations, incremental personnel costs of $0.6 million to support the growth of the business, increased television and print advertising costs of $0.4 million, and higher freight costs of $0.3 million.

General and Administrative Expenses. General and administrative expenses increased by $0.9 million, or 18.6%, from $5.0 million in the three months ended September 29, 2007 to $5.9 million in the three months ended October 4, 2008. As a percentage of net sales, general and administrative expenses increased from 9.3% to 10.0% 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 16.1%, from $1.5 million in the three months ended September 29, 2007 to $1.3 million in the three months ended October 4, 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.

Interest Expense. Interest expense decreased $4.6 million, or 75.5%, from $6.0 million in the three months ended September 29, 2007 to $1.5 million in the three months ended October 4, 2008. The decreases were primarily the result of reductions in debt and lower borrowing costs.

Income Taxes. Provision for income taxes was $1.9 million, or 32.3% of income before income taxes and minority interest in the three months ended October 4, 2008, compared to $0.5 million in the three months ended September 29, 2007. The income tax rate was benefited by a reduction of $0.2 million in tax liabilities related to uncertain tax positions, federal income return provision adjustments amounting to $0.2 million, and our current estimates of geographical mix of income before taxes and the related tax rates in those jurisdictions. The tax provision in the third quarter of 2007 was unfavorably affected by an adjustment to foreign tax credits which was triggered by revised expectations of taxable income in the U.S.

Net Income. For the reasons described above, our net income increased by $3.9 million, or 216.7%, from approximately break even during the three months ended September 29, 2007 to $3.9 million for the three months ended October 4, 2008.

Nine Months Ended October 4, 2008 Compared to Nine Months Ended September 29, 2007

Net Sales. Net sales increased by $12.2 million, or 6.9%, from $177.7 million in the nine months ended September 29, 2007 to $189.9 million in the nine months ended October 4, 2008.

In the non-prescription reading glasses segment, net sales increased by $9.0 million, or 10.4%, from $86.1 million in the nine months ended September 29, 2007 to $95.1 million in the nine months ended October 4, 2008. This increase was due to a combination of organic growth at existing customers and the rollout of new reader programs to new customers. The year-over-year improvement was negatively impacted by a non-anniversaried rollout at a major customer during the first quarter of 2007 and the discontinuation of the Company's opening price point program at a major customer in third quarter of fiscal 2008.

In the sunglasses and prescription frames segment, net sales increased by $9.0 million, or 19.9%, from $45.2 million in the nine months ended September 29, 2007 to $54.2 million in the nine months ended October 4, 2008. This increase was due to organic growth at existing customers and higher sales related to a promotional pallet program at a major customer.

In the costume jewelry segment, net sales decreased by $4.9 million, or 27.8%, from $17.8 million in the nine months ended September 29, 2007 to $12.9 million in the nine months ended October 4, 2008. This decrease was primarily the result of lower sales at a major customer partially offset by increased distribution to mid-tier department stores and the launch of a new jewelry program at an existing customer.

In the international segment, net sales decreased by $0.8 million, or 2.9%, from $28.6 million in the nine months ended September 29, 2007 to $27.8 million in the nine months ended October 4, 2008. This decrease was the result of lower sunglasses sales in the United Kingdom and the impact of the launch of non-prescription reading glasses roll-outs in the United Kingdom during the first quarter of 2007 that was not repeated in 2008. These decreases were partially offset by higher sales across all product lines in Canada.

Gross Profit. Gross profit increased $7.9 million, or 8.3%, from $94.8 million in the nine months ended September 29, 2007 to $102.6 million in the nine months ended October 4, 2008. As a percentage of net sales, gross profit increased from 53.4% to 54.1% during the corresponding periods.

In the non-prescription reading glasses segment, gross profit increased by $7.3 million, or 14.6%, from $50.4 million in the nine months ended September 29, 2007 to $57.7 million in the nine months ended October 4, 2008. As a percentage of net sales, gross profit increased from 58.5% to 60.7% 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 nine months of 2008 as well as favorable cost reductions negotiated with our suppliers.

