**UNITEDSTATES**

** SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

| x | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---|--------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 29, 2008**

 

**or**

 

| o | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---|---------------------------------------------------------------------------------------------------------|

 

**For the transition periodfrom              to             **

 

**Commission FileNumber:    001-33760**

 

**FGXInternational Holdings Limited**

(Exact name of Registrant as specified in its charter)

 

| **British Virgin Islands**                     | ** ** | **98-0475043**                       |
|------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation) |       | (IRS Employer Identification Number) |

 

**500 George Washington Highway**

**Smithfield, RI 02917**

(Address of principal executive offices, including zip code)

 

**(401) 231-3800**

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. x Yes          o No

 

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

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer x                       |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                              |

 

Indicateby check mark whether the registrant is a shell company (as defined by Rule 12b-2of the Act). o Yes   x No

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

 

Thenumber of ordinary shares outstanding as of May 5, 2008 was 21,262,308.

 

 

 

----

 

 

**Forward-LookingStatements**

 

This report and the information incorporated byreference in it include forward-looking statements. These include, but are notlimited to, statements about our expectations, hopes, beliefs, intentions orstrategies regarding the future, as well as statements that refer toprojections, forecasts or other characterizations of future events orcircumstances, including any underlying assumptions. They may refer, withoutlimitation, to retail and brand initiatives, upcoming product releases,operational improvements, market growth or acceptance of our products, and futurerevenue, costs, results of operations, or profitability. The words“anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,”“may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,”“should,” “would” and similar expressions may, but are not necessary to,identify forward-looking statements.

 

The forward-looking statements contained orincorporated by reference in this report are based on our current expectationsand beliefs concerning future developments and their potential effects on usand speak only as of the date of this report. There can be no assurance thatfuture developments affecting us will be those that we have anticipated. Theseforward-looking statements involve a number of risks, uncertainties (some of whichare beyond our control) or other factors that may cause actual results orperformance to be materially different from those expressed or implied by theseforward-looking statements. These risks and uncertainties include, but are notlimited to, those factors described or referred to under the heading “RiskFactors” below. We undertake no obligation to update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise, except as may be required under applicable law.

 

 

 

 

 

 

2

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**FGXInternational Holdings Limited**

**From 10-Q**

**Index**

 
| ** **                                                                                                                          | **PAGE** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|----------|------------|
| PART I:  FINANCIAL INFORMATION                                                                                                 | 4        |       |
|                                                                                                                                |     |       |
| Item 1.  Financial Statements                                                                                                  | 4        |       |
|                                                                                                                                |     |       |
| Condensed Consolidated Balance Sheets at  March 29, 2008 (unaudited) and December 29, 2007                                | 4        |       |
|                                                                                                                                |     |       |
| Condensed Consolidated Statements of Operations for  the three months ended March 29, 2008 and March 31, 2007 (unaudited) | 5        |       |
|                                                                                                                                |     |       |
| Condensed Consolidated Statements of Cash Flows for  the three months ended March 29, 2008 and March 31, 2007 (unaudited) | 6        |       |
|                                                                                                                                |     |       |
| Notes to Condensed Consolidated Financial Statements                                                                                | 7        |       |
|                                                                                                                                |     |       |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations                            | 12       |       |
|                                                                                                                                |     |       |
| Item 3. Quantitative and Qualitative Disclosures  About Market Risk                                                            | 16       |       |
|                                                                                                                                |     |       |
| Item 4. Controls and Procedures                                                                                           | 17       |       |
|                                                                                                                                |     |       |
| PART II:  OTHER INFORMATION                                                                                                    | 17       |       |
|                                                                                                                                |     |       |
| Item 1.  Legal Proceedings                                                                                                     | 17       |       |
|                                                                                                                                |     |       |
| Item 1A.  Risk Factors                                                                                                         | 17       |       |
|                                                                                                                                |     |       |
| Item 2. Unregistered Sales of Equity Securities  and Use of Proceeds                                                           | 17       |       |
|                                                                                                                                |     |       |
| Item 3. Default Upon Senior Securities                                                                                         | 18       |       |
|                                                                                                                                |     |       |
| Item 4. Submission of Matters To a Vote of  Security Holders                                                                   | 18       |       |
|                                                                                                                                |     |       |
| Item 5.  Other Information                                                                                                     | 18       |       |
|                                                                                                                                |     |       |
| Item 6.  Exhibits                                                                                                              | 18       |       |
|                                                                                                                                |     |       |
| SIGNATURES                                                                                                                          | 19       |       |
|                                                                                                                                |     |       |
| Exhibit List                                                                                                                   | 20       |       |
|                                                                                                                                |     |       |

 

 

 

3

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** **

**PART I—FINANCIAL INFORMATION**

 

**ITEM 1.    Financial Statements.**

 

**FGX INTERNATIONAL HOLDINGS LIMITED**

 

**CondensedConsolidated Balance Sheets**

**March 29, 2008 (unaudited) and December 29,2007**

**(in thousands)**

** **
| ** **                                                                                                                                                                                                     | ** ** | **March 29, 2008** | ** ** | **December 29, 2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                     | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current assets:                                                                                                                                                                                                |       |                    |       |                       |       |
| Cash and cash  equivalents                                                                                                                                                                                     |       | $                       | 4,424      |                       | $          | 4,567 |   |
| Accounts  receivable, less allowances of $19,174 and $15,839 at March 29, 2008 and  December 29, 2007, respectively                                                                                  |       | 40,179                  |       | 53,001                     |       |
| Inventories                                                                                                                                                                                                    |       | 33,621                  |       | 33,226                     |       |
| Prepaid expenses  and other current assets                                                                                                                                                                     |       | 14,725                  |       | 11,001                     |       |
| Deferred tax  assets                                                                                                                                                                                           |       | 10,963                  |       | 10,841                     |       |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Total current  assets                                                                                                                                                                                          |       | 103,912                 |       | 112,636                    |       |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Property, plant and equipment, net                                                                                                                                                                             |       | 21,326                  |       | 21,349                     |       |
| Other assets:                                                                                                                                                                                                  |       |                    |       |                       |       |
| Goodwill                                                                                                                                                                                                       |       | 25,357                  |       | 25,357                     |       |
| Intangible  assets, net of accumulated amortization of $25,625 and $24,330 at  March 29, 2008 and December 29, 2007, respectively                                                                    |       | 43,573                  |       | 44,868                     |       |
| Other assets                                                                                                                                                                                                   |       | 9,774                   |       | 7,645                      |       |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Total assets                                                                                                                                                                                                   |       | $                       | 203,942    |                       | $          | 211,855 |   |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                  | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current liabilities:                                                                                                                                                                                           |       |                    |       |                       |       |
| Revolving line  of credit                                                                                                                                                                                      |       | $                       | 15,000     |                       | $          | 20,000 |   |
| Current  maturities of long-term obligations                                                                                                                                                                   |       | 7,631                   |       | 7,661                      |       |
| Accounts payable                                                                                                                                                                                               |       | 29,387                  |       | 27,364                     |       |
| Accrued expenses                                                                                                                                                                                               |       | 19,461                  |       | 26,167                     |       |
| Accrued income  taxes                                                                                                                                                                                          |       | 691                     |       | 956                        |       |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Total current  liabilities                                                                                                                                                                                     |       | 72,170                  |       | 82,148                     |       |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Long-term obligations, less current maturities                                                                                                                                                                 |       | 92,765                  |       | 92,778                     |       |
| Deferred tax liabilities                                                                                                                                                                                       |       | 9,279                   |       | 9,260                      |       |
| Other long term liabilities                                                                                                                                                                                    |       | 9,414                   |       | 9,174                      |       |
| Minority interest                                                                                                                                                                                              |       | 1,349                   |       | 1,162                      |       |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Commitments and contingencies (note 9)                                                                                                                                                                    |       |                    |       |                       |       |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Shareholders’ equity:                                                                                                                                                                                     |       |                    |       |                       |       |
| Common stock, no  par value. Authorized 101,000 shares; issued 21,892 shares; outstanding  21,262 shares at March 29, 2008 and issued 21,934 shares; outstanding  21,304 shares at December 29, 2007 |       | —                  |       | —                     |       |
| Additional  paid-in capital                                                                                                                                                                                    |       | 96,213                  |       | 96,180                     |       |
| Accumulated  other comprehensive income                                                                                                                                                                        |       | 358                     |       | 943                        |       |
| Accumulated  deficit                                                                                                                                                                                           |       | (75,093                 | )          | (77,277                    | )          |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Treasury stock,  at cost, 630 shares at March 29, 2008 and at December 29, 2007                                                                                                                      |       | (2,513                  | )          | (2,513                     | )          |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Total  shareholders’ equity                                                                                                                                                                               |       | 18,965                  |       | 17,333                     |       |
|                                                                                                                                                                                                           |       |                    |       |                       |       |
| Total  liabilities and shareholders’ equity                                                                                                                                                               |       | $                       | 203,942    |                       | $          | 211,855 |   |
|                                                                                                                                                                                                           |       |                    |       |                       |       |

See accompanying notes to condensed consolidated financial statements.

