The following discussion and analysis, which should be read in connection with our Financial Statements and accompanying footnotes, contain forward-looking statements that involve risks and uncertainties. Important factors that could cause actual results to differ materially from our expectations are set forth in "Factors that May Affect Our Future Operating Results" below, as well as those discussed elsewhere in this Report. All subsequent written and oral forward-looking statements attributable to us or to

persons acting on our behalf are expressly qualified in their entirety by such risk factors. Those forward-looking statements relate to, among other things, our plans and strategies, new product lines, and relationships with licensors, distributors and customers, distribution strategies and the business environment in which we operate.

The following discussion and analysis should be read in connection with our Financial Statements and related notes and other financial information included elsewhere in this Report.

OVERVIEW

We generate revenues through the sale of prescription eyeglass frames and sunwear under licensed brand names, including bebe eyes, Carman Marc Valvo Eyewear, Cutter & Buck Eyewear, Dakota Smith Eyewear, Hart Schaffner Marx Eyewear, Hummer Eyegear, Laura Ashley Eyewear and Nicole Miller Eyewear, and under our proprietary Signature brand. Our cost of sales consists primarily of purchases from foreign contract manufacturers that produce frames and cases to our specifications.

Our net sales decreased 2.2% from $25.0 million in fiscal 2007 to $24.5 million in fiscal 2008. The decrease in net sales in fiscal 2008 was primarily due to decreases in international sales, as a result of acquisition of major international customers by competitors and deep discounting in many international markets. We were able to maintain domestic sales relatively constant between the years despite the economic downturn and weak optical frame market.

Income before taxes increased from $572,000 in fiscal 2007 to $630,000 in fiscal 2008. This increase was principally due to a $209,000 decrease in interest expense resulting primarily from lower interest rates.

Our net income decreased from $2.7 million in fiscal 2007 to $622,000 in fiscal 2008. Net income in fiscal 2007 included $2.1 million in net tax benefits due to a reduction in the valuation allowance on our deferred tax asset. There was no tax benefit recognized in 2008. Net income was positively affected by an increase in gross margin from 63.9% in fiscal 2007 to 64.2 % in fiscal 2008 due primarily to increasing sales of higher margin product to the independent optical retailers. General and administrative expenses remained relatively constant at $5.8 million in each fiscal year while interest and depreciation expenses declined.

We continued to reduce our long-term debt during fiscal 2008. Long-term debt (including current portion) decreased $238,000 from $5.1 million at October 31, 2007 to $4.9 million at October 31, 2008.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, and which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment:

o revenue recognition;

o inventory valuation; and

o valuation of deferred tax asset.

REVENUE RECOGNITION. Our policy is to recognize revenue from sales to customers when the rights and risks of ownership have passed to the customer, when persuasive evidence of an arrangement exists, the price is fixed and determinable and collection of the resulting receivable is reasonably assured. In general, revenue is recognized when merchandise is shipped.

We have a product return policy that we believe is standard in the optical industry and is followed by most of our competitors. Under that policy, we generally accept returns of non-discontinued product for credit, upon presentment and without charge, and as a policy we do not make cash refunds. On a quarterly basis we review and establish an allowance for estimated product returns based upon actual returns subsequent to quarter-end and estimated future returns. We apply the historical ratio of sales returns to sales to estimate future returns in addition to known information about actual returns in the period subsequent to the balance sheet date. As of October 31, 2008, we had an allowance for product returns of $291,000. Management considered a range of allowances from $200,000 to $400,000. Variances in the allowance for product returns would have a corresponding impact on net sales for fiscal 2008. For example, if our allowance for product returns was $400,000, our net sales would have been $110,000 lower.

INVENTORY. Inventory (consisting of finished goods) is valued at the lower of cost or market. Cost is computed using weighted average cost, which approximates actual cost on a first-in, first-out basis. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, selling prices and market conditions. Our inventory includes designer prescription eyeglass frames and sunwear, which are sold in a highly competitive industry. If actual product demand or selling prices are less favorable than our estimates we may be required to take additional inventory write-downs in the future. Similarly, if our inventory is determined to be undervalued due to write-downs below market value, we would be required to recognize such additional operating income at the time of sale. Significant unanticipated changes in demand could have a material and significant impact on the future value of our inventory and reported operating results.