In the sunglasses and prescription frames segment, gross profit increased by $4.1 million, or 22.3%, from $18.5 million in the nine months ended September 29, 2007 to $22.6 million in the nine months ended October 4, 2008. As a percentage of net sales, gross profit increased from 40.9% to 41.7% 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 higher margin styles representing a greater percentage of our net sales in the first nine 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 $3.4 million, or 42.9%, from $7.9 million in the nine months ended September 29, 2007 to $4.5 million in the nine months ended October 4, 2008. As a percentage of net sales, gross profit decreased from 44.5% to 35.2% 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 shift to lower margin jewelry programs at existing customers.

In the international segment, gross profit decreased by $0.2 million, or 1.2%, from $18.0 million in the nine months ended September 29, 2007 to $17.8 million in the nine months ended October 4, 2008. As a percentage of net sales, gross profit increased from 63.0% to 64.1% in the corresponding periods. The dollar decrease in gross profit was due to the decrease in net sales. The increase in gross profit as a percentage of net sales was primarily due to favorable sales mix in Canada partially offset by higher product returns in the United Kingdom.

Selling Expenses. Selling expenses increased by $5.9 million, or 11.1%, from $52.8 million in the nine months ended September 29, 2007 to $58.7 million in the nine months ended October 4, 2008. As a percentage of net sales, selling expenses increased from 29.7% to 30.9% in the corresponding periods. The dollar increase in variable selling expenses was primarily due to higher depreciation expenses of $1.8 million related to the increased number of display fixtures placed in service, increased field service costs of $1.4 million due to the increased number of customer store locations, higher freight costs of $1.2 million, and incremental personnel costs of $1.0 million to support the growth of the business.

General and Administrative Expenses. General and administrative expenses increased by $3.8 million, or 25.4%, from $15.0 million in the nine months ended September 29, 2007 to $18.8 million in the nine months ended October 4, 2008. As a percentage of net sales, general and administrative expenses increased from 8.5% 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 and other related consulting costs incurred in the first nine months of 2008.

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased by $0.7 million, or 16.1%, from $4.6 million in the nine months ended September 29, 2007 to $3.9 million in the nine months ended October 4, 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.

Abandoned Lease Charge. During the nine months ended September 29, 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 $12.7 million, or 72.9%, from $17.4 million in the nine months ended September 29, 2007 to $4.7 million in the nine months ended October 4, 2008. The decreases were primarily the result of reductions in debt and lower borrowing costs.

Income Taxes. Provision for income taxes was $5.9 million, or 35.7% of income before income taxes and minority interest in the nine months ended October 4, 2008, compared to a benefit of

$0.3 million in the nine months ended September 29, 2007. The income tax rate in the current nine month period was benefited by a reduction of $0.2 million in tax liabilities recorded in the third quarter of fiscal 2008 related to uncertain tax positions; federal and state return provision adjustments amounting to $0.2 million recorded in the third quarter of fiscal 2008; and our current estimates of geographical mix of income before taxes and the related tax rates in those jurisdictions. 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 $6.8 million, or 200%, from $3.4 million during the nine months ended September 29, 2007 to $10.2 million for the nine months ended October 4, 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 October 4, 2008, we had $2.0 million of cash and $64.7 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. These factors include the possible inability of our customers to finance purchases of our products and the possible inability or unwillingness of consumers to continue spending at their previous levels.

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:

                                                         Nine Months Ended
                                                    October 4,     September 29,
                                                       2008            2007
     Net cash provided by (used in):
         Operating activities                       $    24,865    $       (1,690 )
         Investing activities                           (10,511 )         (11,220 )
         Financing activities                           (16,952 )           6,398
     Effect of exchange rates on cash balances                -                53

     Decrease in cash                               $    (2,598 )  $       (6,459 )

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 . . .