 

4

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**FGX INTERNATIONAL HOLDINGS LIMITED**

 

**CONDENSEDCONSOLIDATED STATEMENT OF OPERATIONS**

**Three months ended March 29, 2008 and March 31,2007**

**(unaudited, in thousands, except per share amounts)**

** **
| ** **                                  | ** ** | **Three months ended**  | ** ** |
|---------------------------------------------|------------|-------------------------|------------|
| ** **                                  | ** ** | **March 29, 2008** | ** ** | **March 31, 2007** | ** ** |
| Net sales                                   |       | $                       | 59,223     |   | $ | 61,149 |   |
| Cost of goods sold                          |       | 27,346                  |       | 29,312 |   |
|                                        |       |                    |       |   |   |
| Gross profit                                |       | 31,877                  |       | 31,837 |   |
| Operating expenses:                         |       |                    |       |   |   |
| Selling expenses                            |       | 18,538                  |       | 17,114 |   |
| General and  administrative expenses        |       | 6,479                   |       | 5,138 |   |
| Amortization of  acquired intangibles       |       | 1,295                   |       | 1,543 |   |
|                                        |       |                    |       |   |   |
| Operating income                            |       | 5,565                   |       | 8,042 |   |
|                                        |       |                    |       |   |   |
| Other income (expense):                     |       |                    |       |   |   |
| Interest expense                            |       | (1,771                  | )          | (5,498 | ) |
| Other income,  net                          |       | 8                       |       | 38 |   |
|                                        |       |                    |       |   |   |
| Income before  income taxes                 |       | $                       | 3,802      |   | $ | 2,582 |   |
| Income tax expense                          |       | 1,431                   |       | 536 |   |
|                                        |       |                    |       |   |   |
| Income before  minority interest            |       | $                       | 2,371      |   | $ | 2,046 |   |
|                                        |       |                    |       |   |   |
| Minority interest expense                   |       | 187                     |       | 128 |   |
|                                        |       |                    |       |   |   |
| Net income                                  |       | $                       | 2,184      |   | $ | 1,918 |   |
|                                        |       |                    |       |   |   |
| Basic earnings per share                    |       | $                       | 0.10       |   | $ | 0.13 |   |
|                                        |       |                    |       |   |   |
| Basic weighted average shares outstanding   |       | 21,290                  |       | 14,838 |   |
|                                        |       |                    |       |   |   |
| Diluted earnings per share                  |       | $                       | 0.10       |   | $ | 0.13 |   |
|                                        |       |                    |       |   |   |
| Diluted weighted average shares outstanding |       | 21,446                  |       | 14,916 |   |
|                                        |       |                    |       |   |   |

See accompanying notes to condensed consolidated financial statements.

 

5

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**FGX INTERNATIONAL HOLDINGS LIMITED**

 

**Condensed ConsolidatedStatements of Cash Flows**

**Three months ended March 29, 2008 and March 31,2007**

**(unaudited, in thousands)**

** **
| ** **                                                                         | ** ** | **Three months ended**  | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                         | ** ** | **March 29, 2008** | ** ** | **March 31, 2007** | ** ** |
| Cash flows from operating activities:                                              |       |                    |       |   |   |
| Net income                                                                         |       | $                       | 2,184      |   | $ | 1,918 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                    |       |   |   |
| Depreciation and  amortization                                                     |       | 5,131                   |       | 4,574 |   |
| Noncash stock  option compensation                                                 |       | 538                     |       | 178 |   |
| Minority  interest                                                                 |       | 187                     |       | 128 |   |
| Deferred income  taxes                                                             |       | (162                    | )          | 110 |   |
| Loss on disposal  of property, plant, and equipment                                |       | 154                     |       | — |   |
| Changes in  assets and liabilities:                                                |       |                    |       |   |   |
| Accounts  receivable                                                               |       | 12,770                  |       | 4,803 |   |
| Inventories                                                                        |       | (386                    | )          | (7,983 | ) |
| Prepaid expenses  and other current assets                                         |       | (3,734                  | )          | (2,780 | ) |
| Other assets                                                                       |       | (2,134                  | )          | 1,393 |   |
| Accounts payable                                                                   |       | 1,998                   |       | 5,300 |   |
| Accrued expenses  and other long-term liabilities                                  |       | (6,829                  | )          | (1,533 | ) |
| Accrued income  taxes                                                              |       | (267                    | )          | (1,178 | ) |
|                                                                               |       |                    |       |   |   |
| Net cash  provided by operating activities                                         |       | 9,450                   |       | 4,930 |   |
|                                                                               |       |                    |       |   |   |
| Cash flows from investing activities:                                              |       |                    |       |   |   |
| Purchases of  property, plant and equipment                                        |       | (3,990                  | )          | (5,596 | ) |
|                                                                               |       |                    |       |   |   |
| Net cash used in  investing activities                                             |       | (3,990                  | )          | (5,596 | ) |
|                                                                               |       |                    |       |   |   |
| Cash flows from financing activities:                                              |       |                    |       |   |   |
| Net repayments  under revolving line of credit                                     |       | (5,000                  | )          | (2,000 | ) |
| Payments on  long-term obligations                                                 |       | (43                     | )          | (1,828 | ) |
| Ordinary share  repurchase                                                         |       | (505                    | )          | — |   |
|                                                                               |       |                    |       |   |   |
| Net cash used in  financing activities                                             |       | (5,548                  | )          | (3,828 | ) |
|                                                                               |       |                    |       |   |   |
| Effect of exchange rate changes on cash and cash  equivalents                      |       | (55                     | )          | 52 |   |
|                                                                               |       |                    |       |   |   |
| Net decrease in  cash and cash equivalents                                         |       | (143                    | )          | (4,442 | ) |
| Cash and cash equivalents, beginning of period                                     |       | 4,567                   |       | 9,663 |   |
|                                                                               |       |                    |       |   |   |
| Cash and cash equivalents, end of period                                           |       | $                       | 4,424      |   | $ | 5,221 |   |
|                                                                               |       |                    |       |   |   |

See accompanying notes to condensed consolidated financial statements.

 

6

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**FGX International Holdings Limited**

 

**Notes toCondensed Consolidated Financial Statements**

 

**(in thousands, except per share amounts)**

 

**(1) REPORTING ENTITY AND NATURE OF BUSINESS**

 

FGXInternational Holdings Limited (the “Company”) is a leading designer and marketerof non-prescription reading glasses, sunglasses and costume jewelry withdistribution primarily in the mass merchandise, chain drug store and chaingrocery store channels in North America and the United Kingdom. The Company isincorporated as a Business Company under the laws of the British VirginIslands.

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States (“GAAP”) for interim financial reporting and as required byRegulation S-X, Rule 10-01. Accordingly, they do not include all ofthe information and footnotes required by GAAP for complete financialstatements. In the opinion of management, all adjustments (including onlyadjustments which are normal and recurring) considered necessary for a fairpresentation of the interim financial information have been included. Whenpreparing financial statements in conformity with GAAP, the Company must makeestimates and assumptions that affect the reported amounts of assets,liabilities, revenues, expenses and related disclosures at the date of thefinancial statements. Actual results could differ from those estimates.Additionally, operating results for the three months ended March 29, 2008 arenot necessarily indicative of the results that may be expected for any otherinterim period or for the fiscal year ending January 3, 2009.