VALUATION OF DEFERRED TAX ASSETS. Prior to 2003, we generated material net operating loss carryforwards and differences between the tax bases of assets and liabilities and their financial reporting amounts. These carryforwards and differences resulted in the recognition of a net deferred tax asset. Because of the uncertainty of our ability to realize the benefits of this asset, we established a valuation allowance in the full amount of the asset. As a result of generating net income during the past several fiscal years, we concluded that a portion of the net deferred tax asset is realizable. Accordingly, we reduced the valuation allowance.

Realization of this deferred tax asset is dependent on our ability to generate future taxable income. Management believes that it is more likely than not that we will generate taxable income sufficient to realize a portion of the deferred tax asset. However, there can be no assurance that we will meet our expectation of future income. As a result, the amount of the deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income are reduced. Such occurrence could materially adversely affect our results of operations and financial condition.

RESULTS OF OPERATIONS

The following table sets forth for the fiscal years indicated selected statements of operations data shown as a percentage of net sales.

                                                           2007      2008
                                                         -------   -------
     Net sales                                            100.0%    100.0%
     Cost of sales                                         36.1      35.8
                                                         -------   -------
     Gross profit                                          63.9      64.2
                                                         -------   -------
     Operating expenses:
          Selling                                          35.8      36.6
          General and administrative                       23.1      23.5
          Depreciation and amortization                     0.8       0.4
                                                         -------   -------
              Total operating expenses                     59.7      60.5
                                                         -------   -------
     Income from operations                                 4.2       3.7
     Other expense                                         (2.0)     (1.1)
                                                         -------   -------
     Income before provision for income taxes               2.2       2.6
     Provision for (Benefit from) income taxes - net       (8.4)      0.1
                                                         -------   -------
     NET INCOME                                            10.6%      2.5%
                                                         =======   =======

COMPARISON OF FISCAL YEARS 2007 AND 2008

     NET SALES. Net sales were $24.5 million in fiscal 2008 compared to $25.0
million in fiscal 2007. The following table shows certain information regarding
net sales by product line for the fiscal years indicated:

                                                  2007             2008
                                            ---------------  ---------------

          bebe eyes                         $ 8,409   33.6%  $ 8,947   36.5%
          Nicole Miller Eyewear               5,813   23.2     5,764   23.5
          Laura Ashley Eyewear                3,664   14.6     3,849   15.7
          Other                               7,140   28.6     5,925   24.3
                                            -------  ------  -------  ------
                TOTAL                       $25,026  100.0%  $24,485  100.0%
                                            =======  ======  =======  ======

While we did not increase wholesale frame prices in fiscal 2008, the average price of frames sold increased in fiscal 2008 due to a greater sales of higher-priced frames. Unit sales of frames decreased 14% in fiscal 2008.

International sales decreased $416,000 in fiscal 2008 as a result of acquisition of major international customers by competitors and deep discounting in many international markets. International sales benefited somewhat from a weaker United States dollar in fiscal 2008 and growing international sales of bebe eyes.

Net sales equal gross sales less returns and allowances. Our product returns as a percentage of gross sales was 12.8% in fiscal 2007 and 12.4% in fiscal 2008. Because of lower net sales in fiscal 2008, product returns decreased $210,000 from $3.7 million in fiscal 2007 to $3.5 million in fiscal 2008.

We also maintain an allowance for product returns. See "Critical Accounting Polices." Changes in the allowance in any period will have a corresponding impact on net sales during the period. We made only small changes in our allowance for product returns in fiscal 2007 and fiscal 2008.

GROSS PROFIT AND GROSS MARGIN. Gross profit was $15.7 million in fiscal 2008 compared to $16.0 million in fiscal 2007. The gross margin was 64.2% in fiscal 2008 compared to 63.9% in fiscal 2007. The

increase in gross margin in fiscal 2008 was primarily due to a higher average frame sale price and a lower cost for frame cases.

