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
      1934for the
      quarterly period ended March 31,
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 May
15, 2008, there were 125,292,806 outstanding shares of the Issuer’s Common
Stock, par value $0.01 per share.







TABLE OF CONTENTSPAGEPART I – FINANCIAL INFORMATIONItem 1.  Financial Statements
      (Unaudited)Consolidated Condensed Balance Sheets as of March 31, 2008 and
      December 31,
            32007Consolidated Condensed Statements of Income for the Three
      Months Ended
            4March 31, 2008
      and 2007Consolidated Condensed Statements of Cash Flows for the Three
      Months Ended
            5March 31, 2008
      and 2007Notes to Consolidated Condensed Financial
      Statements
            6-15Item 2.  Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
            16-23Item 3.  Quantitative and Qualitative Disclosures
      about Market Risk
            24Item 4t.  Controls and
    Procedures
            24PART II – OTHER INFORMATION
            25Signatures
            26








PART I - FINANCIAL INFORMATION





Item
1.  Item 1.  Financial Statements





EMERGING VISION, INC. AND SUBSIDIARIES
              CONSOLIDATED
      CONDENSED BALANCE SHEETS
              (In
      Thousands, Except Share Data)ASSETS
            
            March
      31,
            
            
            December
      31,2008
            
            
            2007(unaudited)
            
            
            (audited)Current
      assets:Cash
      and cash equivalents
            
            $
            2,468
            
            
            $
            2,846Franchise
      receivables, net of allowance of $125 and $147,
    respectively
            
            
            1,701
            
            
            
            1,842Optical
      purchasing group receivables, net of allowance of $60
            
            
            6,501
            
            
            
            4,840Other
      receivables, net of allowance of $5
            
            
            501
            
            
            
            369Current
      portion of franchise notes receivable, net of allowance of
    $38
            
            
            247
            
            
            
            191Inventories,
      net
            
            
            380
            
            
            
            466Prepaid
      expenses and other current assets
            
            
            602
            
            
            
            447Deferred
      tax assets, current portion
            
            
            600
            
            
            
            600Total
      current assets
            
            
            13,000
            
            
            
            11,601Property
      and equipment, net
            
            
            1,339
            
            
            
            1,496Franchise
      notes receivable
            
            
            168
            
            
            
            121Deferred
      tax asset, net of current portion
            
            
            1,200
            
            
            
            1,074Goodwill,
      net
            
            
            4,261
            
            
            
            4,237Intangible
      assets, net
            
            
            3,048
            
            
            
            3,065Other
      assets
            
            
            262
            
            
            
            271Total
      assets
            
            $
            23,278
            
            
            $
            21,865





LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      liabilities:Accounts
      payable and accrued liabilities
            
            $
            4,902
            
            
            $
            5,607Optical
      purchasing group payables
            
            
            5,957
            
            
            
            4,486Accrual
      for store closings
            
            
            300
            
            
            
            300Short-term
      debt
            
            
            28
            
            
            
            32Related
      party obligations
            
            
            397
            
            
            
            404Total
      current liabilities
            
            
            11,584
            
            
            
            10,829Long-term
      debt
            
            
            4,418
            
            
            
            4,424Related
      party borrowings, net of current portion
            
            
            745
            
            
            
            770Franchise
      deposits and other liabilities
            
            
            385
            
            
            
            442Total
      liabilities
            
            
            17,132
            
            
            
            16,465Commitments
      and contingenciesShareholders'
      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
            
            
            
            74Common
      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
            
            
            
            1,254Treasury
      stock, at cost, 182,337 shares
            
            
            (204
            )
            
            
            (204
            )Additional
      paid-in capital
            
            
            127,976
            
            
            
            127,971Accumulated
      comprehensive income
            
            
            189
            
            
            
            165Accumulated
      deficit
            
            
            (123,143
            )
            
            
            (123,860
            )Total
      shareholders' equity
            
            
            6,146
            
            
            
            5,400Total
      liabilities and shareholders' equity
            
            $
            23,278
            
            
            $
            21,865





Table of
Contents




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





EMERGING VISION, INC. AND SUBSIDIARIES
              CONSOLIDATED
      CONDENSED STATEMENTS OF INCOME (UNAUDITED)
              (In
      Thousands, Except Per Share Data)For
      the Three Months Ended March 31,2008
            