 

TheCompany’s accounting policies are the same as those described in Note 3 tothe financial statements for the fiscal year ended December 29, 2007included in the Company’s Annual Report on Form 10-K.

 

Theaccompanying unaudited condensed consolidated financial statements and notesthereto should be read in conjunction with the audited consolidated financialstatements for the fiscal year ended December 29, 2007 included in theCompany’s Annual Report on Form 10-K.

 

**(2) RECENT ACCOUNTING PRONOUNCEMENTS**

 

InSeptember 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS No. 157”), which defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles and expandsdisclosures about fair value measurements. SFAS No. 157 is applicable forthe Company as of December 31, 2007, the first day of fiscal 2008. The FASBissued FASB Staff Position FAS 157-b, *Effective Date of FASBStatement No. 157*, which deferred the effective date of theStatement for certain nonfinancial assets and liabilities until fiscal 2009.The impact of the adoption of SFAS 157 was not material to the Company’scondensed consolidated financial statements and the adoption of the itemsdeferred until fiscal 2009 are not expected to be material.

 

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assetsand Financial Liabilities*(“SFAS No. 159”). SFAS No. 159expands opportunities to use fair value measurements in financial reporting andpermits entities to choose to measure certain financial instruments at fairvalue.  SFAS No. 159 was effectivefor us in the first quarter of 2008. The adoption of SFAS No. 159 did nothave a material impact on our condensed consolidated balance sheet and resultsof operations.

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in ConsolidatedFinancial Statements,* (“SFAS No. 160”) which requiresnoncontrolling (minority) interests in subsidiaries to be initially measured atfair value and presented as a separate component of shareholders’ equity.Current practice is to present noncontrolling interests as a liability or otheritem outside of equity. This Statement is required to be applied prospectivelyafter the beginning of fiscal 2009, although the presentation and disclosurerequirements are required to be applied on a retrospective basis. The Companydoes not expect the adoption of SFAS No. 160 to have a material impact onits condensed consolidated balance sheet or results of operations.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities, an amendment of FASB Statement No. 133*(“SFAS 161”), which requires enhanced disclosures about the Company’sderivative and hedging activities. SFAS 161 will be effective as of thebeginning of the Company’s 2009 fiscal year. The Company is currentlyevaluating the impact of the adoption of the enhanced disclosures required byFAS 161.

 

**(3) OTHER COMPREHENSIVE INCOME**

 

Othercomprehensive income for the three months ended March 29, 2008 and March 31,2007 consist of the following:

 
| ** **                               | ** ** | **Three Months Ended**  | ** ** |
|------------------------------------------|------------|-------------------------|------------|
| ** **                               | ** ** | **March 29, 2008** | ** ** | **March 31, 2007** | ** ** |
| ** **                               | ** ** | **(unaudited)**         | ** ** |
| Net income                               |       | $                       | 2,184      |   | $ | 1,918 |   |
|                                     |       |                    |       |   |   |
| Foreign currency translation adjustments |       | (70                     | )          | (9 | ) |
| Loss on cash flow hedging activities     |       | (515                    | )          | — |   |
|                                     |       |                    |       |   |   |
| Comprehensive income                     |       | $                       | 1,599      |   | $ | 1,909 |   |
|                                     |       |                    |       |   |   |

 

 

7

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**(4) NET INCOME PER SHARE**

 

TheCompany calculates net income per share in accordance with SFAS No. 128,Earnings Per Share. Basic net income per share is computed by dividing netincome by the weighted average number of common shares outstanding. Diluted netincome per share is computed by dividing net income by the weighted averagenumber of common shares outstanding and potentially dilutive securitiesoutstanding during the period. Potentially dilutive securities include stockoptions, warrants, restricted stock and similar awards, using the treasurystock method. Securities are excluded from the computations of diluted netincome per share if their effect would be antidilutive.

 
| ** **                                                                | ** ** | **Three Months Ended**  | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                | ** ** | **March 29, 2008** | ** ** | **March 31, 2007** | ** ** |
| ** **                                                                | ** ** | **(unaudited)**         | ** ** |
| Net income                                                                |       | $                       | 2,184      |   | $ | 1,918 |   |
|                                                                      |       |                    |       |   |   |
| Shares used in computing basic net income per share                       |       | 21,290                  |       | 14,838 |   |
| Effect of dilutive securities                                             |       | 156                     |       | 78 |   |
|                                                                      |       |                    |       |   |   |
| Shares used in computing diluted net income per  share                    |       | 21,446                  |       | 14,916 |   |
|                                                                      |       |                    |       |   |   |
| Net income per share—basic                                           |       | $                       | 0.10       |   | $ | 0.13 |   |
|                                                                      |       |                    |       |   |   |
| Net income per share—diluted                                         |       | $                       | 0.10       |   | $ | 0.13 |   |
|                                                                      |       |                    |       |   |   |
| Antidilutive potential common shares excluded from  the computation above |       | 1,168                   |       | 988 |   |
|                                                                      |       |                    |       |   |   |
|                                                                           |            |                         |            |  |  |  |  |  |  |

 

**(5) SHAREREPURCHASE PROGRAM**

 

In February 2008, the Board of Directorsof the Company authorized a $12.0 million ordinary share repurchase program fora one-year period or until earlier terminated by the Company’s Board ofDirectors. During the three months ended March 29, 2008, the Companyrepurchased 42,000 ordinary shares for an aggregate purchase price ofapproximately $0.5 million. All of the purchases during the quarter weremade in the open market and repurchased shares were returned to the status ofauthorized and unissued. At March 29, 2008, the Company had approximately$11.5 million of remaining availability under the $12.0 million sharerepurchase program.

 

**(6) CREDITAGREEMENT**

 

On December 19, 2007, the Company enteredinto a new credit agreement (“December 2007 Credit Agreement”), which replacedthe prior credit agreement. The December 2007 Credit Agreement iscomprised of (a) a $75.0 million revolving credit facility (the “RevolvingCredit Facility”), which may be increased with the consent of our existing oradditional lenders by up to an additional $50.0 million; and (b) a $100.0million term loan facility (“Term Loan Facility”). Interest rates forborrowings under the new credit facility are determined based upon theCompany’s leverage ratio. Interest rates were initially priced at 1.75% abovethe London interbank offered rate (LIBOR) and then range from 1.00% to 2.25%above LIBOR for Eurodollar-based borrowings, and from 0.00% to 1.25% above thedefined base rate for base rate borrowings. Amounts due under both facilitiesare collateralized by a pledge of 100% of the Company’s tangible and intangibleassets. The Company will also pay commitment and other customary fees. Thesecommitment fees will range from 0.20% to 0.50% per annum depending upon theCompany’s leverage ratio.

 

As of  March 29,2008, the Term Loan Facility bears interest at LIBOR plus 1.75% (4.35% as of March 29,2008). The Term Loan Facility is due in 20 consecutive quarterly graduatinginstallments ranging from $1.9 million to $8.1 million commencing on March 31,2008. The Term Loan Facility and the Revolving Credit Facility will mature on December 19,2012.As of March 29,2008, the Company had outstanding indebtedness of $100.0 million under our TermLoan Facility, $15.0 million outstanding under the Revolving Credit Facilityand $0.3 million outstanding under letters of credit. Our borrowingavailability under the Revolving Credit Facility was $59.7 million.

 

The December 2007 Credit Agreementrequires the Company to comply with a leverage ratio covenant and a fixedcharge ratio covenant. This facility contains customary affirmative andnegative covenants that, among other things, limit the ability of the Company,and their respective subsidiaries to pay certain dividends; incur additionalindebtedness or liens; make certain investments, restricted payments, oracquisitions and dispositions; and enter into certain transactions withaffiliates. The Company must also comply with certain administrative covenants,including furnishing audited financial statements to the lenders within 90 daysof fiscal year end. As of March 29, 2008, the Company was in compliancewith the required restrictive covenants.