SELLING EXPENSES. Selling expenses were $9.0 million in each of fiscal 2007 and 2008. Advertising expenses decreased $104,000 from fiscal 2007 to fiscal 2008 while development, point of purchase and international selling expenses increased.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $5.8 million in each of fiscal 2008 and fiscal 2007. Decreases of $107,000 in bad debt expense and $93,000 in legal, accounting and consulting expense were offset in part by a $144,000 increase in salary and payroll expense.

DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses decreased $91,000 from fiscal 2007 to fiscal 2008.

OTHER INCOME (EXPENSE), NET. Interest expense decreased to $281,000 in fiscal 2008 from $490,000 in fiscal 2007. The decrease in fiscal 2008 was primarily due to a lower weighted average interest rate on our borrowings and a reduction in debt.

PROVISION FOR INCOME TAXES. We recorded taxes of $8,000 in fiscal 2008 and recognized a net tax benefit of $2.1 million in fiscal 2007. The net tax benefit in fiscal 2007 was due to a decrease of $2.3 million in the valuation allowance on our deferred tax asset; in fiscal 2008 we recorded a decrease of $243,000 in this valuation allowance. We made the change to our valuation allowance as a result of our profitability during the past years and our future outlook. As of October 31, 2008, our net deferred tax asset was $3.0 million and we had a valuation allowance of $5.1 million against our deferred tax asset.

As of October 31, 2008, we had net operating loss carry-forwards for federal and state income tax purposes of approximately $15.2 million and $4.3 million, respectively, which expire at various times from 2021 through 2027.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our accounts receivable (net of allowance for doubtful accounts) were $2.8 million at October 31, 2008 and $2.9 million at October 31,2007.

Our inventory (at lower of cost or market) was $5.6 million at October 31, 2008 and $4.8 million at October 31, 2007. This increase was primarily due to the launch of Carmen Marc Valvo Eyewear.

At October 31, 2008, our long-term debt included principally a revolving line of credit with Comerica Bank with an outstanding principal balance of $2.9 million and a revolving line of credit with Bluebird Finance Limited ("Bluebird") with an outstanding principal balance of $1.9 million. See Note 4 of Notes to Financial Statements for further information regarding our long-term debt. Our long-term debt (including current portion) decreased from $5.1 million at October 31, 2007 to $4.9 million at October 31, 2008 due principally to continued amortization of the Bluebird credit facility.

Borrowing availability under the Comerica Bank revolving line of credit is based on eligible accounts receivable, inventory and a letter of credit, up to a maximum of $4.8 million outstanding at any time. At October 31, 2008, we had $1.5 million of additional borrowing availability under this revolving line of credit. The revolving line of credit bears interest payable monthly at either Comerica Bank's base rate plus 0.5% or LIBOR plus 3.25%, as selected in advance by us, and will expire on February 28, 2010. At October 31, 2008, the interest rate on this revolving line of credit was 4.5% per annum.

Our credit facility with Bluebird consists of a revolving credit line and support for the $1,250,000 letter of credit securing the Comerica Bank credit facility. Bluebird's commitment on the revolving credit facility was $1.9 million as of October 31, 2008, and reduces by $72,500 each quarter. The revolving credit

line bears interest at the rate of 5% per annum, with payments of principal and interest on a 10-year amortization schedule that commenced in fiscal 2005, and is due and payable in April 2013. The credit facility is secured by a security interest in our assets that is subordinate to the Comerica Bank credit facility.

Our shareholders' equity increased from $200,000 at October 31, 2007 to $888,000 at October 31, 2008 due to our net income of $622,000 and the issuance of 100,000 shares of our Common Stock upon exercise of warrants for $0.67 per share.

Of our accounts payable at October 31, 2008, $812,000 were payable in foreign currency. To monitor risks associated with currency fluctuations, we from time to time assess the volatility of certain foreign currencies and review the amounts and expected payment dates of our purchase orders and accounts payable in those currencies.

During the past two years, we have generated cash primarily through product sales in the ordinary course of business, our bank credit facilities and sales of equity securities. At October 31, 2008, we had working capital of $2.4 million as compared to working capital of $1.9 million at October 31, 2007. Operating activities provided a net of $114,000 during fiscal 2008, while financing activities used a net of $171,000 and investing activities used a net of $99,000 during fiscal year 2008, resulting in a net decrease of $155,000 in cash and cash equivalents.