            
            2007Revenues:Optical
      purchasing group sales
            
            $
            14,295
            
            
            $
            4,325Franchise
      royalties
            
            
            1,651
            
            
            
            1,741Retail
      sales – Company-owned stores
            
            
            1,142
            
            
            
            1,361Membership
      fees – VisionCare of California
            
            
            843
            
            
            
            849Franchise
      related fees and other revenues
            
            
            230
            
            
            
            49Total
      revenue
            
            
            18,161
            
            
            
            8,325Costs
      and operating expenses:Cost
      of optical purchasing group sales
            
            
            13,533
            
            
            
            4,003Cost
      of retail sales
            
            
            265
            
            
            
            317Selling,
      general and administrative expenses
            
            
            3,721
            
            
            
            3,651Total
      costs and operating expenses
            
            
            17,519
            
            
            
            7,971Operating
      income
            
            
            642
            
            
            
            354Other
      income (expense):Interest
      on franchise notes receivable
            
            
            7
            
            
            
            11Gain
      on sale of company-owned stores to franchisee
            
            
            30
            
            
            
            -Other
      income
            
            
            18
            
            
            
            50Interest
      expense
            
            
            (106
            )
            
            
            (65
            )Total
      other income (expense)
            
            
            (51
            )
            
            
            (4
            )Income
      before income tax benefit
            
            
            591
            
            
            
            350Income
      tax benefit
            
            
            126
            
            
            
            81Net
      income
            
            
            717
            
            
            
            431Comprehensive
      income:Foreign
      currency translation adjustments
            
            
            24
            
            
            
            -Comprehensive
      income
            
            $
            741
            
            
            $
            431Net
      income per share:Basic
            
            $
            0.01
            
            
            $
            0.01Diluted
            
            $
            0.01
            
            
            $
            0.00Weighted-average
      number of common shares outstanding:Basic
            
            
            125,293
            
            
            
            70,324Diluted
            
            
            131,537
            
            
            
            118,974





Table of
Contents




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





EMERGING VISION, INC. AND SUBSIDIARIES
              CONSOLIDATED
      CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
              (Dollars
      in Thousands)For
      the Three Months Ended March 31,2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            717
            
            
            $
            431Adjustments
      to reconcile net income to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            157
            
            
            
            110Provision
      for doubtful accounts
            
            
            9
            
            
            
            (54
            )Deferred
      tax assets
            
            
            (126
            )
            
            
            (90
            )Gain
      on the sale of property and equipment
            
            
            (30
            )
            
            
            -Non-cash
      compensation charges related to options and warrants
            
            
            5
            
            
            
            4Changes
      in operating assets and liabilities:Franchise
      and other receivables
            
            
            (188
            )
            
            
            (518
            )Optical
      purchasing group receivables
            
            
            (1,519
            )
            
            
            (450
            )Inventories
            
            
            86
            
            
            
            (48
            )Prepaid
      expenses and other current assets
            
            
            (155
            )
            
            
            (124
            )Intangible
      and other assets
            
            
            9
            
            
            
            166Accounts
      payable and accrued liabilities
            
            
            (705
            )
            
            
            155Optical
      purchasing group payables
            
            
            1,471
            
            
            
            394Franchise
      deposits and other liabilities
            
            
            (57
            )
            
            
            -Net
      cash used in operating activities
            
            
            (326
            )
            
            
            (24
            )Cash
      flows from investing activities:Proceeds
      from franchise and other notes receivable
            
            
            57
            
            
            
            29Purchases
      of property and equipment
            
            
            (71
            )
            
            
            (218
            )Net
      cash used in investing activities
            
            
            (14
            )
            
            
            (189
            )Cash
      flows from financing activities:Payments
      on borrowings
            
            
            (42
            )
            
            
            (38
            )Net
      cash used in financing activities
            
            
            (42
            )
            
            
            (38
            )Net
      cash used in operations
            
            
            (382
            )
            
            
            (251
            )Effect
      of foreign exchange rate changes on cash
            
            
            4
            
            
            
            -Net
      decrease in cash and cash equivalents
            
            
            (378
            )
            
            
            (251
            )Cash
      and cash equivalents – beginning of period
            
            
            2,846
            
            
            
            1,289Cash
      and cash equivalents – end of period
            
            $
            2,468
            
            
            $
            1,038Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
            
            $
            86
            
            
            $
            10Taxes
            
            $
            31
            
            
            $
            29


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 (“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
March 31, 2008, there were 155 Retail Stores in operation, consisting of 146
franchised stores, 8 Company-owned stores and 1 Company-owned store being
managed by a Franchisee, 856 active members of COM, and 525 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 Condensed
Consolidated 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 $5,000 and $4,000 is reflected in selling,
general and administrative expenses on the accompanying Consolidated Condensed
Statements of Income for the three months ended March 31, 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 rate ranging from 4.82% to 4.98%; stock price volatility
ranging from 48.00% to 55.00%; with no dividends over the expected
life.