 

**(7) SWAP AGREEMENT**

 

On March 10, 2008, the Company enteredinto an interest rate swap agreement (the “Swap”) to manage our exposure tofloating interest rate risk on our Term Loan Facility. The Swap has an initialnotional amount of approximately $49.1 million and is scheduled to decline toreflect certain scheduled principal payments under the Term Loan Facility.Currently, the Company is borrowing under the Term Loan Facility at a floatinginterest rate based on 3-month LIBOR (plus 1.75% under the terms of our TermLoan Facility) and will pay under the Swap a fixed interest rate of 3.22% (plus1.75% under the terms of our Term Loan Facility) through December 19,2012. The Swap has been designated as a cash flow hedge under SFAS No. 133and the Company will record the effective portion of any change in the fairvalue as other comprehensive income (loss), net of tax, and reclassify thegains and losses to interest expense during the hedged interest payment period.

 

8

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** **

**(8) INCOME TAXES**

 

The Company adopted the provisions of FIN No. 48,*Accounting for Uncertainty in IncomeTaxes—an interpretation of FASB Statement No. 109, Accounting for IncomeTaxes* (“FIN 48”) on December 31, 2006, the first day of the2007 fiscal year. The Interpretation addresses the determination of whether taxbenefits claimed or expected to be claimed on a tax return should be recordedin the financial statements. Under FIN 48, the Company may recognize the taxbenefit from an uncertain tax position only if it is more likely than not thatthe tax position will be sustained on examination by the taxing authorities, basedon the technical merits of the position. The tax benefits recognized in thefinancial statements from such a position should be measured based on thelargest benefit that has a greater than fifty percent likelihood of beingrealized upon ultimate settlement.  As ofMarch 29, 2008, the Company has a gross liability for uncertain taxbenefits of $4.5 million, of which approximately $1.5 million would decreasethe effective tax rate in the period in which each of the benefits isrecognized and the remainder would be offset by the reversal of relateddeferred tax assets. The Company recognizes potential accrued interest andpenalties related to unrecognized tax benefits in income tax expense, which isconsistent with the recognition of these items in prior reporting periods. Asof March 29, 2008, the Company has accrued approximately $0.9 million ofinterest and penalties related to our uncertain tax positions. The Company doesnot anticipate significant changes to the total amount of unrecognized taxbenefits within the next 12 months.

 

The Company’s major tax jurisdiction is theUnited States.  As of March 29,2008, the federal tax years that remain subject to examination in the UnitedStates are 2005 and beyond.

 

**(9) COMMITMENTS AND CONTINGENCIES**

 

***Litigation***

 

InFebruary 2005, the Company reached an agreement to settle a patentinfringement action commenced in 1992 by Magnivision (formerly known as Al-Siteand then owned by its founding family, which retained the rights to thelitigation and any litigation proceeds) against an entity which is now asubsidiary of the Company relating to the use of certain display devices foreyeglasses. The United States District Court for the Central District ofCalifornia entered a final judgment on the agreed settlement and a series ofsubsequent orders clarifying certain of the terms thereof. Pursuant to theagreed settlement, the Company is obligated to pay the plaintiff$11.0 million. However, there is a cost sharing agreement in place whichprovides that an unrelated third party is paying approximately$7.9 million of the $11.0 million final judgment. The unrelated thirdparty participated in the settlement proceedings with the court, and anaffiliate of the third party has guaranteed payments on amounts due under thecost sharing agreement directly with the plaintiff. As a result of the costsharing agreement, and a credit of $2.0 million, which the court allowedfor a prejudgment payment the Company had previously made to the plaintiff, thetotal remaining obligation under the agreed settlement, as construed by thecourt, was approximately $1.1 million. This amount was paid by the Companyas of the end of fiscal 2005. The court scheduled a three year monthly paymentplan in May 2005 and thus far all payments have been timely made. However,the Company remains legally liable for the outstanding balance on the agreedsettlement even though it is being paid by the third party. As of March 29,2008 and December 29, 2007, the outstanding balance on the agreedsettlement was approximately $0.5 million and $1.3 million,respectively.

 

InMay 2005, Coda Gargoyles, LLC, filed a lawsuit in the Supreme Court of theState of New York, County of New York alleging that one of the Company’ssubsidiaries made insufficient efforts to market products and collect accountsreceivable to produce sufficient revenue to trigger earn-out provisions underthe Company’s December 2003 purchase agreement relating to the acquisitionof the Company’s premium brands, *Anarchy*, *Angel* and *Gargoyles*. Theplaintiff claimed not less than $2.0 million in damages plus interest,attorney’s fees and costs. One of the counts of the plaintiff’s three-countcomplaint was a claim for breach of an implied duty of good faith and fairdealing, which was dismissed by the trial court on October 31, 2005. Thetwo remaining counts were breach of contract and a demand for an accounting.Upon completion of mediated settlement discussions, the Company settled thelawsuit on March 13, 2008. Under the terms of the settlement, the Companypaid the plaintiff $0.355 million in exchange for mutual releases of all claimsand a dismissal of the lawsuit with prejudice. The Company did not admit anyliability and entered into the settlement to avoid the uncertainty and expenseof the lawsuit. The Company recorded the settlement costs in the consolidatedfinancial statements for the fiscal year ended December 29, 2007.

 

InFebruary 2007, Sun Optics, Inc. (“Sun Optics”) filed a lawsuitagainst the Company in the United States District Court, Central District ofUtah alleging infringement by the Company of two of their design patents foreyeglass cases and seeking an injunction, damages, attorneys’ fees and a jurytrial. On March 8, 2007, the plaintiff voluntarily dismissed that lawsuitand then re-filed it in the United States District Court, District of Delawareon March 8, 2007. Plaintiff promptly sought a preliminary injunctionconcerning the design patents. On April 5, 2007, plaintiff moved to amendits pleadings to include a count of infringement of a utility patent for aneyeglass display and sought a preliminary injunction concerning the utilitypatent. On August 2, 2007, the plaintiff’s motion to amend was granted,but both motions for a preliminary injunction were denied. On October 26,2007, plaintiff brought a third motion for preliminary injunction directed toadditional products. On April 4, 2008, the Company settled the dispute byobtaining a non-exclusive license to the three Sun Optics patents at issue inthe lawsuit and to all other patents owned or licensed by Sun Optics relatingto partially or completely transparent tube cases for eyewear and/orcorresponding displays. The Company did not admit any liability and enteredinto the settlement to avoid the uncertainty and expense of the lawsuit. TheCompany paid Sun Optics an initial license fee of $0.054 million and agreed topay royalties of 5% of net sales of licensed products sold on or after January 1,2008 in exchange for mutual releases of all claims and a dismissal of thelawsuit with prejudice. The Company had previously accrued for the settlementcosts in the consolidated financial statements for the fiscal year ended December 29,2007.

 

Inthe ordinary course of business, the Company is party to various types oflitigation. The Company maintains insurance to mitigate certain of these risks.The Company believes it has meritorious defenses to all litigation currentlypending or threatened, and, in its opinion, none will have a material effect onthe Company’s financial position or results of operations.

 

 

9

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**(10) RELATED PARTY TRANSACTIONS**

 

Priorto our initial public offering on October 24, 2007, the Company paid aquarterly fixed management fee (management fees) to our principal shareholder,Berggruen Holdings North America Ltd. (BH). The amount incurred was $0.125million for the three months ended March 31, 2007. The fee incurred isincluded in “General and administrative expenses” in the accompanying condensedconsolidated statements of operations. The Company also reimbursed BHapproximately $0.08 million during the three months ended March 31, 2007for fees BH paid for services provided by an interim managing director for theCompany’s U.K. subsidiary. The Company did not have any monies accrued andpayable to BH as of March 29, 2008 and December 29, 2007,respectively.

 

**(11) ENTERPRISE-WIDE DISCLOSURES**

 

TheCompany markets its products primarily to customers in the mass merchandiseretail channel. Although the Company closely monitors the creditworthiness ofits customers, a substantial portion of its customers’ ability to meet theirfinancial obligations is dependent on economic conditions germane to the retailindustry. At its discretion, the Company sells product to certain customers inbankruptcy. The Company maintains a credit insurance policy on its primarydomestic customers.