Our business plan for 2009 provides for positive cash flow from operations. We believe that, at least through fiscal 2009, assuming that there are no unanticipated material adverse developments, and continued compliance with our credit facilities, our cash flows from operations and credit facilities will be sufficient to enable us to pay our debts and obligations as they mature.

QUARTERLY AND SEASONAL FLUCTUATIONS

Our results of operations have fluctuated from quarter to quarter and we expect these fluctuations to continue in the future. A factor which may significantly influence results of operations in a particular quarter is the introduction of a new brand-name collection, which results in disproportionate levels of selling expenses due to additional advertising, promotions, catalogs and in-store displays. Introduction of a new brand may also generate a temporary increase in sales due to initial stocking by retailers.

Other factors which can influence our results of operations include customer demand, the mix of distribution channels through which the eyeglass frames are sold, the mix of eyeglass frames sold, product returns, delays in shipment and general economic conditions.

The following table sets forth certain unaudited results of operations for the eight fiscal quarters ended October 31, 2008. The unaudited information has been prepared on the same basis as the audited financial statements appearing elsewhere in this Report and includes all normal recurring adjustments which management considers necessary for a fair presentation of the financial data shown. The operating results for any quarter are not necessarily indicative of future period results.

 <CAPTION>
                                                  2007                                2008
                                   ---------------------------------------------------------------------
                                    JAN.     APR.     JULY     OCT.     JAN.     APR.     JULY     OCT.
                                     31       30       31       31       31       30       31       31
                                   ------   ------   ------   ------   ------   ------   ------   ------
Net sales                          $5,990   $6,451   $6,175   $6,409   $5,555   $6,686   $6,362   $5,882
Cost of sales                       2,215    2,208    2,287    2,317    1,979    2,411    2,406    1,961
Gross profit                        3,775    4,243    3,888    4,092    3,576    4,275    3,956    3,921
Operating expenses:
Selling                             2,093    2,348    2,185    2,345    1,933    2,494    2,248    2,283
General and administrative          1,484    1,502    1,458    1,521    1,411    1,497    1,462    1,490
Total operating expenses            3,577    3,850    3,643    3,866    3,344    3,991    3,710    3,773
Income (loss) from operations         198      393      245      226      232      284      246      148
Other (expense), net                 (120)    (133)    (125)    (112)     (80)     (71)     (64)     (66)
Income (loss) before provision
  for income taxes                     78      260      120      114      152      213      182       82
Provision for income taxes            (76)    (254)    (136)  (1,624)       1        1        6        1

NET INCOME                         $  154   $  514   $  256   $1,738   $  151   $  212   $  176   $   81

INFLATION

We do not believe our business and operations have been materially affected by inflation.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

For recently issued accounting pronouncements that may affect us, see Note 2 of Notes to Financial Statements.

FACTORS THAT MAY AFFECT OUR FUTURE OPERATING RESULTS

Net sales of bebe eyes, Nicole Miller Eyewear and Laura Ashley Eyewear accounted for 36.5%, 23.5% and 15.7%, respectively, or a total of 75.7% of our net sales in fiscal year 2008. While we intend to continue efforts to expand sales of our other eyewear year lines and may acquire other brand name eyewear licenses, we expect these three lines to continue to be our leading sources of revenue for the near future. Our licenses for bebe eyes, Nicole Miller Eyewear and Laura Ashley Eyewear expire in June 2010, March 2012 and January 2010, respectively. These licenses may be terminated prior to expiration for material default and the failure to meet minimum sales and/or royalty requirements. The termination of any of these licenses would have a material adverse effect on our results of operations.

We have a product return policy that we believe is standard in the optical industry and is followed by our competitors. Under that policy, we must pre-approve all product returns, which we will do only for credit or exchange if the product has not been discontinued. As a general policy, we do not make cash refunds. Our product returns for fiscal years 2007 and 2008 amounted to 12.8% and 12.4% of gross sales (sales before returns), respectively. We maintain an allowance for product returns that we consider adequate; however, an increase in returns that significantly exceeds the amount of those reserves would have a material adverse impact on our results of operations and financial condition.

The markets for prescription eyewear and sunwear are intensely competitive. There are thousands of frame styles, including thousands with brand names many of which have global recognition. At retail, our eyewear styles compete with styles that do and do not have brand names, styles in the same price range, and styles with similar design concepts. To obtain board space at an optical retailer, we compete against many companies, both foreign and domestic, including Luxottica Group S.p.A, Safilo Group S.p.A., and Marchon Eyewear, Inc. Our largest competitors have significantly greater financial, technical, sales, manufacturing and other resources than us. They also employ direct sales forces that have existed longer, and are significantly larger, than our direct sales force. At the major retail optical chains, we compete not only against other eyewear suppliers, but also against the chains themselves, as these chains have increasingly designed, manufactured and sold their own lower-priced private label brands. Luxottica, the largest eyewear company in the world, is vertically integrated, in that it manufactures frames, distributes them through a direct sales force in the United States and throughout the world, and owns LensCrafters, Sunglass Hut, Pearle Vision and Cole Vision, which combined is the largest worldwide retail optical chain.

We compete in our target markets through the quality of the brand names we license, our marketing, merchandising and sales promotion programs, the popularity of our frame designs, the reputation of our styles for quality, our pricing policies and the quality of our sales force. We cannot assure you that we will be able to compete successfully against current or future competitors or that the competitive pressures we face will not materially and adversely affect our business, operating results and financial condition.

Net sales to retail optical chains and department stores amounted to 13.5% and 13.7% of net sales in fiscal years 2007 and 2008, respectively, most of which were to retail optical chains. Retail optical chains have increasingly marketed their own lower-cost private label brands and are experiencing industry consolidation. The loss of one or more optical retail chains or department stores as a customer could have a material adverse affect on our business.

Our future success could depend to a significant extent on the availability and acceptance by the market of vision correction alternatives to prescription eyeglasses, such as contact lenses and refractive (optical) surgery. While we do not believe that contact lenses, refractive surgery or other vision correction alternatives materially and adversely impact our business at present, there can be no assurance that technological advances in, or reductions in the cost of, or greater consumer acceptance of, vision correction alternatives will not occur in the future, resulting in their more widespread use. Increased use of vision correction alternatives could result in decreased use of our eyewear products, which would have a material adverse impact on our results of operations and financial condition.

IF WE HAVE A "CHANGE OF OWNERSHIP" AS DEFINED UNDER THE INTERNAL REVENUE CODE, OUR ABILITY TO USE OUR NET OPERATING LOSS CARRYFORWARDS ("NOLS") WOULD BE SIGNIFICANTLY LIMITED.

As of October 31, 2008, we had NOLs for federal and state income tax purposes of approximately $15.2 million and $4.3 million, respectively, that expire at various dates from 2021 through 2027. If a "change of ownership" of Signature occurs within the meaning of Section 382 of the Internal Revenue Code, our ability to use these NOLs in the future would be significantly limited.

IF OUR NET INCOME DECREASES MATERIALLY OVER AN EXTENDED PERIOD OF TIME, WE MAY NEED TO INCREASE THE VALUATION ALLOWANCE ON OUR DEFERRED TAX ASSET RELATING TO OUR NET OPERATING LOSS CARRYFORWARDS, WHICH WOULD FURTHER ADVERSELY AFFECT OUR RESULTS OF OPERATIONS FOR THE AFFECTED PERIODS.

Prior to 2003, we generated net operating loss carryforwards that resulted in a deferred tax asset. Because of the uncertainty of realizing the benefits of this asset, we established a valuation allowance in the full amount of the asset. As a result of generating net income during the past several fiscal years, we reduced this valuation allowance by $2.3 million in fiscal year 2007 and $243,000 in fiscal year 2008. The change in the valuation allowance materially increased our net income for these periods. If we incur net losses over a sustained period in the future, we may increase the allowance, which would further adversely affect our results of operations in those periods.

As of January 15, 2009, our directors and executive officers owned beneficially 47.6% of the outstanding shares of our Common Stock. As a result, the directors and executive officers control Signature and its operations not only as a result of their current positions, but their ability to elect a majority of the Board of Directors and therefore retain control of the Board. The voting power of the directors and executive officers could also serve to discourage potential acquirers from seeking to acquire control of us through the purchase of our Common Stock, which might depress the market price of our Common Stock.

. . .