There
were no common stock option grants to any of the Company’s employees or
directors, or warrant grants to any independent consultants during the three
months ended March 31, 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 feesand 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 conversion of foreign currency.





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
$24,000 translation gain from the conversion of foreign currency to U.S. Dollars
is included as a component of comprehensive income for the three months ended
March 31, 2008 and is recorded directly to accumulated comprehensive income
within the Consolidated Condensed Balance Sheet as of March 31,
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
months ended March 31, 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 March 31, 2008 and 2007,
respectively.





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 remain subject to examination in all of the Company
tax jurisdictions until the applicable statutes of limitation
expire.  As of March 31, 2008, a summary of the tax years that remain
subject to examination in the Company 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
2,872,687 and 1,886,020 were excluded from the computation of Diluted EPS for
the three months ended March 31, 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 March 31,2008
            
            
            2007Numerator:Net
      income
            
            $
            717
            
            
            $
            431Denominator:Weighted-average
      common shares outstanding
            
            
            125,293
            
            
            
            70,324Dilutive
      effect of stock options and warrants
            
            
            6,244
            
            
            
            48,650Weighted-average
      common shares outstanding, assuming dilution
            
            
            131,537
            
            
            
            118,974Net
      income per share:Basic
            
            $
            0.01
            
            
            $
            0.01Diluted
            
            $
            0.01
            
            
            $
            0.00




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, 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 March 31, 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 146 franchise locations as of March 31,
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
March 31, 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):





For
      the Three Months
                Ended
      March 31,2008
              
              
              2007Net
      Revenues:Optical
      Purchasing Group Business
              
              $
              14,295
              
              
              $
              4,325Franchise
              
              
              1,801
              
              
              
              1,794Company
      Store
              
              
              1,142
              
              
              
              1,357VisionCare
      of California
              
              
              843
              
              
              
              849Corporate
      Overhead
              
              
              -
              
              
              
              -Other
              
              
              80
              
              
              
              -Net
      revenues
              
              $
              18,161
              
              
              $
              8,325Income
      (Loss) before Income Tax Benefit:Optical
      Purchasing Group Business
              
              $
              321
              
              
              $
              91Franchise
              
              
              1,183
              
              
              
              1,132Company
      Store
              
              
              (17
              )
              
              
              (91
              )VisionCare
      of California
              
              
              2
              
              
              
              9Corporate
      Overhead
              
              
              (917
              )
              
              
              (791
              )Other
              
              
              19
              
              
              
              -Income
      before income tax benefit
              
              $
              591
              
              
              $
              350Depreciation
      and Amortization:Optical
      Purchasing Group Business
              
              $
              76
              
              
              $
              38Franchise
              
              
              28
              
              
              
              22Company
      Store
              
              
              19
              
              
              
              25VisionCare
      of California
              
              
              6
              
              
              
              3Corporate
      Overhead
              
              
              28
              
              
              
              22Other
              
              
              -
              
              
              
              -Total
      depreciation and amortization
              
              $
              157
              
              
              $
              110Interest
      Expense:Optical
      Purchasing Group Business
              
              $
              92
              
              
              $
              55Franchise
              
              
              7
              
              
              
              5Company
      Store
              
              
              -
              
              
              
              -VisionCare
      of California
              
              
              -
              
              
              
              -Corporate
      Overhead
              
              
              7
              
              
              
              5Other
              
              
              -
              
              
              
              -Total
      interest expense
              
              $
              106
              
              
              $
              65
  As
      of March 31,2008
              
              
              2007Total
      Assets:Optical
      Purchasing Group Business
              
              $
              13,769
              
              
              $
              5,447Franchise
              
              
              4,944
              
              
              
              4,324Company
      Store
              
              
              843
              
              
              
              1,203VisionCare
      of California
              
              
              622
              
              
              