 

TheCompany currently purchases substantially all of its inventory from certainsuppliers in Asia. There are other suppliers of the inventory items purchasedand management believes that these suppliers could provide similar inventory atfairly comparable terms. However, a change in suppliers could cause a delay inthe Company’s distribution process and a possible loss of sales, which wouldadversely affect operating results.

 

**(12) SEGMENTS**

 

TheCompany operates primarily in the eyewear and costume jewelry markets. TheCompany’s four reportable segments are Non-Prescription Reading Glasses,Sunglasses and Prescription Frames, Costume Jewelry and International. Thesesegments have been determined based upon the nature of the products offered andavailability of discrete financial information, and are consistent with the waythe Company organizes and evaluates financial information internally for the purposesof making operating decisions and assessing performance.

 

TheNon-Prescription Reading Glasses, Sunglasses and Prescription Frames andCostume Jewelry segments represent sales of these product lines in the UnitedStates. The International segment sells similar product lines outside theUnited States. The Company measures profitability of its segments based ongross profit.

 

Expendituresfor additions to long-lived assets are not tracked or reported by the operatingsegments, except for display fixtures. Depreciation expense on display fixturesis specific to each segment. Non-display fixture depreciation is not allocableto a specific segment and is included in corporate and unallocated.Amortization of intangible assets that relate to acquired businesses isincluded in the specific segment to which they relate. The identifiable assetsof the international segment consist of assets of our internationalsubsidiaries. For the other reportable segments the identifiable assets includeinventories and intangible assets. The Company does not segregate other assetson a product line basis for internal management reporting and therefore, suchinformation is not presented. Assets included in corporate and unallocatedprincipally are cash and cash equivalents, accounts receivable, prepaidexpenses, deferred income taxes, other assets, and property, plant andequipment.

 

 

10

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| ** **                         | ** ** | **Three Months Ended**  | ** ** |
|------------------------------------|------------|-------------------------|------------|
| **Segment**                        | ** ** | **March 29, 2008** | ** ** | **March 31, 2007** | ** ** |
| ** **                         | ** ** | **(unaudited)**         | ** ** |
| **Segment Net Sales**              | ** ** | ** **              | ** ** | ** ** | ** ** |
| Non-prescription Reading Glasses   |       | $                       | 27,287     |   | $ | 27,575 |   |
| Sunglasses and Prescription Frames |       | 18,119                  |       | 16,840 |   |
| Costume Jewelry                    |       | 3,395                   |       | 5,973 |   |
| International                      |       | 10,422                  |       | 10,761 |   |
|                               |       |                    |       |   |   |
| **Total Net Sales**                | ** ** | **$**                   | **59,223** | ** ** | **$** | **61,149** | ** ** |
| ** **                         | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Gross Profit**                   | ** ** | ** **              | ** ** | ** ** | ** ** |
| Non-prescription Reading Glasses   |       | $                       | 15,796     |   | $ | 14,997 |   |
| Sunglasses and Prescription Frames |       | 8,579                   |       | 7,215 |   |
| Costume Jewelry                    |       | 792                     |       | 2,530 |   |
| International                      |       | 6,710                   |       | 7,095 |   |
|                               |       |                    |       |   |   |
| **Total Gross Profit**             | ** ** | **$**                   | **31,877** | ** ** | **$** | **31,837** | ** ** |
| ** **                         | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Segment Profits (Losses)**       | ** ** | ** **              | ** ** | ** ** | ** ** |
| Non-prescription Reading Glasses   |       | $                       | 10,750     |   | $ | 9,501 |   |
| Sunglasses and Prescription Frames |       | 5,276                   |       | 4,411 |   |
| Costume Jewelry                    |       | (116                    | )          | 1,625 |   |
| International                      |       | 2,651                   |       | 3,317 |   |
| Corporate / Unallocated expenses   |       | $                       | (12,996    | ) | $ | (10,812 | ) |
|                               |       |                    |       |   |   |
| **Income from Operations**         | ** ** | **$**                   | **5,565**  | ** ** | **$** | **8,042** | ** ** |
| ** **                         | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Depreciation**                   | ** ** | ** **              | ** ** | ** ** | ** ** |
| Non-prescription Reading Glasses   |       | $                       | 1,582      |   | $ | 1,255 |   |
| Sunglasses and Prescription Frames |       | 1,097                   |       | 811 |   |
| Costume Jewelry                    |       | 26                      |       | 24 |   |
| International                      |       | 890                     |       | 715 |   |
| Corporate / Unallocated            |       | 241                     |       | 226 |   |
|                               |       |                    |       |   |   |
| **Total**                          | ** ** | **$**                   | **3,836**  | ** ** | **$** | **3,031** | ** ** |
| ** **                         | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Amortization of Intangibles**    | ** ** | ** **              | ** ** | ** ** | ** ** |
| Non-prescription Reading Glasses   |       | $                       | 1,295      |   | $ | 1,543 |   |
|                               |       |                    |       |   |   |
| **Total**                          | ** ** | **$**                   | **1,295**  | ** ** | **$** | **1,543** | ** ** |
| ** **                         | ** ** | ** **              | ** ** | ** ** | ** ** |

 
| ** **                         | ** ** | **As of March 29,  2008** | ** **  | **As of December 29,  2007** | ** ** |
|------------------------------------|------------|--------------------------------|-------------|-----------------------------------|------------|
| ** **                         | ** ** | **(unaudited)**                | ** **  | ** **                        | ** ** |
| **Identifiable Assets**            | ** ** | ** **                     | ** **  | ** **                        | ** ** |
| Non-prescription Reading Glasses   |       | $                              | 72,965      |                              | $          | 75,075 |   |
| Sunglasses and Prescription Frames |       | 20,027                         |        | 16,909                            |       |
| Costume Jewelry                    |       | 4,227                          |        | 4,454                             |       |
| International                      |       | 22,505                         |        | 21,598                            |       |
| Corporate / Unallocated            |       | 84,218                         |        | 93,819                            |       |
|                               |       |                           |        |                              |       |
| **Total**                          | ** ** | **$**                          | **203,942** | ** **                        | **$**      | **211,855** | ** ** |

 

 

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**ITEM. 2.    Management’s Discussionand Analysis of Financial Condition and Results of Operations.**

 

Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (“MD&A”) is designed toprovide a reader of our financial statements with a narrative from theperspective of our management on our financial condition, results ofoperations, liquidity and certain other factors that may affect our futureresults.

 

We are a leading designer and marketer of non-prescriptionreading glasses, sunglasses and costume jewelry with a portfolio ofestablished, highly recognized eyewear brands including *FosterGrant* and *Magnivision*.  Wesell our *FosterGrant* brand in the U.S. popular pricedsunglasses market and both our *FosterGrant* and *Magnivision* brands in the domesticnon-prescription reading glasses market. Our products are sourced throughlow-cost Asian manufacturers and sold primarily through mass channels, whichinclude mass merchandisers, chain drug stores, chain grocery stores and varietystores. Some of our products are sold to ophthalmic retailers, mid-tierdepartment stores and other specialty retailers. We also sell costume jewelryprincipally to major mass merchandisers and have recently begun offering more replenishablejewelry items at other key customers.

 

Our company-owned portfolio also includes the *Anarchy*, *Angel* and *Gargoyles* brands, which target different demographic groups anddistribution channels at a premium price point (generally $50-$170). We believeour premium brands have a strong niche consumer appeal. We promote these brandsthrough endorsements from well recognized action sports athletes andsponsorship of professional surfing contests and similar sporting events.

 

To complement our proprietary brands, wemarket both popular priced and premium eyewear under nationally-recognizedlicensed brands including *Ironman Triathlon,Levi Strauss Signature, Body Glove, C9 by Champion*and *Daytona International Speedway.*Inaddition, we sell a line of prescription frames, which we introduced in 2004 tosupplement our product line.

 

We believe that we have the capital structurein place that will enable us to enhance our market leadership positions throughthe continued investment in our core brands. We will seek to continue to add toour domestic and international customer base as well as consider selectiveacquisitions that fit strategically into our business model. Our future resultsmay be impacted by risk and trends set forth in “Item 1A. Risk Factors” andelsewhere in this report.

