form10-q.htm 



       

      
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
[X]

      
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2008

      		
      

      

      
OR

[   ]

      
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____________ to _____________

      		
      

      

      

Commission file number: 1-14128


      
EMERGING VISION, INC.
(Exact name of Registrant as specified in its charter)

NEW YORK
(State or other jurisdiction of incorporation or organization)

11-3096941
(I.R.S. Employer Identification No.)

100 Quentin Roosevelt Boulevard
Garden City, NY 11530
(Address and zip code of principal executive offices)

Telephone Number: (516) 390-2100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes  X

      
No__

      		
      

      

      

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  __

      
Accelerated filer  __

      		
      
Non accelerated filer  __

      
Smaller reporting company  X

      		
      

      

      

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes __

      
No  X

      		
      

      

      
As of August 14, 2008, there were 125,292,806 outstanding shares of the Issuer’s Common Stock, par value $0.01 per share.
 
 

      
 

      

      
 

      

      

 


      
      
    
      
    
      
  
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PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Share Data)

      		 
      
ASSETS

      		 
June 30,

      		  
December 31,

      		 
      
   
2008

      		  
2007

      		 
      
   
(unaudited)

      		  
(audited)

      		 
      
Current assets:

      		      
      
Cash and cash equivalents

      		 $2,074  $2,846 
      
Franchise receivables, net of allowance of $124 and $147, respectively

      		  1,820   1,842 
      
Optical purchasing group receivables, net of allowance of $60

      		  7,367   4,840 
      
Other receivables, net of allowance of $7 and $5, respectively

      		  414   369 
      
Current portion of franchise notes receivable, net of allowance of $38

      		  228   191 
      
Inventories, net

      		  409   466 
      
Prepaid expenses and other current assets

      		  669   447 
      
Deferred tax assets, current portion

      		  615   600 
      
Total current assets

      		  13,596   11,601 
      
          
      
Property and equipment, net

      		  1,255   1,496 
      
Franchise notes receivable

      		  147   121 
      
Deferred tax asset, net of current portion

      		  1,324   1,074 
      
Goodwill, net

      		  4,249   4,237 
      
Intangible assets, net

      		  3,192   3,065 
      
Other assets

      		  254   271 
      
Total assets

      		 $24,017  $21,865 
      

      

      

LIABILITIES AND SHAREHOLDERS’ EQUITY

      		      
      
        
      
Current liabilities:

      		      
      
Accounts payable and accrued liabilities

      		 $4,526  $5,607 
      
Optical purchasing group payables

      		  6,775   4,486 
      
Accrual for store closings

      		  268   300 
      
Short-term debt

      		  23   32 
      
Related party obligations

      		  399   404 
      
Total current liabilities

      		  11,991   10,829 
      
          
      
Long-term debt

      		  4,415   4,424 
      
Related party borrowings, net of current portion

      		  719   770 
      
Franchise deposits and other liabilities

      		  392   442 
      
Total liabilities

      		  17,517   16,465 
      
          
      
Commitments and contingencies

      		        
      
          
      
Shareholders' equity:

      		        
      
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized:  Senior Convertible Preferred Stock, $100,000 liquidation preference per share; 0.74 shares issued and outstanding

      		    74     74 
      
Common stock, $0.01 par value per share; 150,000,000 shares authorized; 125,475,143 shares issued and 125,292,806 shares outstanding

      		  1,254   1,254 
      
Treasury stock, at cost, 182,337 shares

      		  (204)  (204)
      
Additional paid-in capital

      		  128,017   127,971 
      
Accumulated comprehensive income

      		  195   165 
      
Accumulated deficit

      		  (122,836)  (123,860)
      
Total shareholders' equity

      		  6,500   5,400 
      
Total liabilities and shareholders' equity

      		 $24,017  $21,865 
      

      

      
Table of Contents


The accompanying notes are an integral part of these consolidated condensed financial statements.


CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Share Data)

      

      		 
      
   
For the Three Months Ended June 30,

      		  
For the Six Months Ended June 30,

      		 
      
   
2008

      		  
2007

      		  
2008

      		  
2007

      		 
      
              
      
Revenues:

      		            
      
Optical purchasing group sales

      		 $16,367  $4,597  $30,662  $8,922 
      
Franchise royalties

      		  1,595   1,765   3,246   3,506 
      
Retail sales – Company-owned stores

      		  954   1,248   2,096   2,605 
      
Membership fees – VisionCare of California

      		  877   878   1,720   1,727 
      
Franchise related fees and other revenues

      		  18   75   248   128 
      
Total revenue

      		  19,811   8,563   37,972   16,888 
      
                  
      
Costs and operating expenses:

      		                
      
Cost of optical purchasing group sales

      		  15,626   4,300   29,159   8,303 
      
Cost of retail sales

      		  246   364   511   682 
      
Selling, general and administrative expenses

      		  3,723   3,818   7,444   7,453 
      
Total costs and operating expenses

      		  19,595   8,482   37,114   16,438 
      
                  
      
Operating income

      		  216   81   858   450 
      
                  
      
Other income (expense):

      		                
      
Interest on franchise notes receivable

      		  7   12   14   23 
      
Gain on sale of company-owned stores to franchisees

      		  -   5   19   5 
      
Other income

      		  25   12   54   47 
      
Interest expense

      		  (80)  (44)  (186)  (109)
      
Total other income (expense)

      		  (48)  (15)  (99)  (34)
      
                  
      
Income before income tax benefit

      		  168   66   759   416 
      
Income tax benefit

      		  139   302   265   383 
      
Net income

      		  307   368   1,024   799 
      
                  
      
Comprehensive income:

      		                
      
Foreign currency translation adjustments

      		  9   -   33   - 
      
Comprehensive income

      		 $316  $368  $918  $799 
      
                  
      
Net income per share:

      		                
      
Basic

      		 $0.00  $0.01  $0.01  $0.01 
      
Diluted

      		 $0.00  $0.00  $0.01  $0.01 
      
                  
      
Weighted-average number of common shares outstanding:

      		                
      
Basic

      		  125,293   70,324   125,293   70,324 
      
Diluted

      		  130,783   127,012   131,175   123,635 
      

      

      
Table of Contents
 
The accompanying notes are an integral part of these consolidated condensed financial statements.

 

  

      
  

      

      
  

      

      


CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)

      

      		 
      
   
For the Six Months Ended June 30,

      		 
      
   
2008

      		  
2007

      		 
      
Cash flows from operating activities:

      		      
      
Net income

      		 $1,024  $799 
      
Adjustments to reconcile net income to net cash (used in) provided by operating activities:

      		        
      
Depreciation and amortization

      		  313   220 
      
Provision for doubtful accounts

      		  12   (1)
      
Deferred tax assets

      		  (265)  (422)
      
Gain on the sale of property and equipment

      		  (19)  (5)
      
Non-cash compensation charges related to options and warrants

      		  46   73 
      
        Changes in operating assets and liabilities:

      		        
      
Franchise and other receivables

      		  (42)  (827)
      
Optical purchasing group receivables

      		  (2,527)  (936)
      
Inventories

      		  4   (33)
      
Prepaid expenses and other current assets

      		  (222)  (108)
      
Other assets

      		  (7)  182 
      
Accounts payable and accrued liabilities

      		  (1,081)  562 
      
Optical purchasing group payables

      		  2,289   771 
      
Franchise deposits and other liabilities

      		  (82)  (88)
      
Net cash (used in) provided by operating activities

      		  (557)  187 
      
          
      
Cash flows from investing activities:

      		        
      
Proceeds from franchise and other notes receivable

      		  126   74 
      
Costs associated with enhancing trademark value

      		  (228)  (60)
      
Franchise notes receivable issued

      		  (20)  (131)
      
Purchases of property and equipment

      		  (21)  (504)
      
Net cash used in investing activities

      		  (143)  (621)
      
          
      
Cash flows from financing activities:

      		        
      
Borrowings under credit facility

      		  -   350 
      
Payments on borrowings

      		  (74)  (349)
      
Net cash (used in) provided by financing activities

      		  (74)  1 
      
Net cash used in operations

      		  (774)  (433)
      
Effect of foreign exchange rate changes on cash

      		  2   - 
      
Net decrease in cash and cash equivalents

      		  (772)  (433)
      
Cash and cash equivalents – beginning of period

      		  2,846   1,289 
      
Cash and cash equivalents – end of period

      		 $2,074  $856 
      
          
      
Supplemental disclosures of cash flow information:

      		        
      
Cash paid during the period for:

      		        
      
Interest

      		 $158  $25 
      
Taxes

      		 $32  $29 
      
          
      
Non-cash investing and financing activities:

      		        
      
Accounts and notes receivable in connection with the sale of two Company-owned stores (inclusive of all inventory and property and equipment)

      		 $169  $- 
      
          
      

      
Table of Contents
    
The accompanying notes are an integral part of these consolidated condensed financial statements.