              684Corporate
      Overhead
              
              
              2,744
              
              
              
              1,885Other
              
              
              356
              
              
              
              -Total
      assets
              
              $
              23,278
              
              
              $
              13,543





The
following table shows certain unaudited pro forma results of the Company,
assuming the Company had acquired TOG at the beginning of the three months ended
March 31, 2007 (in thousands):







For
      the Three Months
              Ended
      March 31,2008
            
            
            2007Net
      Revenues:Optical
      Purchasing Group Business
            
            $
            14,295
            
            
            $
            14,414Franchise
            
            
            1,801
            
            
            
            1,794Company
      Store
            
            
            1,142
            
            
            
            1,357VisionCare
      of California
            
            
            843
            
            
            
            849Corporate
      Overhead
            
            
            -
            
            
            
            -Other
            
            
            80
            
            
            
            -Net
      revenues
            
            $
            18,161
            
            
            $
            18,414Income
      (Loss) before Income Tax Benefit:Optical
      Purchasing Group Business
            
            $
            321
            
            
            $
            284Franchise
            
            
            1,183
            
            
            
            1,132Company
      Store
            
            
            (17
            )
            
            
            (91
            )VisionCare
      of California
            
            
            2
            
            
            
            9Corporate
      Overhead
            
            
            (917
            )
            
            
            (791
            )Other
            
            
            19
            
            
            
            -Income
      before income tax benefit
            
            $
            591
            
            
            $
            543Depreciation
      and Amortization:Optical
      Purchasing Group Business
            
            $
            76
            
            
            $
            70Franchise
            
            
            28
            
            
            
            22Company
      Store
            
            
            19
            
            
            
            25VisionCare
      of California
            
            
            6
            
            
            
            3Corporate
      Overhead
            
            
            28
            
            
            
            22Other
            
            
            -
            
            
            
            -Total
      depreciation and amortization
            
            $
            157
            
            
            $
            142Interest
      Expense:Optical
      Purchasing Group Business
            
            $
            92
            
            
            $
            121Franchise
            
            
            7
            
            
            
            5Company
      Store
            
            
            -
            
            
            
            -VisionCare
      of California
            
            
            -
            
            
            
            -Corporate
      Overhead
            
            
            7
            
            
            
            5Other
            
            
            -
            
            
            
            -Total
      interest expense
            
            $
            106
            
            
            $
            131




As
      of March 31,2008
              
              
              2007Total
      Assets:Optical
      Purchasing Group Business
              
              $
              13,769
              
              
              $
              12,579Franchise
              
              
              4,944
              
              
              
              4,324Company
      Store
              
              
              843
              
              
              
              1,203VisionCare
      of California
              
              
              622
              
              
              
              684Corporate
      Overhead
              
              
              2,744
              
              
              
              1,885Other
              
              
              356
              
              
              
              -Total
      assets
              
              $
              23,278
              
              
              $
              20,675








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
      March 31,2008
              
              
              2007Net
      Revenues:Canada
              
              $
              10,312
              
              
              $
              -United
      States
              
              
              7,849
              
              
              
              8,325Net
      revenues
              
              $
              18,161
              
              
              $
              8,325Income
      before Income Tax Benefit:Canada
              
              $
              53
              
              
              $
              -United
      States
              
              
              538
              
              
              
              350Income
      before income tax benefit
              
              $
              591
              
              
              $
              350


Additional
geographic information is summarized as follows for the three months ended March
31, 2008 (in thousands):





United
      States
            
            
            Canada
            
            
            TotalTotal
      Assets
            
            $
            15,418
            
            
            $
            7,860
            
            
            $
            23,278Depreciation
      and Amortization
            
            
            125
            
            
            
            32
            
            
            
            157Goodwill
            
            
            2,544
            
            
            
            1,717
            
            
            
            4,261Intangible
      Assets
            
            
            1,098
            
            
            
            1,950
            
            
            
            3,048Interest
      Expense
            
            
            40
            
            
            
            66
            
            
            
            106




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.  The Company believes that it has a meritorious
defense to this action.  As of the date hereof, the plaintiff’s motion
for summary judgment has not yet be argued before the court.  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
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.





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
March 31, 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
$3,550,000.  The Company continually 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 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.  During the three months ended March 31, 2008 and 2007, a
bonus of approximately $10,000 and $21,000, respectively, was accrued for and
reflected in accounts payable and accrued expenses on the accompanying
Consolidated Condensed Balance Sheets.