 

**Summary of Results**

 

Thefollowing is a summary of the Company’s operating results for the first quarterended March 29, 2008:

 

·                  Net sales were $59.2 million in the firstquarter ended March 29, 2008 compared to $61.1 million in the same periodin 2007. This decrease reflected the continued benefit of  a non-prescription reading glasses andsunglasses program launched at a major customer at the end of fiscal 2006(approximately $3.2 million of incremental sales in the quarter), partiallyoffset by lower sales in our costume jewelry segment.

 

·                  Gross margin as a percentageof net sales improved to 53.8% in the first quarter ended March 29, 2008versus 52.1% in the same period in 2007. This increase was due to our continued focus on higher margin productmix and cost reductions at suppliers.

 

·                  Net income increased 13.9% to$2.2 million in the current quarter from $1.9 million in the first quarter of2007. This increase was primarily driven by lower interest expense andfavorable gross margin improvement during the first quarter of 2008, partiallyoffset by increased operating expenses.

 

·                  Earnings per diluted sharewere $0.10 in the first quarter ended March 29, 2008 compared to $0.13 inthe same period in 2007. This decrease is the result of a higher diluted sharecount in the current quarter.

 

·                  Interest expense decreased$3.7 million from $5.5 million in the first quarter of 2007 to $1.8 million inthe current quarter, primarily as a result of debt reduction and reducedborrowing costs.

 

·                  Cash flow provided fromoperating activities was $9.5 million in the first quarter ended March 29,2008 compared to $4.9 million in prior year period.

 

 

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**Results of Operations**

 

Thefollowing table sets forth, for the periods indicated, selected statement ofoperations data as a percentage of net sales:

 
| ** **                                        | ** ** | **Three Months Ended**  | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **March 29, 2008** | ** ** | **March 31, 2007** | ** ** |
| ** **                                        | ** ** | **(Unaudited)**         | ** ** |
| Net sales                                         |       | 100.0                   | %          | 100.0 | % |
| Cost of goods sold                                |       | 46.2                    |       | 47.9 |   |
| Gross profit                                      |       | 53.8                    |       | 52.1 |   |
| Operating expenses:                               |       |                    |       |   |   |
| Selling expenses                                  |       | 31.3                    |       | 28.0 |   |
| General and  administrative expenses              |       | 10.9                    |       | 8.4 |   |
| Amortization of  acquired intangibles             |       | 2.2                     |       | 2.5 |   |
| Operating income                                  |       | 9.4                     |       | 13.2 |   |
| Other income (expense):                           |       |                    |       |   |   |
| Interest expense                                  |       | (3.0                    | )          | (9.0 | ) |
| Other income,  net                                |       | —                  |       | — |   |
| Income before  income taxes and minority interest |       | 6.4                     |       | 4.2 |   |
| Income tax expense                                |       | 2.4                     |       | 0.9 |   |
| Income before minority interest                   |       | 4.0                     |       | 3.3 |   |
| Minority interest expense                         |       | 0.3                     |       | 0.2 |   |
| Net income                                        |       | 3.7                     | %          | 3.1 | % |
|                                                   |            |                         |            |  |  |  |

 

Thefollowing table sets forth, for the periods indicated, selected segment data asa percentage of net sales.

 

 
| ** **                         | ** ** | **Three Months Ended**      | ** ** |
|------------------------------------|------------|---------------------------------------|------------|
| **Segment**                        | ** ** | **March 29, 2008**               | ** ** | **March 31, 2007** | ** ** |
| ** **                         | ** ** | **(Unaudited, dollars in thousands)** | ** ** |
| Non-prescription reading glasses   |       | $                                     | 27,287     |   | 46.1 | % | $ | 27,575 |   | 45.1 | % |
| Sunglasses and prescription frames |       | 18,119                                |       | 30.6 |   | 16,840 |   | 27.5 |   |
| Costume jewelry                    |       | 3,395                                 |       | 5.7 |   | 5,973 |   | 9.8 |   |
| International                      |       | 10,422                                |       | 17.6 |   | 10,761 |   | 17.6 |   |
| Net sales                          |       | $                                     | 59,223     |   | 100.0 | % | $ | 61,149 |   | 100.0 | % |
|                                    |            |                                       |            |  |  |  |  |  |  |  |  |  |

 

 

Thefollowing table sets forth, for the periods indicated, selected operatingresults by segment.

 
| ** ** | ** **                         | ** ** | **Three Months Ended**                 | ** ** |
|------------|------------------------------------|------------|----------------------------------------|------------|
| ** ** | **Segment**                        | ** ** | **March 29, 2008**                | ** ** | **March 31, 2007** | ** ** |
| ** ** | ** **                         |       | **(Unaudited,  dollars in thousands)** |       |
|       | Non-prescription reading glasses   |       |                                   |       |   |   |   |   |   |   |
|       | Net sales                          |       | $                                      | 27,287     |   | 100.0 | % | $ | 27,575 |   | 100.0 | % |
|       | Cost of goods  sold                |       | 11,491                                 |       | 42.1 |   | 12,578 |   | 45.6 |   |
|       | Gross profit                       |       | $                                      | 15,796     |   | 57.9 | % | $ | 14,997 |   | 54.4 | % |
|       |                               |       |                                   |       |   |   |   |   |   |   |
|       | Sunglasses and prescription frames |       |                                   |       |   |   |   |   |   |   |
|       | Net sales                          |       | $                                      | 18,119     |   | 100.0 | % | $ | 16,840 |   | 100.0 | % |
|       | Cost of goods  sold                |       | 9,540                                  |       | 52.7 |   | 9,625 |   | 57.2 |   |
|       | Gross profit                       |       | $                                      | 8,579      |   | 47.3 | % | $ | 7,215 |   | 42.8 | % |
|            |                                    |            |                                        |            |  |  |  |  |  |  |  |  |  |

 

 

13

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| ** ** | ** **          | ** ** | **Three Months Ended**                | ** ** |
|------------|---------------------|------------|---------------------------------------|------------|
| ** ** | **Segment**         | ** ** | **March 29, 2008**               | ** ** | **March 31, 2007** | ** ** |
| ** ** | ** **          | ** ** | **(Unaudited, dollars in thousands)** | ** ** |
|       | Costume jewelry     |       |                                  |       |   |   |   |   |   |   |
|       | Net sales           |       | $                                     | 3,395      |   | 100.0 | % | $ | 5,973 |   | 100.0 | % |
|       | Cost of goods  sold |       | 2,603                                 |       | 76.7 |   | 3,443 |   | 57.6 |   |
|       | Gross profit        |       | $                                     | 792        |   | 23.3 | % | $ | 2,530 |   | 42.4 | % |
|       |                |       |                                  |       |   |   |   |   |   |   |
|       | International       |       |                                  |       |   |   |   |   |   |   |
|       | Net sales           |       | $                                     | 10,422     |   | 100.0 | % | $ | 10,761 |   | 100.0 | % |
|       | Cost of goods  sold |       | 3,712                                 |       | 35.6 |   | 3,666 |   | 34.1 |   |
|       | Gross profit        |       | $                                     | 6,710      |   | 64.4 | % | $ | 7,095 |   | 65.9 | % |
|            |                     |            |                                       |            |  |  |  |  |  |  |  |  |  |

 

 

**Three Months Ended March 29, 2008 Compared toThree Months Ended March 31, 2007**

 

*        Net Sales.*    Netsales decreased by $1.9 million, or 3.1%, from $61.1 million in the threemonths ended March 31, 2007 to $59.2 million in the three monthsended March 29, 2008.

 

        Inthe non-prescription reading glasses segment, net sales decreased by$0.3 million, or 1.0%, from $27.6 million in the three months ended March 31,2007 to $27.3 million in the three months ended March 29, 2008.During the three months ended March 31, 2007, we benefited fromapproximately $4.5 million of incremental sales related to a non-prescriptionreading glasses contract with a major customer that was awarded to us at theend of fiscal 2006. The decrease in net sales this quarter was partially offsetby both a new non-prescription reading glasses contract with a new customer andstrong sales at another major customer during the current quarter.

 

        Inthe sunglasses and prescription frames segment, net sales increased by $1.3million, or 7.6%, from $16.8 million in the three months ended March 31,2007 to $18.1 million in the three months ended March 29, 2008. Thisincrease was attributable to new product launches and higher sales volume attwo major customers.

 

        Inthe costume jewelry segment, net sales decreased by $2.6 million, or43.2%, from $6.0 million in the three months ended March 31, 2007 to$3.4 million in the three months ended March 29, 2008. This decreasewas primarily the result of lower sales at a major customer as a result of ourcontinued transition from promotional programs at mass merchandisers to basicreplenishable offerings at mid-tier retailers.

 

Inthe international segment, net sales decreased by $0.4 million, or 3.2%,from $10.8 million in the three months ended March 31, 2007 to$10.4 million in the three months ended March 29, 2008. This decreasewas associated with a non-prescription reading glasses roll-out in the UnitedKingdom that was launched during the three months ended March 31, 2007that was not repeated in the current quarter.

 

*        GrossProfit.*    Gross profit increased $0.1 million, or 0.1%,from $31.8 million in the three months ended March 31, 2007 to $31.9million in the three months ended March 29, 2008. As a percentage of netsales, gross profit increased from 52.1% to 53.8% during the correspondingperiods.

 

        Inthe non-prescription reading glasses segment, gross profit increased by $0.8million, or 5.3%, from $15.0 million in the three months ended March 31,2007 to $15.8 million in the three months ended March 29, 2008. As apercentage of net sales, gross profit increased from 54.4% to 57.9% during thecorresponding periods. The dollar increase in gross profit and the increase ingross profit as a percentage of net sales were primarily due to a greaterproportion of higher margin styles sold to several of our customers during thecurrent quarter as well as favorable cost reductions we have negotiated withour suppliers.

 

        Inthe sunglasses and prescription frames segment, gross profit increased by$1.4 million, or 18.9%, from $7.2 million in the three months ended March 31,2007 to $8.6 million in the three months ended March 29, 2008. As apercentage of net sales, gross profit increased from 42.8% to 47.3% during thecorresponding periods. The dollar increase in gross profit was primarily due tothe increase in net sales. The increase in gross profit as a percentage of net saleswas primarily due to favorable product mix of higher margin styles sold to anew customer in the current quarter. This increase was offset by the expansionof a pallet program at a major customer, which carried lower margin, in thethree months ended March 29, 2008 as compared to the three months ended March 31,2007.

 

        Inthe costume jewelry segment, gross profit decreased by $1.7 million, or68.7%, from $2.5 million in the three months ended March 31, 2007 to $0.8million in the three months ended March 29, 2008. As a percentage of netsales, gross profit decreased from 42.4% to 23.3% during the correspondingperiods. The dollar decrease in gross profit was primarily due to the decreasein net sales. The decrease in gross profit as a percentage of net sales wasprimarily due to higher material costs during the current quarter.

 

        Inthe international segment, gross profit decreased by $0.4 million, or5.4%, from $7.1 million in the three months ended March 31, 2007 to$6.7 million in the three months ended March 29, 2008. As apercentage of net sales, gross profit decreased from 65.9% to 64.4% in thecorresponding periods. The dollar decrease in gross profit was primarily due tothe decrease in net sales. The  decreasein gross profit as a percentage of net sales was primarily due to unfavorableproduct mix of sales in the United Kingdom offset by favorable sales mix inCanada.

 

*        SellingExpenses.*    Selling expenses increased by$1.4 million, or 8.3%, from $17.1 million in the three months ended March 31,2007 to $18.5 million in the three months ended March 29, 2008. As apercentage of net sales, selling expenses increased from 28.0% to 31.3% in thecorresponding periods. The dollar increase in selling expenses was primarilydue to higher depreciation expenses of $0.8 million related to the increasednumber of display fixtures placed in service; higher freight related costs;increased field service costs due to the increased number of customer storelocations; higher quality control testing costs; and incremental personnelcosts to support the growth of the business.

 

*        General andAdministrative Expenses.*    General andadministrative expenses increased by $1.3 million, or 26.1%, from$5.1 million in the three months ended March 31, 2007 to$6.5 million in the three months ended March 29, 2008. As apercentage of net sales, general and administrative expenses increased from8.4% to  10.9% in the correspondingperiods. This increase was primarily the result of costs associated with beinga public company, which included Sarbanes-Oxley implementation costs and otherconsulting costs incurred  in the currentquarter.

 

 

14

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*        Amortizationof Acquired Intangibles.*    Amortization ofacquired intangibles decreased by $0.2 million, or 16.1%, from$1.5 million in the three months ended March 31, 2007 to$1.3 million in the three months ended March 29, 2008. This decreasewas due to certain intangible assets associated with the acquisition ofMagnivision being amortized on an accelerated basis over their economic lives.

 

*Interest Expense.*    Interestexpense decreased $3.7 million, or 67.8%, from $5.5 million in the threemonths ended March 31, 2007 to $1.8 million in the three months endedMarch 29, 2008.  This decrease isprimarily the result of a reduction of long-term debt from proceeds receivedfrom our initial public offering during the fourth quarter of fiscal 2007 andlower interest rates in our new credit facility.

 

*        IncomeTaxes.*    Provision for income taxes was $1.4 million, or37.6%, of income before income taxes and minority interest in the three monthsended March 31, 2007, compared to a provision of $0.5 million, or 20.8%,of income before income taxes and minority interest in the three months ended March 29,2008. The amount  and effective tax ratechange are principally due to a higher proportion of income being derived fromoperations in the U.S. during the current quarter.

 

*        Net Income.*    Forthe reasons described above, our net income increased by $0.3 million, or13.9%, from $1.9 million during the three months ended March 31, 2007to $2.2 million for the three months ended March 29, 2008.

 

**Liquidity and Capital Resources**

 

        Our primary liquidity needsare for working capital, capital expenditures (specifically display fixtures)and debt service. Our primary sources of cash have been cash flow fromoperations, proceeds from our initial public offering and borrowings under ourcredit facility. As of March 29, 2008, we had $4.4 million of cashand cash equivalents and $59.7 million available under our revolvingcredit facility.

 

As a result of our new capital structure andnew credit facility, we believe that our cash flow from operations, availablecash and cash equivalents and borrowings available under our credit facilitywill be adequate to meet our liquidity needs through at least fiscal 2008.However, our ability to make scheduled payments of principal, pay the intereston or refinance our indebtedness or fund planned capital expenditures willdepend on our future performance, which, to a certain extent, is subject togeneral economic, financial, competitive and other factors that are beyond ourcontrol.

 

Our strategy involves making strategic businessacquisitions if and when we believe that they will help grow or otherwiseimprove our business. To the extent we decide to pursue one or moreacquisitions, we may need to incur additional indebtedness or sell additionalequity to finance those acquisitions.

 

*Cash Flows*

 

        Thefollowing table summarizes our cash flow activities for the periods indicated:

 
| ** **                                | ** ** | **Three Months Ended**        | ** ** |
|-------------------------------------------|------------|-------------------------------|------------|
| ** **                                | ** ** | **March 29,  2008** | ** ** | **March 31,  2007** | ** ** |
| ** **                                | ** ** | **(Unaudited, in thousands)** | ** ** |
| Net cash provided by (used in):           |       |                          |       |   |   |
| Operating activities                      |       | $                             | 9,450      |   | $ | 4,930 |   |
| Investing  activities                     |       | (3,990                        | )          | (5,596 | ) |
| Financing  activities                     |       | (5,548                        | )          | (3,828 | ) |
| Effect of exchange rates on cash balances |       | (55                           | )          | 52 |   |
| Decrease in cash and cash equivalents     |       | $                             | (143       | ) | $ | (4,442 | ) |

 

        Wepurchase finished goods from our contract manufacturers in Asia and take titleupon delivery to the freight consolidator. Transit times range from ten to30 days. Our payment terms with our eyewear suppliers range from 30 to120 days, while payment terms with our costume jewelry suppliers rangefrom 30 to 60 days. As a result of increases in our operating cash flow, wehave used cash to fund our receivables and inventories, which have beenpartially offset by increases in accounts payable to our suppliers.