  

      
  

      

      
  

      

      

EMERGING VISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 – ORGANIZATION:

  

      
Business

      		
      

      
      
Emerging Vision, Inc. and subsidiaries (collectively, the “Company”) operates one of the largest chains of retail optical stores and one of the largest franchise optical chains in the United States, based upon management’s beliefs,
domestic sales and the number of locations of Company-owned and franchised stores (collectively “Retail Stores”).  The Company also targets retail optical stores within the United States and within Canada to become members
of its two optical purchasing groups, Combine Buying Group, Inc. (“Combine”) and The Optical Group (“TOG”).  The Company was incorporated under the laws of the State of New York in January 1992 and, in July 1992, purchased
substantially all of the assets of Sterling Optical Corp., a New York corporation, then a debtor-in-possession under Chapter 11 of the U.S. Bankruptcy Code.

As of June 30, 2008, there were 151 Retail Stores in operation, consisting of 142 franchised stores, 8 Company-owned stores and 1 Company-owned store being managed by a franchisee, 852 active members of Combine, and 534
active members of TOG.

  

      
Principles of Consolidation

      		
      

      
 
The Consolidated Condensed Financial Statements include the accounts of Emerging Vision, Inc. and its operating subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in
consolidation.

  

      
Basis of Presentation

      		
      

      
     
The accompanying Consolidated Condensed Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted for interim financial statement presentation and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted for complete financial statement
presentation.  In the opinion of management, all adjustments for a fair statement of the results of operations and financial position for the interim periods presented have been included.  All such adjustments are of a normal recurring
nature.  This financial information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Effective January 1, 2008, the Company changed its basis of presentation for its business segments.  For additional information see Note 5 of the Consolidated Condensed Financial Statements.


NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES:

Share-Based Compensation

The Company accounts for share-based compensation in accordance with the fair value method provisions of Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123R,
“Share-Based Payment.” 

Share-based compensation cost of approximately $41,000 and $69,000 is reflected in selling, general and administrative expenses on the accompanying Consolidated Condensed Statements of Income for the three months ended
June 30, 2008 and 2007, respectively, and $46,000 and $73,000 for the six months ended June 30, 2008 and 2007, respectively.  The Company determined the fair value of options and warrants issued using the Black-Scholes option
pricing model with the following assumptions:  1 to 2 year expected lives; 10-year expiration period; risk-free interest rates ranging from 1.77% to 4.98%; stock price volatilities ranging from 48.00% to 74.00%; with no dividends over
the expected life.

On May 7, 2008, the Company’s Compensation Committee granted an aggregate of 625,000 common stock options to certain of the Company’s independent, non-employee directors, all at an exercise price of $0.21, which was
the closing price on the date of grant.  The stock options vested immediately.  During the three and six months ended June 30, 2008, the Company incurred a non-cash charge to earnings of approximately $39,000, reflected in
selling, general and administrative expenses on the accompanying Consolidated Condensed Statements of Operations representing the fair value of the options.  All of these options expire 10 years from the date of grant.

There were no common stock option grants to any of the Company’s employees, or warrant grants to any independent consultants during the three and six months ended June 30, 2008.

Revenue Recognition

The Company recognizes revenues in accordance with the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.”  Accordingly, revenues are recorded when
persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the Company’s prices to buyers are fixed or determinable, and collectibility is reasonably assured.

The Company derives its revenues from the following five principal sources:

Optical purchasing group sales – Represents product pricing extended to the Company’s optical purchasing group members associated with the sale of vendor’s eye care products to such members;

Franchise royalties – Represents continuing franchise royalty fees based upon a percentage of the gross revenues generated by each franchised location.  Continuing franchise royalties are based upon a percentage
of the gross revenues generated by each franchised location.  To the extent that collectibility of royalties is not reasonably assured, the Company recognizes such revenue when the cash is received;

Retail sales – Company-owned stores – Represents sales from eye care products and related services generated at a Company-owned store;

Membership fees – VisionCare of California – Represents membership fees generated by VisionCare of California, Inc. (“VCC”), a wholly owned subsidiary of the Company, are for optometric services provided to
individual patients (members).  A portion of membership fee revenues is deferred when billed and recognized ratably over the one-year term of the membership agreement;

Franchise related fees and other revenues – Represents certain franchise fees collected by the Company under the terms of franchise agreements (including, but not limited to, initial franchise, transfer, renewal and
conversion fees).  Initial franchise fees, which are non-refundable, are recognized when the related franchise agreement is signed.  Also represents all other revenues not generated by one of the other five principal 
sources such as commission income and employee optical sales.

The Company also follows the provisions of Emerging Issue Task Force (“EITF”) Issue 01-09, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products),” and 
accordingly, accounts for discounts, coupons and promotions (that are offered to its customers) as a direct reduction of sales.

Comprehensive Income

The Company follows the provisions of SFAS No. 130, “Reporting Comprehensive Income,” which establishes rules for the reporting of comprehensive income and its components.  Comprehensive income is defined as the
change in equity from transactions and other events and circumstances other than those resulting from investments by owners and distributions to owners.  The Company’s comprehensive income is comprised of the cumulative
translation adjustment arising from the translation of foreign currency denominated financial statements.

Foreign Currency Translation

The financial position and results of operations of TOG were measured using TOG’s local currency (Canadian Dollars) as the functional currency.  Balance sheet accounts are translated from the foreign currency into U.S. 
Dollars at the period-end rate of exchange.  Income and expenses are translated at the weighted average rates of exchange for the period.  The resulting $9,000 and $33,000 translation gain from the conversion of foreign currency 
to U.S. Dollars is included as a component of comprehensive income for the three and six months ended June 30, 2008, respectively, and is recorded directly to accumulated comprehensive income within the Consolidated Condensed
Balance Sheet as of June 30, 2008.

Income Taxes

Effective January 1, 2007, the Company adopted the provisions of FASB’s Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB No. 109.”  FIN 48 prescribes a recognition 
threshold and measurement attribute for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return.  FIN 48 
requires that the financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values.  No such 
amounts were accrued for as of January 1, 2007.  Additionally, no adjustments related to uncertain tax positions were recognized during the three and six months ended June 30, 2008 and 2007, respectively.

The Company recognizes interest and penalties related to uncertain tax positions as a reduction of the income tax benefit.  No interest and penalties related to uncertain tax positions were accrued as of June 30, 2008.

The Company operates in multiple tax jurisdictions within the United States of America and Canada.  Although the Company does not believe that the Company is currently under examination in any of the Company major tax 
jurisdictions, the Company remains subject to examination in all of the Company’s tax jurisdictions until the applicable statutes of limitation expire.  As of June 30, 2008, a summary of the tax years that remains subject to examination
in the Company’s major tax jurisdictions are:  United States – Federal and State – 2004 and forward.  The Company does not expect to have a material change to unrecognized tax positions within the next twelve months.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the 
disclosure of contingent assets and liabilities as of the dates of such financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  
Significant estimates made by management include, but are not limited to, allowances on franchise, notes and other receivables, costs of current and potential litigation, and the allowance on deferred tax assets

Reclassification

Certain reclassifications have been made to prior year’s consolidated condensed financial statements to conform to the current year presentation.


NOTE 3 – PER SHARE INFORMATION:

In accordance with SFAS No. 128, “Earnings Per Share”, basic earnings per share of common stock (“Basic EPS”) is computed by dividing the net income by the weighted-average number of shares of common stock outstanding.  
Diluted earnings per share of common stock (“Diluted EPS”) is computed by dividing the net income by the weighted-average number of shares of common stock, and dilutive common stock equivalents and convertible securities 
then outstanding.  SFAS No. 128 requires the presentation of both Basic EPS and Diluted EPS on the face of the Company’s Consolidated Condensed Statements of Income.  Common stock equivalents totaling 3,522,687 and 
2,030,464 were excluded from the computation of Diluted EPS for the three months ended June 30, 2008 and 2007, respectively, and 3,522,687 and 2,280,464 were excluded for the six months ended June 30, 2008 and 2007, respectively, 
as their effect on the computation of Diluted EPS would have been anti-dilutive.

