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 and sunglasses with a portfolio of established, highly recognized eyewear brands including Foster Grant(1) and Magnivision. We sell our Foster Grant brand in the U.S. popular priced sunglasses market and both our Foster Grant 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.

With the acquisition of Dioptics Medical Products in November 2008, we added a portfolio of proprietary brands of sunglasses and associated eye care products and accessories, including the SolarShield and PolarEyes brands. These products and accessories are primarily sold through mass merchandisers and chain drug stores, as well as medical supply stores and ophthalmic retailers.

With the acquisition of Corinne McCormack in October 2009, we added the Corinne McCormack brand of eyewear and accessories. These products are sold to better specialty and 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 action sports 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, Rawlings and C9 by Champion. We also sell a line of prescription frames.

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 referred to in Part II, Item 1A., "Risk Factors" and elsewhere in this report.

Recent Developments

On October 28, 2009, we acquired all of the outstanding stock of Corinne McCormack, Inc. and Eye-Bar Inc. in exchange for $1.45 million in cash.

In the second quarter of 2009, we decided to divest the costume jewelry business to focus on the core optical business segments. The costume jewelry business qualified for held for sale treatment in the second quarter of 2009. We recorded pre-tax charges in the second quarter of 2009 totaling $5.0 million, including estimated future product returns of $3.6 million, inventory write-downs of $0.8 million, display fixture write-offs of $0.3 million and other costs of $0.3 million related to the

divestiture, and a $1.8 million pre-tax goodwill impairment in the first quarter of 2009. The Company has presented the results of operations and financial position of this business in discontinued operations in the Consolidated Statements of Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flows for all periods presented. On July 23, 2009, we completed a sale of assets related to the costume jewelry business for consideration of approximately $1.3 million, and no significant costs are expected to be incurred in future periods.

Overview

The following is a summary of the Company's operating results for the three and nine months ended October 3, 2009:

º •
º Net sales increased 13.7% to $60.6 million in the current quarter from $53.3 million in the same period in 2008 and increased 11.0% to $194.5 million in the first nine months of 2009 from $175.3 million in the first nine months of 2008. The year-over-year increase was driven by sales by Dioptics Medical Products, acquired in November 2008, and organic growth, offset by the September 2008 discontinuation of an opening price point program at a major customer.

º •
º Income from continuing operations attributable to the Company increased 113.5% to $6.8 million in the current quarter from $3.2 million in the third quarter of 2008 and increased 45.1% to $13.6 million in the first nine months of 2009 from $9.4 million in the first nine months of 2008. The increase was driven by increased sales, partially offset by the addition of Dioptics' operating costs.

º •
º Net income attributable to the Company's shareholders increased 71.5% to $6.7 million in the current quarter from $3.9 million in the third quarter of 2008 and decreased 11.8% to $9.0 million in the first nine months of 2009 from $10.2 million in the first nine months of 2008. The increase in the quarter was driven by sales growth, while the decrease in the nine-month period was driven by the loss from the discontinued costume jewelry operations.

º •
º Earnings per diluted share increased to $0.30 in the current quarter from $0.18 in the third quarter of 2008 and decreased to $0.40 in the first nine months of 2009 from $0.48 in the first nine months of 2008 due to the changes in net income described above.

º •
º Interest expense decreased $0.4 million, or 26.5%, from $1.5 million in the third quarter of 2008 to $1.1 million in the current quarter and decreased $1.0 million, or 21.7%, from $4.7 million in the first nine months of 2008 to $3.7 million in the first nine months of 2009. The decreases were the result of lower interest rates.

º •
º Cash flow provided by operating activities was $31.5 million in the first nine months of 2009 compared to $24.9 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 3, 2009      October 4, 2008     October 3, 2009      October 4, 2008
Net sales                         100.0 %              100.0 %             100.0 %              100.0 %
Cost of goods sold                 40.7                 42.0                44.2                 44.6

Gross profit                       59.3                 58.0                55.8                 55.4
Operating expenses:
   Selling expenses                25.9                 32.5                29.9                 31.1
   General and
   administrative
   expenses                        11.4                 11.0                10.8                 10.7
   Amortization of
   acquired
   intangibles                      2.0                  2.4                 1.8                  2.2

      Operating
      income                       20.0                 12.1                13.3                 11.4
Other income
(expense):
   Interest expense                (1.8 )               (2.8 )              (1.9 )               (2.7 )
   Other income,
   net                              0.2                 (0.4 )               0.1                 (0.1 )

      Income from
      continuing
      operations
      before income
      taxes                        18.4                  8.9                11.5                  8.6
Income tax expense                  7.0                  2.7                 4.4                  3.0

   Income from
   continuing
   operations                      11.4                  6.2                 7.1                  5.6
Discontinued
operations, net of
tax                                (0.1 )                1.3                (2.4 )                0.4

   Net income                      11.3                  7.5                 4.7                  6.0
Less: Net income
attributable to
noncontrolling
interest                            0.2                  0.2                 0.1                  0.2

Net income
attributable to the
Company                            11.1 %                7.3 %               4.6 %                5.8 %

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

                              Three Months Ended                           Nine Months Ended
Segment              October 3, 2009       October 4, 2008       October 3, 2009       October 4, 2008
                                             (unaudited, dollars in thousands)
Net sales
Non-prescription
Reading Glasses     $ 32,242      53.2 %  $ 36,501      68.5 % $  91,631      47.1 % $  95,054      54.2 %
Sunglasses and
Prescription
Frames                17,682      29.2      10,425      19.6      79,128      40.7      54,219      30.9
International         10,656      17.6       6,369      11.9      23,782      12.2      26,056      14.9

Total net sales     $ 60,580     100.0 %  $ 53,295     100.0 % $ 194,541     100.0 % $ 175,329     100.0 %

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

                                Three Months Ended                           Nine Months Ended
Segment                October 3, 2009       October 4, 2008       October 3, 2009       October 4, 2008
                                               (unaudited, dollars in thousands)
Non-prescription
Reading Glasses
    Net sales         $ 32,242     100.0 %  $ 36,501     100.0 %  $ 91,631     100.0 %  $ 95,054     100.0 %
    Cost of goods
    sold                12,054      37.4      13,412      36.7      35,218      38.4      37,349      39.3

    Gross profit      $ 20,188      62.6 %  $ 23,089      63.3 %  $ 56,413      61.6 %  $ 57,705      60.7 %

Sunglasses and
Prescription
Frames
    Net sales         $ 17,682     100.0 %  $ 10,425     100.0 %  $ 79,128     100.0 %  $ 54,219     100.0 %
    Cost of goods
    sold                 9,504      53.7       6,899      66.2      42,416      53.6      31,591      58.3

    Gross profit      $  8,178      46.3 %  $  3,526      33.8 %  $ 36,712      46.4 %  $ 22,628      41.7 %

International
    Net sales         $ 10,656     100.0 %  $  6,369     100.0 %  $ 23,782     100.0 %  $ 26,056     100.0 %
    Cost of goods
    sold                 3,088      29.0       2,084      32.7       8,418      35.4       9,267      35.6

    Gross profit      $  7,568      71.0 %  $  4,285      67.3 %  $ 15,364      64.6 %  $ 16,789      64.4 %

Three Months Ended October 3, 2009 Compared to Three Months Ended October 4, 2008

Net Sales. Net sales increased by $7.3 million, or 13.7%, from $53.3 million in the three months ended October 4, 2008 to $60.6 million in the three months ended October 3, 2009.

In the non-prescription reading glasses segment, net sales decreased by $4.3 million, or 11.7%, from $36.5 million in the three months ended October 4, 2008 to $32.2 million in the three months ended October 3, 2009. This decrease in net sales was due to a shift in timing of program updates at two major customers to the second quarter of 2009 that in 2008 occurred in the third quarter. These program updates contributed $5.4 million of net sales in the third quarter of 2008. In addition, sales were negatively impacted by the loss of an opening price point program at a major customer that contributed $1.5 million in the third quarter of 2008, partially offset by organic growth.

In the sunglasses and prescription frames segment, net sales increased by $7.3 million, or 69.6%, from $10.4 million in the three months ended October 4, 2008 to $17.7 million in the three months ended October 3, 2009. This increase was due to $6.9 million in sales by Dioptics Medical Products, which was acquired in November 2008, as well as organic growth.

In the international segment, net sales increased by $4.3 million, or 67.3%, from $6.4 million in the three months ended October 4, 2008 to $10.7 million in the three months ended October 3, 2009. This increase in net sales was attributed to a $5.8 million reading glasses roll-out at a major customer in Canada, partially offset by an approximately $1.1 million impact of unfavorable foreign exchange rates.

Gross Profit. Gross profit increased $5.0 million, or 16.3%, from $30.9 million in the three months ended October 4, 2008 to $35.9 million in the three months ended October 3, 2009. As a percentage of net sales, gross profit increased from 58.0% to 59.3% during the corresponding periods.

In the non-prescription reading glasses segment, gross profit decreased by $2.9 million, or 12.6%, from $23.1 million in the three months ended October 4, 2008 to $20.2 million in the three months ended October 3, 2009. As a percentage of net sales, gross profit decreased from 63.3% in the third quarter of 2008 to 62.6% during the current quarter. The decrease in gross profit as a percentage of net sales was due to the discontinuation of a high gross margin opening price point program at a major retailer, partially offset by lower product costs and a change in pricing structure at a major customer.

In the sunglasses and prescription frames segment, gross profit increased by $4.7 million, or 131.9%, from $3.5 million in the three months ended October 4, 2008 to $8.2 million in the three months ended October 3, 2009. As a percentage of net sales, gross profit increased from 33.8% to 46.3% during the corresponding periods. This increase in gross profit as a percentage of net sales was due to sales of the higher gross margin Dioptics products (9.6 percentage points), as well as lower product costs.

In the international segment, gross profit increased by $3.3 million, or 76.6%, from $4.3 million in the three months ended October 4, 2008 to $7.6 million in the three months ended October 3, 2009. As a percentage of net sales, gross profit increased from 67.3% to 71.0% in the corresponding periods. This increase in gross profit as a percentage of net sales was due to a higher margin reading glasses roll-out to a major Canadian retailer, partially offset by unfavorable foreign exchange rates.

Selling Expenses. Selling expenses decreased by $1.6 million, or 9.3%, from $17.3 million in the three months ended October 4, 2008 to $15.7 million in the three months ended October 3, 2009. As a percentage of net sales, selling expenses decreased from 32.5% to 25.9% in the corresponding periods. The dollar decrease in selling expenses was due to a $1.0 million decrease in freight costs, a $0.7 million decrease in depreciation, a $0.6 million decrease due to timing of advertising, and other expense reductions. These decreases were partially offset by $1.6 million of selling expenses associated with the operations of Dioptics Medical Products, which we acquired in November 2008.

General and Administrative Expenses. General and administrative expenses increased by $1.0 million, or 17.5%, from $5.9 million in the three months ended October 4, 2008 to $6.9 million in the three months ended October 3, 2009. As a percentage of net sales, general and administrative expenses increased from 11.0% to 11.4% in the corresponding periods. The dollar increase included $0.8 million in expenses associated with the Dioptics Medical Products business, which we acquired in November 2008.

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased by $0.1 million, or 9.0%, from $1.3 million in the three months ended October 4, 2008 to $1.2 million in the three months ended October 3, 2009. This decrease was due to certain intangible assets associated with the 2004 acquisition of Magnivision being amortized on an accelerated basis over their economic lives, partially offset by amortization of the newly acquired Dioptics' intangibles.

Interest Expense. Interest expense decreased $0.4 million, or 26.5%, from $1.5 million in the three months ended October 4, 2008 to $1.1 million in the three months ended October 3, 2009. The decrease was the result of lower interest rates.

Income Taxes. Provision for income taxes was $4.2 million, or 38.0% of income from continuing operations before income taxes in the three months ended October 3, 2009, compared to $1.5 million, or 30.8%, in the three months ended October 4, 2008. The change in income tax rate resulted from discrete tax events that benefited the tax rate in the third quarter of 2008, including the reduction of tax liability related to uncertain tax positions, adjustments to tax provision estimates from filing related federal and state tax returns and anticipated refunds from amended state tax returns.

Income from Continuing Operations. For the reasons described above, income from continuing operations increased by $3.6 million, or 110.8%, from $3.3 million during the three months ended October 4, 2008 to $6.9 million for the three months ended October 3, 2009.

Discontinued Operations, Net of Tax. Discontinued operations decreased $0.8 million from income of $0.7 million in the third quarter of 2008 to a loss of $0.1 million in the third quarter of 2009. This decrease is due to the divestiture of the costume jewelry business, which was completed on July 23, 2009.

Net Income. For the reasons described above, net income attributable to our shareholders increased by $2.8 million, from $3.9 million during the three months ended October 4, 2008 to $6.7 million for the three months ended October 3, 2009.

Nine Months Ended October 3, 2009 Compared to Nine Months Ended October 4, 2008

Net Sales. Net sales increased by $19.2 million, or 11.0%, from $175.3 million in the nine months ended October 4, 2008 to $194.5 million in the nine months ended October 3, 2009.

In the non-prescription reading glasses segment, net sales decreased by $3.5 million, or 3.6%, from $95.1 million in the nine months ended October 4, 2008 to $91.6 million in the nine months ended October 3, 2009. This decrease in net sales was due to the $5.9 million impact of the loss of an opening price point program at a major customer, a non-anniversaried program update at a major customer that contributed $3.0 million of net sales in the first nine months in 2008 and a $2.0 million reduction in a program update at a major customer compared to the first nine months of 2008, partially offset by organic growth.

In the sunglasses and prescription frames segment, net sales increased by $24.9 million, or 45.9%, from $54.2 million in the nine months ended October 4, 2008 to $79.1 million in the nine months ended October 3, 2009. This increase was due to $26.6 million in sales by Dioptics Medical Products, which was acquired in November 2008, and the $1.3 million impact of a new sunglasses program at an existing customer, partially offset by the $4.1 million impact of the reduction of a promotional program at a major retailer.

In the international segment, net sales decreased by $2.3 million, or 8.7%, from $26.1 million in the nine months ended October 4, 2008 to $23.8 million in the nine months ended October 3, 2009. This decrease in net sales was attributed to the approximately $4.8 million impact of unfavorable foreign exchange rates and $3.1 million of non-anniversaried roll-outs to major U.K. customers in the first half of 2008, partially offset by a $5.8 million reading glasses roll-out at a major customer in Canada in the third quarter of 2009.

Gross Profit. Gross profit increased $11.4 million, or 11.7%, from $97.1 million in the nine months ended October 4, 2008 to $108.5 million in the nine months ended October 3, 2009. As a percentage of net sales, gross profit increased from 55.4% to 55.8% during the corresponding periods.

In the non-prescription reading glasses segment, gross profit decreased by $1.3 million, or 2.2%, from $57.7 million in the nine months ended October 4, 2008 to $56.4 million in the nine months ended October 3, 2009. As a percentage of net sales, gross profit increased from 60.7% to 61.6% during the corresponding periods. The increase in gross profit as a percentage of net sales was due to lower product costs and a change in pricing structure at a major customer, partially offset by the discontinuation of a high gross margin opening price point program at a major retailer.

In the sunglasses and prescription frames segment, gross profit increased by $14.1 million, or 62.2%, from $22.6 million in the nine months ended October 4, 2008 to $36.7 million in the nine months ended October 3, 2009. As a percentage of net sales, gross profit increased from 41.7% to 46.4% during the corresponding periods. The 4.7 percentage point increase in gross profit as a percentage of net sales was due to sales of the higher gross margin Dioptics products.

In the international segment, gross profit decreased by $1.4 million, or 8.5%, from $16.8 million in the nine months ended October 4, 2008 to $15.4 million in the nine months ended October 3, 2009. As a percentage of net sales, gross profit increased from 64.4% to 64.6% in the corresponding periods. The increase in gross profit as a percentage of net sales was due to a higher margin reading glasses roll-out to a major Canadian retailer, partially offset by unfavorable foreign exchange rates and a lower-margin reading glasses program rolled out to a new U.K. customer in 2009.

Selling Expenses. Selling expenses increased by $3.4 million, or 6.3%, from $54.6 million in the nine months ended October 4, 2008 to $58.0 million in the nine months ended October 3, 2009. As a percentage of net sales, selling expenses decreased from 31.1% to 29.9% in the corresponding periods. The dollar increase in selling expenses is driven by $4.9 million associated with the operations of Dioptics Medical Products, which we acquired in November 2008, a $2.8 million increase in marketing costs driven by the television advertising campaigns that concluded at the end of the second quarter and increased field service costs of $2.9 million due to a higher number of serviced customer store locations, partially offset by a $2.9 million decrease in freight costs, a $1.4 million decrease in depreciation and other expense reductions.

General and Administrative Expenses. General and administrative expenses increased by $2.3 million, or 12.0%, from $18.7 million in the nine months ended October 4, 2008 to $21.0 million in the nine months ended October 3, 2009. As a percentage of net sales, general and administrative expenses increased from 10.7% to 10.8% in the corresponding periods. The dollar increase included $2.5 million in expenses associated with the Dioptics Medical Products business, which we acquired in November 2008, partially offset by a decrease in public company related costs.

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased by $0.4 million, or 9.1%, from $3.9 million in the nine months ended October 4, 2008 to $3.5 million in the nine months ended October 3, 2009. This decrease was due to certain intangible assets associated with the 2004 acquisition of Magnivision being amortized on an accelerated basis over their economic lives, partially offset by amortization of the newly acquired Dioptics' intangibles.

Interest Expense. Interest expense decreased $1.0 million, or 21.7%, from $4.7 million in the nine months ended October 4, 2008 to $3.7 million in the nine months ended October 3, 2009. The decrease was the result of lower interest rates.

Income Taxes. Provision for income taxes was $8.6 million, or 38.2% of income from continuing operations before income taxes in the nine months ended October 3, 2009, compared to $5.3 million, or 35.4%, in the nine months ended October 4, 2008. The change in income tax rate resulted from discrete tax events that benefited the tax rate in the first nine months of 2008, including the reduction of tax liability related to uncertain tax positions, adjustments to tax provision estimates from filing related federal and state tax returns and anticipated refunds from amended state tax returns.

Income from Continuing Operations. For the reasons described above, income from continuing operations increased by $4.1 million, or 42.2%, from $9.8 million during the nine months ended October 4, 2008 to $13.9 million for the nine months ended October 3, 2009.

Discontinued Operations, Net of Tax. Discontinued operations decreased $5.4 million from income of $0.8 million in the first nine months of 2008 to a loss of $4.6 million in the first nine months of 2009. We recorded pre-tax charges totaling $5.0 million, including estimated future product returns of $3.6 million, inventory write-downs of $0.8 million, display fixture write-offs of $0.3 million and other costs of $0.3 million in the second quarter of 2009 related to the divestiture of the costume jewelry business, and a $1.8 million pre-tax goodwill impairment in the first quarter of 2009. We ceased operations of the jewelry business upon completion of the sale on July 23, 2009.

Net Income. For the reasons described above, net income attributable to our shareholders decreased by $1.2 million from $10.2 million during the nine months ended October 4, 2008 to $9.0 million for the nine months ended October 3, 2009.

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 and borrowings under our credit facility. As of October 3, 2009, we had $6.6 million of cash and $46.7 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 the next twelve months. 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. In addition, current worldwide economic conditions, including, without limitation, the reduction in credit available to . . .