NOTE
7 – SUBSEQUENT EVENTS





On May 7,
2008, the Company’s Board of Directors granted an aggregate of 625,000 common
stock options to each of the Company’s independent, non-employee directors, all
at a grant price of $0.21, which was the closing price on the date of
grant.  The stock options vested immediately.  The Company
incurred stock-based compensation expense of approximately
$39,000.  All of these options expire 10 years from the date of
grant.







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
have made changes to the format of this Form 10-Q and changed our segment
reporting.  The Company has simplified our 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 months ended March 31, 2008, as compared to the three
months ended March 31, 2007





Consolidated
Segment Results





Total
revenues for the Company increased approximately $9,836,000, or 118.2%, to
$18,161,000 for the three months ended March 31, 2008, as compared to $8,325,000
for the three months ended March 31, 2007.  This increase was 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 $9,548,000, or 119.8%, to $17,519,000 for the three
months ended March 31, 2008, as compared to $7,971,000 for the three months
ended March 31, 2007.  This increase was mainly a result of the
acquisition of TOG, as described above.





Optical
Purchasing Group Business Segment





For
      the Three Months Ended March 31 (in thousands):2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      ChangeNet
      Revenues:Optical
      purchasing group sales
            
            $
            14,295
            
            
            $
            4,325
            
            
            $
            9,970
            
            
            
            230.5
            %Cost
      of optical purchasing group sales
            
            
            13,533
            
            
            
            4,003
            
            
            
            9,530
            
            
            
            238.1
            %Gross
      margin
            
            
            762
            
            
            
            322
            
            
            
            440
            
            
            
            136.6
            %Operating
      Expenses:Salaries
      and related benefits
            
            
            123
            
            
            
            69
            
            
            
            54
            
            
            
            78.3
            %Rent
      and related overhead
            
            
            54
            
            
            
            28
            
            
            
            26
            
            
            
            92.9
            %Advertising
            
            
            20
            
            
            
            1
            
            
            
            19
            
            
            
            1,900.0
            %Depreciation
      and amortization
            
            
            76
            
            
            
            38
            
            
            
            38
            
            
            
            100.0
            %Credit
      card and bank fees
            
            
            60
            
            
            
            22
            
            
            
            38
            
            
            
            172.7
            %Other
      general and administrative costs
            
            
            23
            
            
            
            21
            
            
            
            2
            
            
            
            9.5
            %Total
      operating expenses
            
            
            356
            
            
            
            179
            
            
            
            177
            
            
            
            98.9
            %Operating
      Income
            
            $
            406
            
            
            $
            143
            
            
            $
            263
            
            
            
            183.9
            %








This
segment consists of the operations of Combine and TOG.  TOG’s activity
for the three months ended March 31, 2008, has been included in the Company’s
results of operations as of and for the three months ended March 31,
2008.





Optical
purchasing group revenues increased $9,970,000, or 230.5%, to $14,295,000 for
the three months ended March 31, 2008, as compared to $4,325,000 for the three
months ended March 31, 2007.  The increase was a direct result of the
acquisition of TOG.  Only the operations of Combine were including in
the three months ended March 31, 2007.  Individually, Combine’s
revenues decreased $347,000, or 8.0%, to $3,978,000 for the three months ended
March 31, 2008, as compared to $4,325,000 for the three months ended March 31,
2007.  This decrease was due to a generally weaker economy during the
first quarter of 2008, offset by a slight increase in the total number of active
members of Combine.  As of March 31, 2008, there were 856 members, as
compared to 853 members as of March 31, 2007.





Costs of
optical purchasing group sales increased $9,530,000, or 238.1%, to $13,533,000
for the three months ended March 31, 2008, as compared to $4,003,000 for the
three months ended March 31, 2007.  This increase was also a direct
result of the TOG acquisition.  Individually, Combine’s cost of sales
decreased $317,000, or 7.9%, to $3,686,000 for the three months ended March 31,
2008, as compared to $4,003,000 for the three months ended March 31,
2007.  This decrease was a direct result of, and proportionate to, the
revenues decrease described above.





Operating
expenses of the optical purchasing group segment increased $177,000, or 98.9%,
to $356,000 for the three months ended March 31, 2008, as compared to $179,000
for the three months ended March 31, 2008.  This increase was also a
direct result of the TOG acquisition.  Individually, Combine’s
operating expenses remained consistent with last year’s expenses, increasing
only $1,000, or 0.6%, to $181,000 for the three months ended March 31, 2008, as
compared to $180,000 for the three months ended March 31, 2007.





Interest
expense related to the optical purchasing group segment increased $37,000, or
67.3%, to $92,000 for the three months ended March 31, 2008, as compared to
$55,000 for the three months ended March 31, 2007.  The increase in
interest expense was 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 March 31 (in thousands):2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      ChangeNet
      Revenues:Royalties
            
            $
            1,651
            
            
            $
            1,741
            
            
            $
            (90
            )
            
            
            (5.2
            %)Franchise
      fees
            
            
            150
            
            
            
            53
            
            
            
            97
            
            
            
            183.0
            %Net
      revenues
            
            
            1,801
            
            
            
            1,794
            
            
            
            7
            
            
            
            0.4
            %Operating
      Expenses:Salaries
      and related benefits
            
            
            350
            
            
            
            351
            
            
            
            (1
            )
            
            
            (0.3
            %)Rent
      and related overhead
            
            
            61
            
            
            
            107
            
            
            
            (46
            )
            
            
            (43.0
            %)Professional
      fees
            
            
            110
            
            
            
            156
            
            
            
            (46
            )
            
            
            (29.5
            %)Trade
      shows
            
            
            65
            
            
            
            100
            
            
            
            (35
            )
            
            
            (35.0
            %)Bad
      debt
            
            
            5
            
            
            
            (64
            )
            
            
            69
            
            
            
            107.8
            %Other
      general and administrative costs
            
            
            44
            
            
            
            27
            
            
            
            17
            
            
            
            63.0
            %Total
      operating expenses
            
            
            635
            
            
            
            677
            
            
            
            (42
            )
            
            
            (6.2
            %)Operating
      Income
            
            $
            1,166
            
            
            $
            1,117
            
            
            $
            49
            
            
            
            4.4
            %








Franchise
royalties decreased approximately $90,000, or 5.2%, to $1,651,000 for the three
months ended March 31, 2008, as compared to $1,741,000 for the three months
ended March 31, 2007.Management believes this
decrease was mainly due to a decrease in royalties generated from franchise
store audits of $50,000, which audits were factored over an equivalent sample
size of franchise locations for each period audited, as well as a decrease in
franchise sales for the stores that were in operation during both of the
comparable periods of $391,000, or 1.9%, which led to lower royalties of
approximately $31,000.  As of March 31, 2008 and 2007, there were 146
franchised stores in operation.





Other
franchise related fees (which includes initial franchise fees, renewal fees and
fees related to the transfer of store ownership from one franchisee to another)
increased approximately $97,000, or 183.0%, to $150,000 for the three months
ended March 31, 2008, as compared to $53,000 for the three months ended March
31, 2008.  This increase was primarily attributable to the Company
recognizing franchise fees on 9 new franchise agreement transactions during the
three months ended March 31, 2008, as compared to 4 new franchise agreement
transactions during the three months ended March 31, 2007.  In the
future, other franchise related 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 $42,000, or 6.2%, to
$635,000 for the three months ended March 31, 2008, as compared to $677,000 for
the three months ended March 31, 2007.  This decrease was partially a
result of decreases to franchise promotions of $35,000 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 $46,000 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 $40,000 relating to proactive litigation to enforce
franchise agreements during the three months ended March 31,  2007,
and franchise store audit related expenses of $15,000 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 3 additional stores during the three months ended
March 31, 2008.  Salaries and related benefits remained consistent
with last year’s expenses, decreasing only $1,000.








Company
Store Segment





For
      the Three Months Ended March 31 (in thousands):2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      ChangeNet
      Revenues:Retail
      sales
            
            $
            1,142
            
            
            $
            1,357
            
            
            $
            (215
            )
            
            
            (15.8
            %)Cost
      of retail sales
            
            
            265
            
            
            
            317
            
            
            
            (52
            )
            
            
            (16.4
            %)Gross
      margin
            
            
            877
            
            
            
            1,040
            
            
            
            (163
            )
            
            
            (15.7
            %)Operating
      Expenses:Salaries
      and related benefits
            
            
            500
            
            
            
            563
            
            
            
            (63
            )
            
            
            (11.2
            %)Rent
      and related overhead
            
            
            276
            
            
            
            351
            
            
            
            (75
            )
            
            
            (21.4
            %)Advertising
            
            
            68
            
            
            
            161
            
            
            
            (93
            )
            
            
            (57.8
            %)Other
      general and administrative costs
            
            
            50
            
            
            
            56
            
            
            
            (6
            )
            
            
            (10.7
            %)Total
      operating expenses
            
            
            894
            
            
            
            1,131
            
            
            
            (237
            )
            
            
            (21.0
            %)Operating
      Loss
            
            $
            (17
            )
            
            $
            (91
            )
            
            $
            74
            
            
            
            81.3
            %








Retail
sales for the Company store segment decreased approximately $215,000, or 15.8%,
to $1,142,000 for the three months ended March 31, 2008, as compared to
$1,357,000 for the three months ended March 31, 2007.  This decrease
was mainly attributable to fewer Company-owned store locations open during the
comparable periods.  As of March 31, 2008, there were 8 Company-owned
stores, as compared to 10 Company-owned stores as of March 31,
2007.   On a same store basis (for stores that operated as a
Company-owned store during the entirety of both of the three months ended March
31, 2008 and 2007), comparative net sales increased approximately $58,000, or
6.4%, to $970,000 for the three months ended March 31, 2008, as compared to
$912,000 for the three months ended March 31, 2007.  Management
believes that this increase was a direct result of changes to key personnel
during December 2007 (including the Company store management team), which helped
improve store operations.  Additionally, the Company added new
training procedures, improving selling techniques, while maintaining consistent
margins, and continued to implement a new point-of-sale system.





Excluding
exam fee revenue from retail sales, the Company-owned store’s gross profit
margin increased by 1.6%, to 74.9%, for the three months ended March 31, 2008,
as compared to 73.3% for the three months ended March 31,
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 $237,000, or
21.0%, to $894,000 for the three months ended March 31, 2008, as compared to
$1,131,000 for the three months ended March 31, 2007.  This increase
was mainly a result of having two fewer Company-owned stores in operation during
the three months ended March 31, 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 months ended March
31, 2007.








VisionCare
of California Segment





For
      the Three Months Ended March 31 (in thousands):2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      ChangeNet
      Revenues:Membership
      fees
            
            $
            843
            
            
            $
            849
            
            
            $
            (6
            )
            
            
            (0.7
            %)Operating
      Expenses:Salaries
      and related benefits
            
            
            783
            
            
            
            776
            
            
            
            7
            
            
            
            0.9
            %Rent
      and related overhead
            
            
            37
            
            
            
            36
            
            
            
            1
            
            
            
            2.8
            %Other
      general and administrative costs
            
            
            23
            
            
            
            36
            
            
            
            (13
            )
            
            
            (36.1
            %)Total
      operating expenses
            
            
            843
            
            
            
            848
            
            
            
            (5
            )
            
            
            (0.6
            %)Operating
      Income
            
            $
            -
            
            
            $
            1
            
            
            $
            (1
            )
            
            
            n/a








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
$6,000, or 0.7%, to $843,000 for the three months ended March 31, 2008, as
compared to $849,000 for the three months ended March 31, 2007.  This
decrease was primarily due to a 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 both of the comparable periods of $432,000, or 7.3%.





Operating
expenses of the VCC segment remained consistent with last year’s expenses,
decreasing only $5,000, or 0.6%, to $843,000 for the three months ended March
31, 2008, as compared to $848,000 for the three months ended March 31,
2007.  Operating expenses for the three months ended March 31, 2008
included doctor salaries and related benefits of $720,000, and rent and related
overhead of $37,000.





Corporate
Overhead Segment





For
      the Three Months Ended March 31 (in thousands):2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      ChangeOperating
      Expenses:Salaries
      and related benefits
            
            
            600
            
            
            
            527
            
            
            
            73
            
            
            
            13.9
            %Rent
      and related overhead
            
            
            61
            
            
            
            95
            
            
            
            (34
            )
            
            
            (35.8
            %)Professional
      fees
            
            
            134
            
            
            
            94
            
            
            
            40
            
            
            
            42.6
            %Insurance
            
            
            88
            
            
            
            63
            
            
            
            25
            
            
            
            39.7
            %Other
      general and administrative costs
            
            
            49
            
            
            
            37
            
            
            
            12
            
            
            
            32.4
            %Total
      operating expenses
            
            
            932
            
            
            
            816
            
            
            
            116
            
            
            
            14.2
            %Operating
      Loss
            
            $
            (932
            )
            
            $
            (816
            )
            
            $
            (116
            )
            
            
            (14.2
            %)








There
were no revenues generated by the corporate overhead segment.





rd nd





Other
Segment





For
      the Three Months Ended March 31 (in thousands):2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      ChangeNet
      Revenues:Commissions
            
            $
            57
            
            
            $
            -
            
            
            $
            57
            
            
            
            n/aOther
            
            
            23
            
            
            
            -
            
            
            
            23
            
            
            
            n/aNet
      revenues
            
            
            80
            
            
            
            -
            
            
            
            80
            
            
            
            n/aOperating
      Expenses:Salaries
      and related benefits
            
            
            20
            
            
            
            -
            
            
            
            20
            
            
            
            n/aAdvertising
            
            
            42
            
            
            
            -
            
            
            
            42
            
            
            
            n/aOther
      general and administrative costs
            
            
            (1
            )
            
            
            -
            
            
            
            (1
            )
            
            
            n/aTotal
      operating expenses
            
            
            61
            
            
            
            -
            
            
            
            61
            
            
            
            n/aOperating
      Income
            
            $
            19
            
            
            $
            -
            
            
            $
            19
            
            
            
            n/a








Revenues
generated by the other segment include approximately $57,000 of commission
income and credit card residuals.  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 March 31 (in thousands):2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      ChangeEBITDA
      Reconciliation:Net
      income
            
            $
            717
            
            
            $
            431
            
            
            $
            286
            
            
            
            66.4
            %Interest
            
            
            106
            
            
            
            65
            
            
            
            41
            
            
            
            63.1
            %Taxes
            
            
            (126
            )
            
            
            (81
            )
            
            
            (45
            )
            
            
            (55.6
            %)Depreciation
      and amortization
            
            
            157
            
            
            
            110
            
            
            
            47
            
            
            
            42.7
            %EBITDA
            
            $
            854
            
            
            $
            525
            
            
            $
            329
            
            
            
            62.7
            %








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 $5,000 and $4,000 for the three months ended March 31, 2008 and 2007,
respectively.





Liquidity
and Capital Resources





As of
March 31, 2008, the Company had a positive working capital of $1,416,000 and
cash on hand of $2,468,000.  During the three months ended March 31,
2008, cash flows used in operating activities were $326,000.  This was
principally due to an increase in total Company receivables of $1,707,000 as
well as a decrease in accounts payable and accrued expenses of $705,000, offset,
in part, by net income of $717,000 and an increase in optical purchasing group
payables of $1,471,000.  The Company believes it will continue to
improve its operating cash flows through franchisee audits, the addition of new
franchise locations, its current and future acquisitions, and new marketing
strategies and increased gross margins, among other things, for its
Company-owned stores.





For the
three months ended March 31, 2008, cash flows used in investing activities were
$14,000 due to the purchase of new Company-store lab equipment, offset by
proceeds received on certain franchise promissory notes.





For the
three months ended March 31, 2008, cash flows used in financing activities were
$42,000 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 March 31, 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 $5,000 higher/lower for the three months ended March 31, 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 $83,000 and $34,000 higher for the three months ended March 31, 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 $551,000 and $275,000 lower for the three months ended March 31, 2008
and 2007, respectively.


Table of
Contents





Item
3.  Quantitative and Qualitative Disclosures about Market
Risk





The
quarterly report does not include information for Item 3 pursuant to the rules
of the Securities and Exchange Commission that permits “smaller reporting
companies” to omit such information.








Table of
Contents






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, 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 March 31, 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 March 31, 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.




Table of Contents








PART II - OTHER INFORMATION








Item
1.  Legal
Proceedings





None





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





None.





Item 5. Other
Information





None.





Item 6.
Exhibits





31.1
            Certification of Chief Executive Officer pursuant to
      Rules 13a-14 and 15d-14(a) of the Securities Exchange
    Act





31.2
            Certification of Chief Financial Officer pursuant to
      Rules 13a-14 and 15d-14(a) of the Securities Exchange
    Act





32.1
            Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of
  2002






Table of Contents








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: May 15, 2008






Table of Contents