The following table sets forth the computation of basic and diluted per share information:

   
For the Three Months Ended June 30,

      		  
For the Six Months Ended June 30,

      		 
      
   
2008

      		  
2007

      		  
2008

      		  
2007

      		 
      
Numerator:

      		            
      
Net income (in thousands):

      		 $307  $368  $1,024  $799 
      
                  
      
Denominator:

      		                
      
Weighted-average shares of common stock outstanding

      		  125,293   70,324   125,293   70,324 
      
Dilutive effect of stock options, warrants and restricted stock

      		  5,490   56,688   5.882   53,312 
      
Weighted-average shares of common stock outstanding, assuming dilution

      		  130,783   127,012   131,175   123,636 
      
                  
      
Net income per share:

      		                
      
Basic

      		 $0.00  $0.01  $0.01  $0.01 
      
Diluted

      		 $0.00  $0.00  $0.01  $0.01 
      
                  
      

      

      


NOTE 4 – CREDIT FACILITY:

On August 8, 2007, the Company entered into a Revolving Line of Credit Note and Credit Agreement (the “Credit Agreement”) with M&T, establishing a revolving credit facility (the “Credit Facility”), for aggregate borrowings of
up to $6,000,000, to be used for general working capital needs and certain permitted acquisitions.  This Credit Facility replaced the Company’s previous revolving line of credit facility with M&T.  The initial term of the Credit Facility 
expires in August 2009.  All sums drawn by the Company under the Credit Facility are repayable, interest only, on a monthly basis, commencing on the first day of each month during the term of the Credit Facility, calculated at the 
variable rate of two hundred seventy five (275) basis points in excess of LIBOR, and all principal drawn by the Company is payable on August 1, 2009.

On August 10, 2007, the Company borrowed $3,609,423 to fund the purchase price payable in connection with the acquisitions of TOG, and borrowed $400,000 for general working capital requirements.  The Credit Facility includes
various financial covenants including minimum net worth, maximum funded debt and debt service ratio requirements.  As of June 30, 2008, the Company had outstanding borrowings of $4,356,854 under the Credit Facility, which
amount was included in Long-term Debt on the accompanying Consolidated Balance Sheet, was in compliance with the various financial covenants, and had $1,643,146 available under the Credit Facility for future borrowings.


NOTE 5 – SEGMENT REPORTING

Business Segments

Operating segments are organized internally primarily by the type of services provided, and in accordance with SFAS 131, “Disclosures About Segments of an Enterprise and Related Information,” the Company has aggregated
similar operating segments into six reportable segments: Optical Purchasing Group Business, Franchise, Company Store, VisionCare of California, Corporate Overhead and Other.

The Optical Purchasing Group Business segment consists of the operations of Combine, acquired in August 2006 and TOG, acquired in August 2007.  Revenues generated by this segment represent the sale of products and
services, at discounted pricing, to Combine and TOG members.  The businesses in this segment are able to use their membership count to get better discounts from vendors than a member could obtain on its own.  Expenses
include direct costs for such product and services, salaries and related benefits, depreciations and amortization, interest expense on financing these acquisitions, and other overhead.

The Franchise segment consists of 142 franchise locations as of June 30, 2008.  Revenues generated by this segment represent royalties on the total sales of the franchise locations, other franchise related fees such as initial 
franchise, transfer, renewal and conversion fees, additional royalties in connection with franchise store audits, and interest charged on franchise financing.  Expenses include the salaries and related benefits/expenses of the 
Company’s franchise field support team, corporate salaries and related benefits, convention related expenses, consulting fees, and other overhead.

The Company Store segment consists of 8 Company-owned retail optical stores as of June 30, 2008.  Revenues generated from such stores is a result of the sales of eye care products and services such as prescription and 
non-prescription eyeglasses, eyeglass frames, ophthalmic lenses, contact lenses, sunglasses and a broad range of ancillary items.  Expenses include the direct costs for such eye care products, doctor and store staff salaries 
and related benefits, rent, advertising, and other overhead.

The VisionCare of California (“VCC”) segment consists of optometric services provided to patients (members) of those franchise retail optical stores located in the state of California.  Revenues consist of membership fees 
generated for such optometric services provided to individual patients (members).  Expenses include salaries and related benefits for the doctors that render such optometric services, and other overhead.

The Corporate Overhead segment consists of expenses not allocated to one of the other segments.  There are no revenues generated by this segment.  Expenses include costs associated with being a publicly traded company 
(including salaries and related benefits, professional fees, board of director fees, and director and officer insurance), certain Company-owned store overhead not allocated to that segment, other salaries and related benefits, rent, 
other professional fees, and depreciation and amortization.

The Other segment includes revenues and expenses from other business activities that do not fall within one of the other segments.  Revenues generated by this segment consist of employee optical benefit sales, commission 
income, and credit card residuals.  Expenses primarily include the direct cost of such employee optical benefit sales, salaries and related benefits, commission expense, and advertising.

Certain business segment information is as follows (in thousands):

   
As of June 30,

      		  
As of December 31,

      		 
      
   
2008

      		  
2007

      		 
      
Total Assets:

      		      
      
     Optical Purchasing Group Business

      		 $14,746  $11,682 
      
     Franchise

      		  4,063   4,507 
      
     Company Store

      		  1,036   1,301 
      
     VisionCare of California

      		  628   568 
      
     Corporate Overhead

      		  3,358   3,731 
      
     Other

      		  186   76 
      
Total assets

      		 $24,017  $21,865 
      

      

      


  

      
  

      

      
  

      

      



   
For the Three Months
Ended June 30,

      		  
For the Six Months
Ended June 30,

      		 
      
   
2008

      		  
2007

      		  
2008

      		  
2007

      		 
      
Net Revenues:

      		            
      
     Optical Purchasing Group Business

      		 $16,367  $4,597  $30,662  $8,922 
      
     Franchise

      		  1,605   1,840   3,406   3,634 
      
     Company Store

      		  954   1,248   2,096   2,605 
      
     VisionCare of California

      		  877   878   1,720   1,727 
      
     Corporate Overhead

      		  -   -   -   - 
      
     Other

      		  8   -   88   - 
      
Net revenues

      		 $19,811  $8,563  $37,972  $16,888 
      
 
Income (Loss) before Income Tax Benefit:

      		                
      
     Optical Purchasing Group Business

      		 $319  $95  $640  $186 
      
     Franchise

      		  985   1,005   2,168   2,137 
      
     Company Store

      		  (186)  (175)  (203)  (266)
      
     VisionCare of California

      		  4   16   6   25 
      
     Corporate Overhead

      		  (898)  (875)  (1,785)  (1,666)
      
     Other

      		  (56)  -   (67)  - 
      
Income before income tax benefit

      		 $168  $66  $759  $416 
      
                  
      
Depreciation and Amortization:

      		                
      
     Optical Purchasing Group Business

      		 $77  $39  $153  $77 
      
     Franchise

      		  27   20   55   42 
      
     Company Store

      		  16   28   35   53 
      
     VisionCare of California

      		  5   3   11   6 
      
     Corporate Overhead

      		  27   20   55   42 
      
     Other

      		  4   -   4   - 
      
Total depreciation and amortization

      		 $156  $110  $313  $220 
      
                  
      
Interest Expense:

      		                
      
     Optical Purchasing Group Business

      		 $67  $32  $159  $87 
      
     Franchise

      		  -   -   -   - 
      
     Company Store

      		  -   -   -   - 
      
     VisionCare of California

      		  -   -   -   - 
      
     Corporate Overhead

      		  13   12   27   22 
      
     Other

      		  -   -   -   - 
      
Total interest expense

      		 $80  $44  $186  $109 
      

      

      


  

      
  

      

      
  

      

      

The following table shows certain unaudited pro forma results of the Company, assuming the Company had acquired TOG at the beginning of the three and six months ended June 30, 2007 (in thousands):

   
For the Three Months
Ended June 30,

      		  
For the Six Months
Ended June 30,

      		 
      
   
2008

      		  
2007

      		  
2008

      		  
2007

      		 
      
Net Revenues:

      		            
      
     Optical Purchasing Group Business

      		 $16,367  $15,937  $30,662  $28,665 
      
     Franchise

      		  1,605   1,840   3,406   3,634 
      
     Company Store

      		  954   1,248   2,096   2,605 
      
     VisionCare of California

      		  877   878   1,720   1,727 
      
     Corporate Overhead

      		  -   -   -   - 
      
     Other

      		  8   -   88   - 
      
Net revenues

      		 $19,811  $19,903  $37,972  $36,631 
      
 
Income (Loss) before Income Tax Benefit:

      		                
      
     Optical Purchasing Group Business

      		 $319  $210  $640  $485 
      
     Franchise

      		  985   1,005   2,168   2,137 
      
     Company Store

      		  (186)  (175)  (203)  (266)
      
     VisionCare of California

      		  4   16   6   25 
      
     Corporate Overhead

      		  (898)  (875)  (1,785)  (1,666)
      
     Other

      		  (56)  -   (67)  - 
      
Income before income tax benefit

      		 $168  $181  $759  $715 
      
                  
      
Depreciation and Amortization:

      		                
      
     Optical Purchasing Group Business

      		 $77  $70  $153  $140 
      
     Franchise

      		  27   20   55   42 
      
     Company Store

      		  16   28   35   53 
      
     VisionCare of California

      		  5   3   11   6 
      
     Corporate Overhead

      		  27   20   55   42 
      
     Other

      		  4   -   4   - 
      
Total depreciation and amortization

      		 $156  $141  $313  $283 
      
                  
      