 

*        OperatingActivities.*    Net cash provided byoperating activities increased by $4.5 million from $4.9 million in the threemonths ended March 31, 2007 to $9.5 million in the three months endedMarch 29, 2008.  The increase inoperating cash flow was primarily due to changes in the activity related toaccounts receivable,  inventories,accounts payable and accruals.  Thedecrease in the change in inventories was primarily the result of higher inventorylevels during the three months ended March 31, 2007 to support new businessat a major customer.

 

*        InvestingActivities.*    Net cash used in investingactivities decreased from $5.6 million in the three months ended March 31,2007 to $4.0 million in the three months ended March 29, 2008. Thisdecrease was primarily due to display fixture costs associated with our  supporting new business at a major customer.

 

*        FinancingActivities.*    Net cash used in financingactivities increased by $1.7 million from $3.8 million in the three monthsended March 31, 2007 to $5.5 million in the three months ended March 29,2008. The increase in net cash used in financing activities was primarily dueto our making $5.0 million of payments on our revolving line of credit comparedto $2.0 million of payments in the prior year ago period and $0.5 millionfor  stock repurchases in the currentquarter. This increase was offset by a $1.8 million principal payment on ourlong-term debt in the first quarter of 2007 that was not repeated during the currentquarter.

 

*Capital Expenditures*

 

        Ourcapital expenditures were $4.0 million and $5.6 million for the three monthsended March 29, 2008 and March 31, 2007, respectively. This decreasewas primarily due to display fixture costs associated with supporting newbusiness at a major customer in the prior year quarter. The majority of ourcapital expenditures related to permanent display fixtures, which we provide inour customers’ retail locations.  Wedepreciate our fixtures using an estimated useful life of two to three years.The future timing and volume of such capital expenditures will be affected bynew business, customer contract renewals and replacements of existing fixturesat existing retail customers.

 

 

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Weexpect capital expenditures to range from $16.0 million to$18.0 million in fiscal 2008, which could vary depending on the amount andtiming of new business as well as contract renewals and fixture replacements atexisting customers. At March 29, 2008, we had outstanding commitments forcapital expenditures of $5.2 million relating to permanent displayfixtures. We intend to fund these expenditures primarily from operating cashflow and borrowings under our revolving credit facility.

 

*Credit Facility*

 

        On December 19, 2007,we refinanced our then-existing credit facility. The new facility is comprisedof (a) a $75.0 million revolving credit facility (the “Revolving CreditFacility”), which may be increased with the consent of our existing oradditional lenders by up to an additional $50.0 million; and (b) a $100.0million term loan facility (“Term Loan Facility”). Interest rates forborrowings under the new facility are determined based upon our leverage ratio.Interest rates were initially priced at 1.75% above LIBOR and then range from1.00% to 2.25% above LIBOR for Eurodollar-based borrowings, and from 0.00% to1.25% above the defined base rate for base rate borrowings. The Term LoanFacility is due in 20 consecutive quarterly graduating installments rangingfrom $1.9 million to $8.1 million commencing on March 31, 2008. The TermLoan Facility and the Revolving Credit Facility will mature on December 19,2012. Amounts due under both facilities are collateralized by a pledge of 100%of our tangible and intangible assets. We will also pay commitment  and other customary fees. These commitmentfees will range from 0.20% to 0.50% per annum depending upon our  leverage ratio.

 

As of March 29, 2008, we had outstandingindebtedness of $100.0 million under our Term Loan Facility, $15.0 millionoutstanding under the Revolving Credit Facility and $0.3 million outstandingunder letters of credit. Our borrowing availability thereunder was $59.7million. The interest rate on the Term Loan Facility and the Revolving CreditFacility are at LIBOR plus 1.75% (4.35% as of March 29, 2008).

 

Our credit facility contains covenantslimiting, among other things, mergers, consolidations, liquidations anddissolutions; sales of assets; investments and acquisitions; indebtedness;liens and other encumbrances; dividends and other restricted payments; paymentand modification of material subordinated debt instruments; transactions withaffiliates; changes in fiscal year; negative pledge clauses; restrictions onsubsidiary distributions; sale and leaseback transactions; factoringarrangements and changes in lines of business; and capital expenditures. Ourcredit facility also requires that we comply with leverage ratio and fixedcharge coverage ratio covenants.

 

*Interest Rate Swap Agreement*

 

On March 10, 2008, we entered into aninterest rate swap agreement (the “Swap”) to manage our exposure to floatinginterest rate risk on our Term Loan Facility. The Swap has an initial notionalamount of approximately $49.1 million and is scheduled to decline to reflectcertain scheduled principal payments under the Term Loan Facility. Currently,we are borrowing under the Term Loan Facility at a floating interest rate basedon 3-month LIBOR (plus 1.75% under the terms of our Term Loan Facility) andwill pay under the Swap a fixed interest rate of 3.22% (plus 1.75% under theterms of our Term Loan Facility) through December 19, 2012. The Swap hasbeen designated as a cash flow hedge under SFAS No. 133 and we will recordthe effective portion of any change in the fair value as other comprehensiveincome (loss), net of tax, and reclassify the gains and losses to interestexpense during the hedged interest payment period.

 

**Critical Accounting Estimates**

 

The Company prepared its condensed consolidatedfinancial statement in accordance with accounting principles generally acceptedin the United States of America. As such, management is required to makecertain estimates, judgments and assumptions that it believes are reasonablebased on the information available. These estimates and assumptions affect thereported amounts of assets and liabilities at the date of the condensedconsolidated financial statements and the reported amounts of net sales andexpenses for the periods presented. These critical accounting policies are the sameas those detailed in the Annual Report on Form 10-K for the fiscal yearended December 29, 2007.

 

**Recent Accounting Pronouncements**

 

        In September 2006,the FASB issued SFAS  No. 157, *Fair Value Measurements*(“SFAS No. 157”),which defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles and expands disclosures about fairvalue measurements. SFAS No. 157 is applicable for the Company as of December 31,2007, the first day of fiscal 2008. The FASB issued FASB Staff Position FAS157-b, *Effective Date of FASB Statement No. 157,*which deferred the effective date of the Statement for certain nonfinancialassets and liabilities until fiscal 2009. The impact of the adoption of SFAS157 was not material to the Company’s condensed consolidated financialstatements and the adoption of the items deferred until fiscal 2009 is notexpected to be material.

 

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assetsand Financial Liabilities*(“SFAS No. 159”). SFAS No. 159expands opportunities to use fair value measurements in financial reporting andpermits entities to choose to measure certain financial instruments at fairvalue. SFAS No. 159 was effective for us in the first quarter of 2008. Theadoption of SFAS No. 159 did not have a material impact on our condensedconsolidated balance sheet and results of operations.

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in ConsolidatedFinancial Statements,* (“SFAS No. 160”) which requiresnoncontrolling (minority) interests in subsidiaries to be initially measured atfair value and presented as a separate component of shareholders’ equity.Current practice is to present noncontrolling interests as a liability or otheritem outside of equity. This Statement is required to be applied prospectivelyafter the beginning of fiscal 2009, although the presentation and disclosurerequirements are required to be applied on a retrospective basis. The Companydoes not expect the adoption of SFAS No. 160 to have a material impact onits condensed consolidated balance sheet or results of operations.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities, an amendment of FASB Statement No. 133*(“SFAS 161”), which requires enhanced disclosures about the Company’sderivative and hedging activities. SFAS 161 will be effective as of thebeginning of the Company’s 2009 fiscal year. The Company is currentlyevaluating the impact of the adoption of the enhanced disclosures required byFAS 161.

 

**Off-Balance Sheet Arrangements**

 

Asof March 29, 2008, we did not have any off-balance sheet arrangements, asdefined in Item 303(a)(4)(ii) of SEC Regulation S-K.

 

**ITEM 3.    Quantitative andQualitative Disclosures about Market Risk.**

 

We are exposed to market risk from changes ininterest rates and foreign currency exchange rates, which may adversely affectour results of operations and financial condition.

 

 

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Our exposure to interest rate risk currentlyrelates to amounts outstanding under our revolving and term loan creditfacility. This facility is comprised of a $100.0 million term loan facility anda $75.0 million revolving credit facility. As of March 29, 2008, we had$100.0 million outstanding under the Term Loan Facility and $15.0 millionoutstanding under the Revolving Credit Facility. