The following management discussion and analysis ("MDA") is based on and should be read in conjunction with "Selected Financial Data" above and our consolidated Financial Statements and Supplementary Data (the "Financial Statements"), which begins on page 21. The Financial Statements have been prepared in United States dollars and in conformity with United States generally accepted accounting principles ("US GAAP"). Unless otherwise indicated, all dollar amounts disclosed in this MDA are expressed in United States Dollars.

Operating results are not necessarily indicative of results that may occur in future periods. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in the forward-looking statements as a result of many factors including, but not limited to, those set forth under "Cautionary Statement About Forward-Looking Statements" and "Risk Factors" in Item 1A., included above in this Annual Report on Form 10-K. All forward-looking statements included in this document are based on the information available to us on the date of this document and we assume no obligation to update any forward-looking statements contained in this Annual Report on Form 10-K.

Overview

We license, manufacture, distribute and market specialty optical lens products using our proprietary design and manufacturing technology. Our products are sold primarily in the United States solely to eye care professionals through in house sales representatives and a network of distributors. Our lens products are marketed as a family of specialty vision correction products that can serve the majority of the population's vision correction needs. Our specialty optical lens business is divided into four categories: (i) disposable lenses; (ii) custom soft lenses; (iii) gas permeable lenses; and (iv) replacement and other lenses. During the 2012 fiscal year, our C-Vue disposable products accounted for approximately 56% of our sales.

Sales of our specialty optical lens products accounted for the largest percentage of our total revenues, constituting approximately 71%, while royalty income derived from our exclusive license of our patented multifocal design to Bausch + Lomb was approximately 29% of revenues during the 2012 fiscal year.

Economic conditions in the United States have restrained our growth. We are however optimistic about the long-term outlook for the contact lens market and the specialty contact lens market, in particular.

Market demographics indicate that speciality contact lenses will continue to be the fastest growing segment of the contact lens market. Specialty contact lenses include toric, toric multifocal, and cosmetic lenses. We believe that our custom soft speciality lenses, including our C-Vue multifocal lens for presbyopia, our C-Vue custom toric lens for correcting astigmatism and our C-Vue Advanced toric multifocal lens, will grow over time due to market demographics favoring specialty lenses.

We believe market demographics favoring specialty contact lenses will continue to drive our revenue and earnings. In January 2011, we launched our new C-VUE Advanced® HydraVUE™ line of silicone hydrogel custom contact lenses for monthly replacement. They are completely customizable, and feature a risk-free trial program, and sales have grown steadily during the 2012 fiscal year.

A significant portion of our net income is derived from our exclusive license with Bausch + Lomb and such royalty income is a major component of our profitability. However, there can be no assurance, that such royalty income from Bausch + Lomb will grow or that Bausch + Lomb will continue to sell products in the future utilizing our technology.

The contact lens market is highly competitive. We compete with industry leaders, such as Vistakon, Inc. a unit of Johnson and Johnson Vision Care, Inc., Bausch + Lomb, Alcon Laboratories, Inc., a division of Novartis AG, and Cooper Vision, Inc. a unit of Cooper Vision Companies, Inc. Our ability to compete successfully is dependent in part on eye care professionals' perceptions of product quality, product development, technical innovation, and price.

We have a supply agreement with one supplier for the manufacture of our molded C-Vue multifocal lens, which accounted for approximately 49% of our fiscal 2012 sales. The agreement is renewable from year to year and is terminable pursuant to customary termination clauses. Although to date the supplier has met our requirements, there can be no assurances that it will continue to do so.

2012 Fiscal Year Highlights

• 2012 fiscal year sales increased by 1.7% over 2011 to $6.2 million, due primarily to a 32% increase in custom soft lens sales offset in part by an 8% decline in disposable multifocal lens sales.
• Royalty income for 2012 declined by 6% compared to 2011, resulting in a decline in total revenue of less than 1%, to $8.7 million.
• Earnings per share decreased 14% and 23% to $0.48 compared to pro-forma and reported earnings per share of $0.56 and $0.63 in 2011, due to several factors discussed below.
• We paid annual dividends of $426,000 or $0.18 per share, a dividend yield of 5.2% based on the year-end closing price of $3.45. In August 2012, we declared our 24th consecutive quarterly dividend, at the same annual rate of $0.18 per share.
• In May 2012, we refinanced our term loan and line of credit facilities with Hancock Bank. This improved our cash flow, by maintaining the amount our minimum monthly principal payments at about the same level over the next five years while reducing the interest rate to LIBOR plus 3% versus the all in swap rate of 5.66% we previously paid to Regions Bank.
• During the year we reduced our borrowings by $1.2 million.

Results of Operations

The following table sets forth, for the fiscal years ended June 30, 2012, 2011 and 2010, certain data derived from our Consolidated Statements of Income and certain of such data expressed as a percentage of total revenues:

                                    2012(1)               2011 Pro-forma(2)                 2011                       2010
                                $      % of Revenues       $      % of Revenues       $      % of Revenues       $      % of Revenues
Revenues                    8,721,145       100.0      8,779,356       100.0      8,779,356       100.0      9,194,190       100.0
Operating costs and
expenses                    6,717,290        77.0      6,501,293        74.2      6,240,293        71.1      6,504,701        70.7
Operating income            2,003,855        23.0      2,278,063        25.8      2,539,063        28.9      2,689,489        29.3
Other non-operating items    (349,335)       (4.0)      (301,084)       (3.4)      (301,084)       (3.4)      (175,592)       (1.9)
Income before income tax
expense                     1,654,520        19.0      1,976,979        22.4      2,237,979        25.5      2,513,897        27.4

The following table sets forth, for the fiscal years ended June 30, 2012, 2011 and 2010, certain data derived from our Consolidated Statements of Income, and certain of such data expressed as a percentage of our optical lens sales:

                              2012            2011 Pro-forma(2)             2011                   2010
                          $     % of Sales       $     % of Sales       $     % of Sales             % of Sales
Sales                 6,181,449   100.0      6,077,032   100.0      6,077,032   100.0      6,217,245   100.0
Cost of sales         3,772,414    61.0      3,658,073     60.2     3,397,073    55.9      3,608,608     58.0
Sales and marketing   1,548,283    25.1      1,487,511     24.5     1,487,511    24.5      1,480,613     23.8
Administration        1,311,189    21.2      1,279,775     21.1     1,279,775    21.1      1,336,246     21.5
Research and
development              85,404     1.4         75,934      1.2        75,934     1.2         79,234      1.3
Operating costs and
expenses              6,717,290   108.7      6,501,293   107.0      6,240,293   102.7      6,504,701   104.6

(1) Other non-operating items includes, $105,000 of one-time charges related to the Hancock Bank refinancing in May 2012.

(2) Excludes from cost of sales, a one-time price correction of $261,000 covering mostly FY 2011 and some prior year purchases from one of our vendors.

Fiscal 2012 Compared to Fiscal 2011

During the fiscal year ended June 30, 2012 (the "Current Year"), we earned income before tax of $1,654,520 compared to income before tax of $2,237,979 in the fiscal year ended June 30, 2011 (the "2011 Year"). The decrease in income before tax during the Current Year of $583,459 was due to (i) a decrease in royalty income received from Bausch + Lomb of $162,628 to $2,539,696 in the Current Year as compared to $2,702,324 in the 2011 Year, (ii) a decrease in gross margin of $270,924 primarily from a one-time price correction (effected in the 2011 Year), offset by slightly lower gross margins on higher sales and (iii) excluding cost of sales, an increase in expenses of $101,656 (as described below) and (iv) an increase in other items primarily interest expense, and other expenses of $48,251, due primarily to lower interest costs due to lower debt balances, offset by $105,000 of one-time charges related to the Hancock Bank refinancing. After recording income tax expense of $510,582, we had net income of $1,143,938, or $0.48 per diluted share for the Current Year. In comparison, in the 2011 Year we had net income of $1,491,774, or $0.63 per diluted share after recording income tax expense of $746,205. On a pro-forma basis excluding the one-time price correction of $261,000, net of taxes of $98,214, net income for the 2011 Year would have been $1,328,988 or $0.56 per diluted share.

Sales during the Current Year were $6,181,449, an increase of $104,417 (1.7%), as compared to sales of $6,077,032 during the 2011 Year. The disposable lens category decreased by 5.0%, as sales of our C-Vue disposable multifocal lenses continue to be affected by competition from competitor product offerings and promotional programs. Our custom soft lens category increased by 31.2%, primarily due to increased demand for our new C-Vue Advanced® HydraVUE™ line of silicone hydrogel custom contact lenses for monthly replacement that we launched in January 2011. Our gas permeable lens category decreased by 11.3%, primarily due to the continued overall decline in gas permeable fits in the contact lens industry. The replacement and other lens category decreased as expected by 10.8% from the decline in product lines that are nearing the end of their life cycle offset some by sales increases for Unilens replacement products due to the discontinuation of replacement lens products from several of our competitors.

Gross margin decreased 10.1% to 39.0% in the Current Year compared to 44.1% in the 2011 Year. The decrease was primarily due to the one-time price correction covering mostly current and some prior year purchases from one of our vendors, which added approximately 4% to gross margin. Gross margin without the one-time price correction would have been approximately 40%. In addition, gross margin was lower due to sales mix changes away from higher margin products.

Our operating expenses (excluding cost of sales) increased during the Current Year by $101,656 as compared to the 2011 Year, due primarily to increases in sales and marketing and administrative expenses. Sales and marketing expenses increased $60,772 primarily due to higher advertising and higher sales and payroll related expenses. Administrative expenses increased by $31,414 primarily due to increases in payroll and related expenses and increases in corporate governance fees. Research and development expenses increased $9,470 during the Current Year compared to the 2011 Year due to new product development expenses.

In the Current Year and the 2011 Year we recorded net income tax expense of $510,582 and $746,205, respectively. We record income tax at the statutory rates, and previously only paid alternative minimum tax of approximately 2% due to the utilization of tax loss carry-forwards. During the second quarter of the 2010 Year, utilization of tax loss carry-forwards were exhausted, and income taxes payable have been recorded since then. The effective tax rate for the Current Year was 30.9% compared to 33.3% in the 2011 Year. The effective tax rate in the current year was 2.4% lower, due primarily to a state refund received from prior years, tax return examinations.

Fiscal 2011 Compared to Fiscal 2010

During the 2011 Year we earned income before tax of $2,237,979 compared to income before tax of $2,513,897 in the fiscal year ended June 30, 2010 (the "2010 Year"). The decrease in income before tax during the 2011 Year of $275,918 was due to (i) a decrease in royalty income received from Bausch + Lomb of $274,621 to $2,702,324 in the 2011 Year as compared to $2,976,945 in the 2010 Year, (ii) an increase in gross margin of $71,322 primarily from the one-time price correction, offset by lower sales and gross profit (iii) excluding cost of sales, a decrease in expenses of $52,873 (as described below) and (iv) an increase in other items primarily interest expense, and other income of $125,492. After recording income tax expense of $746,205, we had net income of $1,491,774, or $0.63 per diluted share for the 2011 Year. In comparison, in the 2010 Year we had net income of $1,548,397 or $0.43 per diluted share after recording income tax expense of $965,500. The improvement in income per diluted share primarily reflects the repurchase of our former majority shareholder's shares in January 2010, and the consequent decrease in the number of our diluted shares outstanding, and from the one-time price increase net of taxes.

Sales during the 2011Year were $6,077,032, a decrease of $140,213 (2.3%), from sales of $6,217,245 during the 2010 Year. The disposable lens category decreased 6.9%, as sales of our best-selling lens, the C-Vue disposable multifocal, were affected by economic conditions in the U.S. as well as increased competition from competitors' new product offerings and rebate programs. Our custom soft lens category increased 20.2%. The launch last year of the new C-Vue Advanced Toric Multifocal with free trial lenses went slower than expected, but we are now seeing sales improvement in this category from the continued conversion of the free trial lenses into revenue generating boxes of monthly replacement lenses and from the launch in January 2011of our new C-VUE Advanced® HydraVUE™ line of silicone hydrogel custom contact lenses for monthly replacement. Our gas permeable lens category decreased by 8.3%, due to the continued overall decline in gas permeable fits in the contact lens industry.The replacement and other lens category decreased by 7.2% due to economic conditions and the expected decline in product lines that are nearing the end of their life cycle.

Gross margin increased 2.1% to 44.1% in the 2011 Year compared to 42.0% in the 2010 Year, due primarily to the one-time price correction covering mostly current and some prior year purchases from one of our vendors. This was partially offset by lower sales, sales mix changes from higher margin products and the maturation of the C-Vue Advanced Toric Multifocal free trial program launched at the end of the first quarter last year. Gross margin without the one-time price correction would have been approximately 40%.

Our operating expenses (excluding cost of sales) decreased during the 2011 Year by $52,873 as compared to the 2010 Year, due primarily to decreases in administrative and research and development expenses. Administrative expenses decreased by $56,471 primarily due to the non-recurrence of one-time 2010 Year expenses of approximately $71,000 associated with our annual meeting and migration from Canada to Delaware and approximately $39,000 of stock compensation expenses compared to approximately $20,000 in annual meeting expenses in the 2011 Year. In addition, the 2011 Year includes approximately $20,000 of additional professional fees for filing and income tax related expenses. Sales and marketing expenses increased $6,898 primarily due to higher travel expenses offset partially by lower advertising spending. Research and development expenses decreased $3,300during the 2011 Year compared to the 2010 Year.

In the 2011 and 2010 Years, we recorded net income tax expense of $746,205 and $965,500, respectively. We record income tax at the statutory rates, and previously only paid alternative minimum tax of approximately 2% due to the utilization of tax loss carry-forwards. During the second quarter of the 2010 Year, utilization of tax loss carry-forwards were exhausted, and income taxes payable have been recorded since then. The effective tax rate for the 2011 Year was 33.3% compared to 38.4% in the 2010 Year.

Liquidity and Capital Resources

Cash and cash equivalents were $374,977 at June 30, 2012, compared to $601,360 at June 30, 2011. Short-term investment objectives are to minimize risk, maintain liquidity and maximize yields. To attain these objectives, investment limits are placed on the amount, type and issuer. Investments are generally in bank money market funds.

Cash provided by operations and financing activities have primarily funded our requirements. As of June 30, 2012, the Company had working capital of $854,685, representing a decrease of $560,583 from our working capital at June 30, 2011. The decrease in working capital was due to a decrease in cash, and principally to the decrease in royalty and other receivables, offset by a decrease in current notes payable related to the payoff of our capital equipment credit facility in December 2011.

During the Current Year, we generated $1,996,581 positive cash from operations, representing an increase of $489,838 from the $1,506,743 generated during the 2011Year. The increase was due primarily to the reductions of inventory and royalty and other receivables, and the payment received, for the one-time price correction receivable recorded in the fourth quarter of the 2011 Year, offset by reductions in accounts payable. Total capital additions were $617,300 and cash used for these additions was $544,611 during the Current Year primarily for manufacturing equipment, capitalized process improvement and web site shopping cart projects an increase of $179,715 from $437,585 capital additions in the 2011 Year.

We estimate that capital expenditures for property, plant and equipment and other assets will approximate $225,000 in fiscal year 2013, for additional capitalized process improvement and manufacturing equipment.

The following is a summary of the change in our cash and cash equivalents:

                                                                         June 30,
                                                                 2012               2011
Net cash provided by operating activities                    $  1,996,581       $  1,506,743
Net cash (used in) provided by investing activities              (544,611)          (157,587)
Net cash used in financing activities                          (1,678,353)        (1,828,336)
Net decrease in cash and cash equivalents                    $   (226,383)      $   (479,180)

Operating Activities

Cash provided by operations is the principal source of funds for expansion, acquisitions, capital expenditures, income taxes and dividends to stockholders. Current Year net cash provided by operating activities increased $489,838 to $1,996,581 compared to $1,506,743 in the 2011 Year. The increase is primarily attributable to changes in working capital items, offset by a decrease in earnings. In the Current Year, we had $383,805 positive cash flow from working capital items, primarily due to a decrease in receivables from higher collections and from tight inventory management, offset by a decrease in accounts payable due to timely payments. In the 2011 Year, working capital provided by operating activities decreased $1,129,232 to $1,506,743 compared to $2,635,975 in the 2010 Year. The decrease is primarily attributable to changes in working capital items, primarily due to increases in royalty and other receivables, and a decrease in earnings and deferred tax expense.

Cash income taxes paid during the Current Year were $318,000 compared to $672,502 in the 2011 Year. The decrease in cash taxes paid is due primarily from full depreciation for tax purposes, of equipment additions in the Current Year.

Investing Activities

Net cash used in investing activities in the Current Year increased $387,024 to $544,611, compared to $157,587 in the 2011 Year. Net cash used in the Current Year was for the purchase of capital additions, which were primarily for manufacturing equipment and capitalized process improvement and web site shopping cart projects. Excluding the redemption of certificates of deposit in the 2010 Year, net cash used in investing activities in the 2011 Year increased $126,007 to $157,587 compared to $31,580 in the 2010 Year. Net cash used in the 2011Year was for the purchase of capital additions, which were primarily for manufacturing equipment and leasehold improvements at our headquarters office.

Financing Activities

Current Year net cash used in financing activities decreased $149,983 to $1,678,353 compared to $1,828,336 in the 2011 Year. On May 23, 2012, we refinanced our Regions Bank term loan and line of credit facilities with a new five-year term loan and line of credit with Hancock Bank, keeping our term loan principal payments about the same at $58,333 per month while at the same time extending the term of the loan and reducing the interest rate to a floating rate of 30-day LIBOR plus 3.00%. The term loan and the line of credit are secured by a security interest in favor of Hancock Bank in our inventory, accounts receivable, general intangibles, cash and principal United States patent. Additionally, our interest rate swap with Regions Bank and the related agreement were terminated. Financing activities during the Current Year consisted primarily of new borrowings from Hancock Bank of $3,781,441 and repayments under both term loan facilities of $4,974,045, a net debt reduction of $1,192,604 compared to $1,064,286 in the 2011 Year and payments of $426,484 for dividends to our shareholders in the Current Year compared to $746,346 of dividends paid in the 2011 Year. The decrease in dividend payments of $319,862 was due to the 50% quarterly dividend reduction to $.045 per common share in the second half of the 2011Year, as called for in the March 2011 amendment to the term loan facility with Regions Bank described below, which dividend limitation is also under the new Hancock Bank term loan facility.

In April, 2011, we borrowed $279,998 under a seven-year $500,000 capital equipment credit facility, for the purchase of manufacturing equipment. On December 30, 2011 the $279,998 draw under this facility was repaid with cash from operations, and the capital equipment credit facility was closed.

In March, 2011, we entered into an amendment to our term loan facility with Regions Bank, which improved our cash flow by reducing our minimum monthly principal payment from $100,000 to $54,762, and reduced our quarterly dividend payment from $0.09 to $0.045 per common share.

In August 2010, we entered into an interest rate swap agreement which effectively converted our floating interest rate debt under the Regions Bank term loan of LIBOR plus 3.75% with a minimum interest rate of 4.75%, to a fixed rate of 5.16% which was 5.66% after the March 2011 term loan facility amendment (See Note 6, Term Loan, Line of Credit and Interest Rate Swap, to our Consolidated Financial Statements included in this Annual Report).

2011 Year net cash used in financing activities decreased $1,372,525 to $1,828,336, compared to $3,200,861 in the 2010 Year. Financing activities during the 2011 Year consisted primarily of repayments under our term loan facility of $1,064,286 compared to $500,000 in the 2010 Year and payments of $746,346 of dividends to our shareholders compared to $1,245,612 of dividends paid in the 2010 Year. The decrease in dividend payments of $499,266 was due to the decrease in our shares outstanding after our stock repurchase in January 2010 (see below) and the 50% dividend reduction described above.

In January 2010, Unilens Corp. USA obtained a $6.9 million 5-year term loan facility and a $1.5 million line of credit from Regions Bank, which was used to finance the repurchase of approximately 48% of our outstanding shares, from our then largest shareholder for an aggregate purchase price of $6,894,912 or $3.15 per share. The loan facility and line of credit had a floating interest rate consisting of a premium over LIBOR with a minimum interest rate of 4.75%, and was secured by certain assets of our subsidiaries.

At the end of the Current Year we had a stockholders' deficit of $888,503, representing an improvement of $747,451 compared to $ 1,635,954 at the end of the 2011 Year. The decrease in stockholders' deficit was primarily due to lower income before income taxes of $1,654,520 (primarily from lower royalty income in the Current Year and the one-time price correction in the 2011Year) offset by, lower income tax expense of $510,582, and smaller cash dividend payments totaling $426,484.

During the Current Year we paid a total of $426,484 in regular quarterly common stock dividends. The Company funded the 2010 share repurchase with a draw of $6 million against the Regions term loan facility which, as of the end of the Current Year and after the Hancock Bank refinancing, had been paid down to $3.5 million.

Off Balance Sheet Arrangements and Other

None.

Contractual Obligations

The following table contains a summary of our obligations and commitments to make future payments under contracts, including debt, lease and purchase agreements as of June 30, 2012. Amounts set forth below are expressed in U.S. dollars.

                                            Payments due by period
Contractual Obligations:   Total    Less than 1 yr  1-3 yrs   3-5 yrs  More than 5 yrs
Long-Term Debt           $3,441,667     $  700,000 $2,100,000 $641,667              $0
Line of Credit               81,441         81,441          0        0               0
Operating Lease             311,669        246,186     65,483        0               0
Purchase Obligations        227,176        227,176          0        0               0
Other                             0              0          0        0               0
Total                    $4,061,953     $1,254,803 $2,165,483 $641,667              $0

Critical Accounting Policies & Estimates

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and apply judgment. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. . . .