Interest Expense:

      		                
      
     Optical Purchasing Group Business

      		 $67  $84  $159  $206 
      
     Franchise

      		  -   -   -   - 
      
     Company Store

      		  -   -   -   - 
      
     VisionCare of California

      		  -   -   -   - 
      
     Corporate Overhead

      		  13   12   27   22 
      
     Other

      		  -   -   -   - 
      
Total interest expense

      		 $80  $96  $186  $228 
      

      

      

  

      
  

      

      
  

      

      

Geographic Information

The Company also does business in two separate geographic areas; the United States and Canada.  Certain geographic information for continuing operations is as follows:

   
For the Three Months
Ended June 30,

      		  
For the Six Months
Ended June 30,

      		 
      
   
2008

      		  
2007

      		  
2008

      		  
2007

      		 
      
Net Revenues:

      		            
      
     Canada

      		 $297  $-  $594  $- 
      
     United States

      		  19,514   8,563   37,378   16,888 
      
Net revenues

      		 $19,811  $8,563  $37,972  $16,888 
      
                  
      
Income before Income Tax Benefit:

      		                
      
     Canada

      		 $49  $-  $98  $- 
      
     United States

      		  119   66   661   416 
      
Income before income tax benefit

      		 $168  $66  $759  $416 
      
                  
      

      

      

The geographic information on Canada includes TOG’s business activity from August 1, 2007, the effective date of the acquisition of TOG.  Canadian revenue is generated from customer management services performed by TOG
on behalf of the Company’s customers in Canada.

Additional geographic information is summarized as follows for the six months ended June 30, 2008 (in thousands):

   
United States

      		  
Canada

      		  
Total

      		 
      
           
      
Total Assets

      		 $23,445  $572  $24,017 
      
Depreciation and Amortization

      		  308   5   313 
      
Goodwill

      		  4,249   -   4,249 
      
Intangible Assets

      		  3,192   -   3,192 
      
Interest Expense

      		  186   -   186 
      
              
      
              
      

      

      
NOTE 6 – COMMITMENTS AND CONTINGENCIES:

Litigation

In 1999, Berenter Greenhouse and Webster, an advertising agency previously utilized by the Company, commenced an action, against the Company, in the New York State Supreme Court, New York County, for amounts alleged
to be due for advertising and related fees.  The amounts claimed by the plaintiff are in excess of $200,000.  In response to this action, the Company filed counterclaims of approximately $500,000, based upon estimated overpayments
allegedly made by the Company pursuant to the agreement previously entered into between the parties.  As of the date hereof, these proceedings were still in the discovery stage.  The Company has not recorded an accrual for a 
loss in this action, as the Company does not believe it is probable that the Company will be held liable in respect of plaintiff’s claims.

In July 2001, the Company commenced an arbitration proceeding, in the Ontario Superior Court of Justice, against Eye-Site, Inc. and Eye Site (Ontario), Ltd., as the makers of two promissory notes (in the aggregate original principal 
amount of $600,000) made by one or more of the makers in favor of the Company, as well as against Mohammed Ali, as the guarantor of the obligations of each maker under each note.  The notes were issued, by the makers, in 
connection with the makers’ acquisition of a Master Franchise Agreement for the Province of Ontario, Canada, as well as their purchase of the assets of, and a Sterling Optical Center Franchise for, four of the Company’s retail 
optical stores then located in Ontario, Canada.  In response, the defendants counterclaimed for damages, in the amount of $1,500,000, based upon, among other items, alleged misrepresentations made by representatives of the 
Company in connection with these transactions.  The Company believes that it has a meritorious defense to each counterclaim.  As of the date hereof, these proceedings were in the discovery stage.  The Company has not 
recorded an accrual for a loss and does not believe it is probable that the Company shall be held liable in respect of defendant’s counterclaims.

In February 2002, Kaye Scholer, LLP, the law firm previously retained by the Company as its outside counsel, commenced an action in the New York State Supreme Court seeking unpaid legal fees of approximately $122,000.  
The Company answered the complaint in such action, and has heard nothing since.  The Company believes that it has a meritorious defense to such action.  The Company has not recorded an accrual for a loss in this action, as 
the Company does not believe it is probable that the Company will be held liable in respect of plaintiff’s claims.

On May 20, 2003, Irondequoit Mall, LLC commenced an action against the Company and Sterling Vision of Irondequoit, Inc. (“SVI”) alleging, among other things, that the Company had breached its obligations under its guaranty 
of the lease for the former Sterling Optical store located in Rochester, New York.  The Company and SVI believe that they have a meritorious defense to such action.  As of the date hereof, these proceedings were in the discovery 
stage.  Although the Company has recorded an accrual for probable losses in the event that the Company shall be held liable in respect of plaintiff’s claims, the Company does not believe that any such loss is reasonably possible, 
or, if there is a loss, the Company does not believe that it is reasonably possible that such loss would exceed the amount recorded.

In August 2006, the Company and its subsidiary, Sterling Vision of California, Inc. (“SVC”) filed an action against For Eyes Optical Company (“For Eyes” or “Defendant”) in response to allegations by For Eyes of trademark 
infringement for Plaintiff’s use of the trademark “Site For Sore Eyes”.  The Company claims, among other things, that (i) there is no likelihood of confusion between the Company’s and Defendant’s mark, and that the Company 
has not infringed, and is not infringing, Defendant’s mark; (ii) the Company is not bound by that certain settlement agreement, executed in 1981 by a prior owner of the Site For Sore Eyes trademark; and (iii) Defendant’s mark is 
generic and must be cancelled.  For Eyes, in its Answer, asserted defenses to the Company’s claims, and asserted counterclaims against the Company, including, among others, that (i) the Company has infringed For Eyes’ mark; (ii) 
the Company wrongfully obtained a trademark registration for its mark and that said registration should be cancelled; and (iii) the acts of the Company constitute a breach of the aforementioned settlement agreement.  For Eyes seeks 
injunctive relief, cancellation of the Company’s trademark registration, treble monetary damages, payment of any profits made by the Company in respect of the use of such trade name, and costs and attorney fees.  The case is 
currently in the discovery phase.  The Company has not recorded an accrual for a loss in this action, as the Company does not believe it is probable that the Company will be held liable in respect of Defendant’s counterclaims.

In October 2007, Arnot Realty Corporation commenced an action against the Company, in the Supreme Court of the State of New York, Chemung County, alleging, among other things, that the Company had breached its obligations 
under its guaranty of the lease for the former Sterling Optical store located at Arnot Mall, Horseheads, New York.  In June, 2008, this action was settled.  The terms of the settlement included the payment, by the Company to Arnot 
Realty Corporation, of an aggregate sum of $9,000, and the exchange of mutual general releases.

In February 2008, Sangertown Square, LLC commenced an action against the Company, in the Supreme Court of the State of New York, Onondaga County, alleging, among other things, that the Company had breached its 
obligations under its lease for the former Sterling Optical store located at Sangertown Square Mall, New York.  The Company believes that it has a meritorious defense to this action.  As of the date hereof, the Company’s time 
to answer the complaint has not yet expired.  Although the Company has recorded an accrual for probable losses in the event that the Company shall be held liable in respect of plaintiff’s claims, the Company does not believe 
that any such loss is reasonably possible, or, if there is a loss, the Company does not believe that it is reasonably possible that such loss would exceed the amount recorded.

In July 2008, Ontario Mills Limited Partnership commenced an action against the Company, in the Supreme Court of the State of California, San Bernardino County, alleging, among other things, that the Company had breached 
its obligations under its lease for the former Sterling Optical store located in the Ontario Mills Mall, California.  The Company believes that it has a meritorious defense to this action.  As of the date hereof, the Company’s time 
to answer the complaint has not yet expired.  The Company has not recorded an accrual for a loss in this action, as the Company does not believe it is probable that the Company will be held liable in respect of plaintiff’s claims.

Although the Company, where indicated herein, believes that it has a meritorious defense to the claims asserted against it (and its affiliates), given the uncertain outcomes generally associated with litigation, there can be no 
assurance that the Company’s (and its affiliates’) defense of such claims will be successful.

In addition to the foregoing, in the ordinary course of business, the Company is a defendant in certain lawsuits alleging various claims incurred, certain of which claims are covered by various insurance policies, subject to 
certain deductible amounts and maximum policy limits.  In the opinion of management, the resolution of these claims should not have a material adverse effect, individually or in the aggregate, upon the Company’s business or 
financial condition.  Other than as set forth above, management believes that there are no other legal proceedings, pending or threatened, to which the Company is, or may be, a party, or to which any of its properties are or may 
be subject to, which, in the opinion of management, will have a material adverse effect on the Company.

Guarantees

As of June 30, 2008, the Company was a guarantor of certain leases of retail optical stores franchised and subleased to its franchisees.  Such guarantees generally expire one year from the month the rent was last paid.  In the 
event that all of such franchisees defaulted on their respective subleases, the Company would be obligated for aggregate lease obligations of approximately $ 2,599,000.  The Company from time to time evaluates the credit-worthiness 
of its franchisees in order to determine their ability to continue to perform under their respective subleases.  Additionally, in the event that a franchisee defaults under its sublease, the Company has the right to take over operation 
of the respective location.

Employment Agreements

The Company has an Employment Agreement (“Agreement 1”) with its Chief Executive Officer (“CEO”), which extends through November 2009.  Agreement 1 provides for an annual salary of $275,000 and certain other benefits.  
Additionally, as per Agreement 1, the CEO may be eligible for bonus compensation to be determined by the Company’s Board of Directors based on the Company’s previous calendar’s year performance.

Additionally, in connection with the acquisition of Combine Optical Management Corporation (“COMC”), the Company entered into a five-year Employment Agreement (“Agreement 2”) with the existing President of COMC.  
Agreement 2 provides for an annual salary of $210,000, certain other benefits, and an annual bonus based upon certain financial targets of Combine.


NOTE 7 – OTHER EVENTS

Upon the recommendation of the Nominating Committee of the Board of Directors of the Company, effective as of April 7, 2008, the Board unanimously elected Mr. Jeffrey Rubin to serve as a director on the Board.  Mr. Rubin’s 
election filled the sole vacancy on the Board.

On May 23, 2008, the Company’s independent inspector of election, Broadridge Financial Solutions, Inc., certified the voting results of the Company’s 2008 Annual Meeting of Shareholders held on May 23, 2008.  Having received 
approximately 86.3% of the votes cast, Christopher G. Payan, Jeffrey Rubin and Joel Gold were re-elected to serve as Class II directors of the Company, for a term of two (2) years expiring in 2010.
 
Table of Contents

  

      
  

      

      
  

      

      

Item 2.  Management's Discussion and Analysis of Financial Conditions and Results of Operations

This Report contains certain forward-looking statements and information relating to the Company that is based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, 
the Company’s management.  When used in this Report, the words “anticipate”, “believe”, “estimate”, “expect”, “there can be no assurance”, “may”, “could”, “would”, “might”, “intends” and similar expressions and their negatives, 
as they relate to the Company or the Company’s management, are intended to identify forward-looking statements.  Such statements reflect the view of the Company at the date they are made with respect to future events, are not 
guarantees of future performance and are subject to various risks and uncertainties as identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and those described from time to time in previous 
and future reports filed with the Securities and Exchange Commission.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those 
described herein with the forward-looking statements referred to above and as set forth in the Form 10-Q.  The Company does not intend to update these forward-looking statements for new information, or otherwise, for the 
occurrence of future events.

In order to more accurately detail our financial information and performance, the Company has made changes to the format of this Form 10-Q and changed its segment reporting.  The Company has simplified its Consolidated 
Condensed Statements of Income to expand the segment reporting to detail each segment’s revenue and expense.  Management’s discussion and analysis of financial conditions and results of operations concentrates on describing 
segment performance through the use of new detailed financial tables, which will assist the reader in understanding each business segment and how it relates to the overall performance of the Company.

Segment results for the three and six months ended June 30, 2008, as compared to the three and six months ended June 30, 2007

Consolidated Segment Results

Total revenues for the Company increased approximately $11,248,000, or 131.4%, to $19,811,000 for the three months ended June 30, 2008, as compared to $8,563,000 for the three months ended June 30, 2007, and increased 
approximately $21,084,000, or 124.8%, to $37,972,000 for the six months ended June 30, 2008, as compared to $16,888,000 for the six months ended June 30, 2007.  These increases were mainly a result of the acquisition, on August 
10, 2007, having an effective date of August 1, 2007, of all of the equity ownership interests in 1725758 Ontario Inc., d/b/a The Optical Group (“TOG”) through the Company’s wholly-owned subsidiary, OG Acquisition, Inc. (“OG”).

Total costs, and selling, general and administrative expenses for the Company increased approximately $11,113,000, or 131.0%, to $19,595,000 for the three months ended June 30, 2008, as compared to $8,482,000 for the three 
months ended June 30, 2007, and increased approximately $20,676,000, or 125.8%, to $37,114,000 for the six months ended June 30, 2008, as compared to $16,438,000 for the six months ended June 30, 2007.  These increases were 
mainly a result of the acquisition of TOG, as described above.

  

      
  

      

      
  

      

      

Optical Purchasing Group Business Segment

   
For the Three Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Optical purchasing group sales

      		 $16,367  $4,597  $11,770   256.0%
      
Cost of optical purchasing group sales

      		  15,626   4,300   11,326   263.4%
      
Gross margin

      		  741   297   444   149.5%
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  123   82   41   50.0%
      
Rent and related overhead

      		  88   26   62   238.5%
      
Depreciation and amortization

      		  76   39   37   94.9%
      
Credit card and bank fees

      		  76   22   54   245.5%
      
Other general and administrative costs

      		  4   4   -   0.0%
      
Total operating expenses

      		  367   173   194   112.1%
      
Operating Income

      		 $374  $124  $250   201.6%
      

      

      


   
For the Six Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Optical purchasing group sales

      		 $30,662  $8,922  $21,740   243.7%
      
Cost of optical purchasing group sales

      		  29,159   8,303   20,856   251.2%
      
Gross margin

      		  1,503   619   884   142.8%
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  257   160   97   60.6%
      
Rent and related overhead

      		  161   55   106   192.7%
      
Depreciation and amortization

      		  153   77   76   98.7%
      
Credit card and bank fees

      		  135   44   91   206.8%
      
Other general and administrative costs

      		  17   16   1   6.3%
      
Total operating expenses

      		  723   352   371   105.4%
      
Operating Income

      		 $780  $267  $513   192.1%
      

      

  
This segment consists of the operations of Combine and TOG.  TOG’s activity for the three and six months ended June 30, 2008, has been included in the Company’s results of operations as of and for the three and six months 
ended June 30, 2008.

Optical purchasing group revenues increased approximately $11,770,000, or 256.0%, to $16,367,000 for the three months ended June 30, 2008, as compared to $4,597,000 for the three months ended June 30, 2007, and increased 
approximately $21,740,000, or 243.7%, to $30,662,000 for the six months ended June 30, 2008, as compared to $8,922,000 for the six months ended June 30, 2007.  These increases were a direct result of the acquisition of TOG.  Only 
the operations of Combine were including in the three and six months ended June 30, 2007.  Individually, Combine’s revenues increased approximately $146,000, or 3.2%, to $4,743,000 for the three months ended June 30, 2008, as 
compared to $4,597,000 for the three months ended June 30, 2007, and decreased approximately $200,000, or 2.2%, to $8,722,000 for the six months ended June 30, 2008, as compared to $8,922,000 for the six months ended June 30, 
2007.  This overall decrease was due to a generally weaker economy during the first six months of 2008, as well as by a slight decrease in the total number of active members of Combine.  As of June 30, 2008, there were 852 members, 
as compared to 855 members as of June 30, 2007.  The increase during the second quarter consisted of a move by certain members towards high end (higher cost) product, as well as increased sunglass sales as compared to the 
previous year.

Costs of optical purchasing group sales increased approximately $11,326,000, or 263.4%, to $15,626,000 for the three months ended June 30, 2008, as compared to $4,300,000 for the three months ended June 30, 2007, and increased 
approximately $20,856,000, or 251.2%, to $29,159,000 for the six months ended June 30, 2008, as compared to $8,303,000 for the six months ended June 30, 2007.  These increases were also a direct result of the TOG acquisition.  
Individually, Combine’s cost of sales increased approximately $162,000, or 3.8%, to $4,462,000 for the three months ended June 30, 2008, as compared to $4,300,000 for the three months ended June 30, 2007, and decreased 
approximately $154,000, or 1.9%, to $8,148,000 for the six months ended June 30, 2008, as compared to $8,302,000 for the six months ended June 30, 2007.  These fluctuations were a direct result of, and proportionate to, the revenues 
fluctuations described above.

Operating expenses of the optical purchasing group segment increased approximately $194,000, or 112.1%, to $367,000 for the three months ended June 30, 2008, as compared to $173,000 for the three months ended June 30, 2007, 
and increased approximately $371,000, or 105.4%, to $723,000 for the six months ended June 30, 2008, as compared to $352,000 for the six months ended June 30, 2007.  These increases were also a direct result of the TOG acquisition.  
Individually, Combine’s operating expenses increased approximately $30,000, or 17.3%, to $203,000 for the three months ended June 30, 2008, as compared to $173,000 for the three months ended June 30, 2007, and increased 
approximately $31,000, or 8.8%, to $383,000 for the six months ended June 30, 2008, as compared to $352,000 for the six months ended June 30, 2007.

Interest expense related to the optical purchasing group segment increased approximately $35,000, or 110.5%, to $67,000 for the three months ended June 30, 2008, as compared to $32,000 for the three months ended June 30, 2007, 
and increased approximately $72,000, or 82.8%, to $159,000 for the six months ended June 30, 2008, as compared to $87,000 for the six months ended June 30, 2007.  These increases in interest expense were related to the borrowings 
under the Company’s Credit Facility with Manufacturers and Traders Trust Corporation (“M&T”) to fund the acquisition of TOG.

Franchise Segment

   
For the Three Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Royalties

      		 $1,595  $1,765  $(170)  (9.6%)
      
Franchise fees

      		  10   75   (65)  (86.7%)
      
Net revenues

      		  1,605   1,840   (235)  (12.8%)
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  287   314   (27)  (8.6%)
      
Rent and related overhead

      		  93   104   (11)  (10.6%)
      
Professional fees

      		  111   99   12   12.1%
      
Trade shows

      		  99   105   (6)  (5.7%)
      
Bad debt

      		  5   51   (46)  (90.2%)
      
Other general and administrative costs

      		  32   32   -   0.0%
      
Total operating expenses

      		  627   705   (78)  (11.1%)
      
Operating Income

      		 $978  $1,135  $(157)  (13.8%)
      

      

      






   
For the Six Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Royalties

      		 $3,246  $3,506  $(260)  (7.4%)
      
Franchise fees

      		  160   128   32   25.0%
      
Net revenues

      		  3,406   3,634   (228)  (6.3%)
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  645   665   (20)  (3.0%)
      
Rent and related overhead

      		  154   211   (57)  (27.0%)
      
Professional fees

      		  221   255   (34)  (13.3%)
      
Trade shows

      		  164   187   (23)  (12.3%)
      
Other general and administrative costs

      		  86   46   40   87.0%
      
Total operating expenses

      		  1,270   1,364   (94)  (6.9%)
      
Operating Income

      		 $2,136  $2,270  $(134)  (5.9%)
      

      

    
Franchise royalties decreased approximately $170,000, or 9.6%, to $1,595,000 for the three months ended June 30, 2008, as compared to $1,765,000 for the three months ended June 30, 2007, and decreased approximately $260,000, 
or 7.4%, to $3,246,000 for the six months ended June 30, 2008, as compared to $3,506,000 for the six months ended June 30, 2007. Management believes these decreases were mainly due to a decrease in royalties generated from 
franchise store audits of $91,000 and $141,000 for the three and six months ended June 30, 2008, respectively, which audits were factored over an equivalent sample size of franchise locations for each period audited.  Additionally, 
franchise sales during both of the comparable periods decreased $1,892,000, or 4.3%, which decreased royalty income.  As of June 30, 2008 and 2007, there were 142 and 147 franchised stores in operation, respectively.

Franchise fees (which includes initial franchise fees, renewal fees, conversion fees and store transfer fees) decreased approximately $65,000, or 86.7%, to $10,000 for the three months ended June 30, 2008, as compared to $75,000 for 
the three months ended June 30, 2007, and increased approximately $32,000, or 25.0%, to $160,000 for the six months ended June 30, 2008, as compared to $128,000 for the six months ended June 30, 2007.  These fluctuations were 
primarily attributable to 4 franchise agreement renewals ($40,000), 2 independent store conversions ($20,000), and 5 new franchise agreements ($100,000) in 2008, as compared to 2 franchise agreement renewals ($20,000), 2 independent 
store conversions ($20,000), and 4 new franchise agreements ($83,000) in 2007.  In the future, franchise fees are likely to fluctuate depending on the timing of franchise agreement expirations, new store openings and franchise store 
transfers.

Operating expenses of the franchise segment decreased approximately $78,000, or 11.1%, to $627,000 for the three months ended June 30, 2008, as compared to $705,000 for the three months ended June 30, 2007, and decreased 
approximately $94,000, or 6.9%, to $1,270,000 for the six months ended June 30, 2008, as compared to $1,364,000 for the six months ended June 30, 2007.  These decreases were partially a result of decreases to franchise promotions 
of $23,000 related to expenses for displaying at an optical industry trade show (the event was held in March 2007, as compared to April 2008), rent and related overhead of $57,000 due to reductions of back office expenses such as 
new phone services (the Company changed to voice-over-IP services in the 4th quarter of 2007), legal fees of $34,000 relating to proactive litigation to enforce franchise agreements during the three months ended March 31,  2007, and 
franchise store audit related expenses of $10,000 due to the reasons described above in the franchise royalties discussion.  These expenses were offset, in part, by increases in bad debt due to recoveries of $100,000 relating to a 
litigation settlement during the three months ended March 31, 2007, and management fees of $12,000 as a result of the Site-for-Sore Eyes’ consultants having to manage 4 additional stores during the six months ended June 30, 2008.  
Additionally, the franchise segment incurred travel, training, and related costs associated with the installation of the Company’s new Point-of-Sale computer system (initiated March 2008).

  

      
  

      

      
  

      

      



Company Store Segment

   
For the Three Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Retail sales

      		 $954  $1,248  $(294)  (23.6%)
      
Cost of retail sales

      		  246   364   (118)  (32.4%)
      
Gross margin

      		  708   884   (176)  (19.9%)
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  480   578   (98)  (17.0%)
      
Rent and related overhead

      		  294   352   (58)  (16.5%)
      
Advertising

      		  65   139   (74)  (53.2%)
      
Other general and administrative costs

      		  62   61   1   1.6%
      
Total operating expenses

      		  901   1,130   (229)  (20.3%)
      
Operating (Loss) Income

      		 $(193) $(246) $53   21.5%
      

      

      


   
For the Six Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Retail sales

      		 $2,096  $2,605  $(509)  (19.5%)
      
Cost of retail sales

      		  511   682   (171)  (25.1%)
      
Gross margin

      		  1,585   1,923   (338)  (17.6%)
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  981   1,141   (160)  (14.0%)
      
Rent and related overhead

      		  569   703   (134)  (19.1%)
      
Advertising

      		  133   300   (167)  (55.7%)
      
Other general and administrative costs

      		  113   118   (5)  (4.2%)
      
Total operating expenses

      		  1,796   2,262   (466)  (20.6%)
      
Operating (Loss) Income

      		 $(211) $(339) $128   37.8%
      

      

      
Retail sales for the Company store segment decreased approximately $294,000, or 23.6%, to $954,000 for the three months ended June 30, 2008, as compared to $1,248,000 for the three months ended June 30, 2007, and decreased 
approximately $509,000, or 19.5%, to $2,096,000 for the six months ended June 30, 2008, as compared to $2,605,000 for the six months ended June 30, 2007.  These decreases were mainly attributable to fewer Company-owned store 
locations open during the comparable periods.  As of June 30, 2008, there were 8 Company-owned stores, as compared to 11 Company-owned stores as of June 30, 2007.   On a same store basis (for stores that operated as a 
Company-owned store during the entirety of both of the three and six months ended June 30, 2008 and 2007), comparative net sales decreased approximately $136,000, or 14.7%, to $792,000 for the three months ended June 30, 2008, 
as compared to $928,000 for the three months ended June 30, 2007, and decreased approximately $78,000, or 4.2%, to $1,761,000 for the six months ended June 30, 2008, as compared to $1,839,000 for the six months ended June 30, 2007.  
Management believes that these decreases were a direct result of changes to key personnel, mainly Optometrists, during the second quarter of 2008, which led to reduced exam fee revenues.

Excluding exam fee revenue from retail sales, the Company-owned store’s gross profit margin increased by 2.7%, to 69.8%, for the three months ended June 30, 2008, as compared to 67.1% for the three months ended June 30, 2007, 
and increased by 2.3%, to 72.6% for the six months ended June 30, 2008, as compared to 70.3% for the six months ended June 30, 2007.  Management continues to work to improve the profit margin through increased training at the 
Company-store level, among other things, and anticipates these changes will result in improvements in the Company’s gross profit margin in the future.  The Company’s gross margin may, however, fluctuate in the future depending 
upon the extent and timing of changes in the product mix in the Company-owned stores, competitive pricing, and promotional.

Operating expenses of the Company store segment decreased approximately $229,000, or 20.3%, to $901,000 for the three months ended June 30, 2008, as compared to $1,130,000 for the three months ended June 30, 2007, and 
decreased approximately $466,000, or 20.6%, to $1,796,000 for the six months ended June 30, 2008, as compared to $2,262,000 for the six months ended June 30, 2007.  These decreases were mainly a result of having three fewer 
Company-owned stores in operation during the three and six months ended June 30, 2008.  Additionally, the Company streamlined certain store payroll coverage in its stores to reduced salaries and related benefits, and enhanced 
the media plans for each store, which reduced advertising costs on a by-store basis.

Gain on sale of company-owned stores to franchisees related to the sale of a Company-owned store in metro New York and a store in Maryland.  There were no such sales of Company-owned stores during the three and six months 
ended June 30, 2007.

VisionCare of California Segment

   
For the Three Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Membership fees

      		 $877  $878  $(1)  (0.1%)
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  812   795   17   2.1%
      
Rent and related overhead

      		  35   39   (4)  (10.3%)
      
Other general and administrative costs

      		  32   33   (1)  (3.0%)
      
Total operating expenses

      		  879   867   12   1.4%
      
Operating (Loss) Income

      		 $(2) $11  $(13)  (118.2%)
      

      

      


   
For the Six Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Membership fees

      		 $1,720  $1,727  $(7)  (0.4%)
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  1,594   1,571   23   1.5%
      
Rent and related overhead

      		  73   75   (2)  (2.7%)
      
Other general and administrative costs

      		  56   69   (13)  (18.8%)
      
Total operating expenses

      		  1,723   1,715   8   0.5%
      
Operating (Loss) Income

      		 $(3) $12  $(15)  (125.0%)
      

      

      
Revenues generated by the Company’s wholly-owned subsidiary, VisionCare of California, Inc. (“VCC”), a specialized health care maintenance organization licensed by the State of California Department of Managed Health Care, 
decreased approximately $1,000, or 0.1%, to $877,000 for the three months ended June 30, 2008, as compared to $878,000 for the three months ended June 30, 2007, and decreased approximately $7,000, or 0.4%, to $1,720,000 for the 
six months ended June 30, 2008, as compared to $1,727,000 for the six months ended June 30, 2007.  These decreases were primarily due to a slight decrease in membership fees generated by VCC during the first quarter of 2008, as 
well as an indirect result of a decrease in franchise sales for the stores that were in operation in the state of California during the three and six months ended June 30, 2008 of $444,000, or 7.8%, and $807,000, or 7.1%, respectively.  
These decreases were offset by an increase in the daily membership fee charged by VCC effective June 2008.

Operating expenses of the VCC segment remained consistent with last year’s expenses, increasing only $12,000, or 1.4%, to $879,000 for the three months ended June 30, 2008, as compared to $867,000 for the three months ended June 
30, 2007, and increased approximately $8,000, or 0.5%, to $1,723,000 for the six months ended June 30, 2008, as compared to $1,715,000 for the six months ended June 30, 2007.  These increases related to increased doctor salaries and 
related benefits paid by VCC, which will be offset in future quarters due to the increase in the daily membership fees as discussed above.

Corporate Overhead Segment

   
For the Three Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Operating Expenses:

      		            
      
Salaries and related benefits

      		 $538  $581  $(43)  (7.4%)
      
Rent and related overhead

      		  60   81   (21)  (25.9%)
      
Professional fees

      		  168   140   28   20.0%
      
Insurance

      		  38   58   (20)  (34.5%)
      
Other general and administrative costs

      		  78   83   (5)  (6.0%)
      
Total operating expenses

      		  882   943   (61)  (6.5%)
      
Operating (Loss) Income

      		 $(882) $(943) $61   6.5%
      

      

      


   
For the Six Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Operating Expenses:

      		            
      
Salaries and related benefits

      		 $1,119  $1,109  $10   1.0%
      
Rent and related overhead

      		  121   176   (55)  (31.3%)
      
Professional fees

      		  302   234   68   29.1%
      
Insurance

      		  126   121   5   4.1%
      
Other general and administrative costs

      		  127   120   7   5.8%
      
Total operating expenses

      		  1,795   1,760   35   2.0%
      
Operating Loss

      		 $(1,795) $(1,760) $(35)  (2.0%)
      

      

      
There were no revenues generated by the corporate overhead segment.

Operating expenses decreased approximately $61,000, or 6.5%, to $882,000 for the three months ended June 30, 2008, as compared to $943,000 for the three months ended June 30, 2007, and increased approximately $35,000, or 2.0%, 
to $1,795,000 for the six months ended June 30, 2008, as compared to $1,760,000 for the six months ended June 30, 2007.  The decrease for the three months ended June 30, 2008 was partially a result of decreases to salaries and related 
benefits of $43,000 related to decreases, in May 2008,  in the Company’s medical and dental insurance premiums, rent and related overhead expenses of $21,000 due to the phone changes described above in the Franchise segment 
discussion, as well as decreases on office expenses such as office supplies and postage, and compensation expense of $28,000 (the options granted to the directors in the 2nd quarter of 2007 had a higher stock price ($0.47) associated 
with the date of grant as compared to the options granted in the 2nd quarter of 2008 ($0.21)).  These decreases were offset, in part, by an increase in professional fees of $28,000 due, in part, to consulting expenses related to the 
Company’s Sarbanes-Oxley compliance (a project that was initiated in the 3rd quarter of 2007) and an increase in proxy filing expenses (the Company held its annual shareholder meeting in May 2008, as compared to December 2007), 
and other overhead expenses such as $8,000 of depreciation and amortization expense related to the Corporate office remodel in the 2nd quarter of 2007.

The increase for the six months ended June 30, 2008 was attributable to increases in salaries and related benefits of $30,000 (partially due to the absorbing the entire increase in medical and dental benefits of VCC for the first quarter 
of 2008), professional fees of $68,000 due, in part, to consulting and proxy filing expenses, depreciation and amortization expenses of $17,000, and compensation expenses of $29,000, all as described above.  These increases were 
offset, in part, by the decrease of $55,000 to rent and related overhead expenses as described above.

Other Segment

   
For the Three Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Commissions

      		 $12  $-  $12   n/a 
      
Other

      		  (4)  -   (4)  n/a 
      
Net revenues

      		  8   -   8   n/a 
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  12   -   12   n/a 
      
Advertising

      		  50   -   50   n/a 
      
Other general and administrative costs

      		  5   -   5   n/a 
      
Total operating expenses

      		  67   -   67   n/a 
      
Operating Loss

      		 $(59) $-  $(59)  n/a 
      

      

      


   
For the Six Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
Net Revenues:

      		            
      
Commissions

      		 $69  $-  $69   n/a 
      
Other

      		  19   -   19   n/a 
      
Net revenues

      		  88   -   88   n/a 
      
 
Operating Expenses:

      		                
      
Salaries and related benefits

      		  32   -   32   n/a 
      
Advertising

      		  92   -   92   n/a 
      
Other general and administrative costs

      		  13   -   13   n/a 
      
Total operating expenses

      		  137   -   137   n/a 
      
Operating Loss

      		 $(49) $-  $(49)  n/a 
      

      

      
Revenues generated by the other segment include approximately $12,000 and $69,000 of commission income and credit card residuals for the three and six months ended June 30, 2008, respectively.  Additionally, there were revenues 
generated from employee purchases of optical products as defined under the Company’s optical benefit plan.  The Company began generating commission revenues in January 2008 under operations of the Company that do not fall 
within one of the other operating segments.

Operating expenses of the other segment solely related to the operations that began in January 2008, as described above.

Use of Non-GAAP Performance Indicators

The following section expands on the financial performance of the Company detailing the Company’s EBITDA.  EBITDA is calculated as net earnings before interest, taxes, depreciation and amortization.  The Company refers to 
EBITDA because it is a widely accepted financial indicator of a company’s ability to service or incur indebtedness.

EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles, is not necessarily indicative of cash available to fund all cash flow needs, should not be considered an alternative to 
net income or to cash flow from operations (as determined in accordance with GAAP) and should not be considered an indication of our operating performance or as a measure of liquidity.  EBITDA is not necessarily comparable to 
similarly titled measures for other companies.

EBITDA Reconciliation

   
For the Three Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
EBITDA Reconciliation:

      		            
      
Net income

      		 $307  $368  $(61)  (16.6%)
      
Interest

      		  80   44   36   81.8%
      
Taxes

      		  (139)  (296)  157   53.0%
      
Depreciation and amortization

      		  156   110   46   41.8%
      
EBITDA

      		 $404  $226  $178   78.8%
      

      

      


   
For the Six Months Ended June 30 (in thousands):

      		 
      
   
2008

      		  
2007

      		  
$ Change

      		  
% Change

      		 
      
EBITDA Reconciliation:

      		            
      
Net income

      		 $1,024  $799  $225   28.2%
      
Interest

      		  186   109   77   70.6%
      
Taxes

      		  (265)  (377)  112   29.7%
      
Depreciation and amortization

      		  313   220   93   42.3%
      
EBITDA

      		 $1,258  $751  $507   67.5%
      

      

      
The Company also incurred other non-cash charges that effected earnings including compensation expenses related to the grant of common stock options and warrants of $41,000 and $46,000 for the three and six months ended 
June 30, 2008, respectively, and $70,000 and $74,000 for the three and six months ended June 30, 2007, respectively.

Liquidity and Capital Resources

As of June 30, 2008, the Company had a positive working capital of $1,605,000 and cash on hand of $2,074,000.  During the six months ended June 30, 2008, cash flows used in operating activities were $557,000.  This was principally 
due to an increase in optical purchasing group receivables of $2,527,000 due to increased optical purchasing group sales, as well as a decrease in accounts payable and accrued expenses of $1,081,000, and increases in prepaid 
expenses of $222,000 due to insurance premiums payments. These were offset, in part, by net income of $1,024,000 and an increase in optical purchasing group payables of $2,289,000 for reasons described above.  The Company 
believes it will continue to improve its operating cash flows through the implementation of the Company’s new Point-of-Sales system to improve the franchise sales reporting process, the addition of new franchise locations, its 
current and future acquisitions, and continued efficiencies as it related to corporate overhead expenses.

For the six months ended June 30, 2008, cash flows (used in) investing activities were $143,000 due to an increase in intangible assets for legal costs associated with defending one of the Company’s trademarks. And by the purchase 
of new Company-store lab equipment, offset by proceeds received on certain franchise promissory notes.

For the six months ended June 30, 2008, cash flows used in financing activities were $74,000 due to the repayment of the Company’s related party borrowings and the promissory note payments made to COMC.

Credit Facility

On August 8, 2007, the Company entered into a Revolving Line of Credit Note and Credit Agreement (the “Credit Agreement”) with M&T, establishing a revolving credit facility (the “Credit Facility”), for aggregate borrowings of up 
to $6,000,000, to be used for general working capital needs and certain permitted acquisitions.  This Credit Facility replaced the Company’s previous revolving line of credit facility with M&T, established in August 2005.  The initial 
term of the Credit Facility expires in August 2009.  All sums drawn by the Company under the Credit Facility are repayable, interest only, on a monthly basis, commencing on the first day of each month during the term of the Credit 
Facility, calculated at the variable rate of two hundred seventy five (275) basis points in excess of LIBOR, and all principal drawn by the Company is payable on August 1, 2009.

On August 10, 2007, the Company borrowed $3,609,423 to fund the purchase price payable in connection with the acquisitions of TOG, and borrowed $400,000 for general working capital requirements.  The Credit Facility includes 
various financial covenants including minimum net worth, maximum funded debt and debt service ratio requirements.  As of June 30, 2008, the Company had outstanding borrowings of $4,356,854 under the Credit Facility, which 
amount was included in Long-term Debt on the accompanying Consolidated Balance Sheet, was in compliance with the various financial covenants, and had $1,643,146 available under the Credit Facility for future borrowings.

Off-Balance Sheet Arrangements

An off-balance sheet arrangement is any contractual arrangement involving an unconsolidated entity under which a company has (a) made guarantees, (b) a retained or a contingent interest in transferred assets, (c) any obligation 
under certain derivative instruments or (d) any obligation under a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the company, or engages in leasing, 
hedging, or research and development services within the company.

The Company does not have any off-balance sheet financing or unconsolidated variable interest entities, with the exception of certain guarantees on leases.  The Company refers the reader to the Notes to the Consolidated 
Condensed Financial Statements included in Item 1 of this Quarterly Report for information regarding the Company’s lease guarantees.

Management’s Discussion of Critical Accounting Policies and Estimates

High-quality financial statements require rigorous application of high-quality accounting policies.  Management believes that its policies related to revenue recognition, deferred tax assets, legal contingencies and allowances on 
franchise, notes and other receivables are critical to an understanding of the Company’s Consolidated Condensed Financial Statements because their application places the most significant demands on management’s judgment, 
with financial reporting results relying on estimation about the effect of matters that are inherently uncertain.

Management’s estimate of the allowances on receivables is based on historical sales, historical loss levels, and an analysis of the collectibility of individual accounts.  To the extent that actual bad debts differed from management's 
estimates by 10 percent, consolidated net income would be an estimated $1,000 and $1,000 higher/lower for the six months ended June 30, 2008, and 2007, respectively, depending upon whether the actual write-offs are greater or less 
than estimated.

The Company recognizes revenues in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.”  Accordingly, revenues are recorded when persuasive evidence of an arrangement exists, delivery has 
occurred or services have been rendered, the Company’s price to the buyer is fixed or determinable, and collectibility is reasonably assured.  To the extent that collectability of royalties and/or interest on franchise notes is not 
reasonably assured, the Company recognizes such revenues when the cash is received.  To the extent that revenues that were recognized on a cash basis were recognized on an accrual basis, consolidated net income would be an 
estimated $112,000 and $111,000 higher for the six months ended June 30, 2008 and 2007, respectively.

Management’s performs an annual impairment analysis to determine the fair value of goodwill and certain intangible assets.  In determining the fair value of such assets, management uses a variety of methods and assumptions 
including a discounted cash flow analysis along with various qualitative tests.  To the extent that management needed to impair its goodwill or certain intangible assets by 10 percent, consolidated net income would be an estimated 
$744,000 and $330,000 lower for the six months ended June 30, 2008 and 2007, respectively.



  

      
  

      

      
  

      

      

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

This Quarterly Report does not include information for Item 3 pursuant to the rules of the Securities and Exchange Commission (“SEC”) that permits “a smaller reporting company” to omit such information.

Item 4T.  Controls and Procedures

(a) Disclosure Controls and Procedures

      		
      

      

 
The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) with the participation of the Company’s management (“Management”) conducted an evaluation of the effectiveness of the Company’s 
disclosure controls and procedures as of the end of the period covered by this report.  These disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports 
that it files or submits under the Securities Exchange Act of 1934, as amended, within the time periods specified by the SEC rules and forms, is recorded, processed, summarized and reported, and is communicated to Management, 
as appropriate, to allow for timely decisions based on the required disclosures.  Based on this evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of June 
30, 2008.

(b) Changes in Internal Controls over Financial Reporting
 
There has been no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, during the three months ended June 30, 2008 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
 
(c) Limitations

      		
      

      

    
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurances that the control system’s objectives will be met.  Additionally, the design of a control system has limitations such 
as financial restraints and the cost/benefit analysis of improving such systems.  Thus, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected.
 
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PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

In October 2007, Arnot Realty Corporation commenced an action against the Company, in the Supreme Court of the State of New York, Chemung County, alleging, among other things, that the Company had breached its obligations 
under its guaranty of the lease for the former Sterling Optical store located at Arnot Mall, Horseheads, New York.  In June, 2008, this action was settled.  The terms of the settlement included the payment, by the Company to Arnot 
Realty Corporation, of an aggregate sum of $9,000, and the exchange of mutual general releases.

In July 2008, Ontario Mills Limited Partnership commenced an action against the Company, in the Supreme Court of the State of California, San Bernardino County, alleging, among other things, that the Company had breached its 
obligations under its lease for the former Sterling Optical store located in the Ontario Mills Mall, California.  The Company believes that it has a meritorious defense to this action.  As of the date hereof, the Company’s time to answer 
the complaint has not yet expired.  The Company has not recorded an accrual for a loss in this action, as the Company does not believe it is probable that the Company will be held liable in respect of plaintiff’s claims.

Although the Company, where indicated herein, believes that it has a meritorious defense to the claims asserted against it (and its affiliates), given the uncertain outcomes generally associated with litigation, there can be no assurance 
that the Company’s (and its affiliates’) defense of such claims will be successful.

Item 1a. Risk Factors

There have been no material changes to the disclosure related to risk factors made in the Company Annual Report on Form 10-K for the year ended December 31, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

On May 23, 2008, the Company’s independent inspector of election, Broadridge Financial Solutions, Inc., certified the voting results of the Company’s 2008 Annual Meeting of Shareholders , held on May 23, 2008.  Having received 
approximately 86.3% of the votes cast, Christopher G. Payan, Jeffrey Rubin and Joel Gold have been re-elected to serve as Class II directors of the Company, for a term of two (2) years expiring in 2010.  Approximately 57.0% of the 
Company’s outstanding shares were voted at the meeting.

Item 5. Other Information

None.

Item 6. Exhibits


      
      
      

      
 
 

      
      
      

      
     


      
      
      

      
     
 
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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.


EMERGING VISION, INC.
(Registrant)



BY:
/s/  Christopher G. Payan
Christopher G. Payan
Chief Executive Officer
(Principal Executive Officer)


BY:
/s/  Brian P. Alessi
Brian P. Alessi
Chief Financial Officer
(Principal Financial and Accounting Officer)




Dated: August 14, 2008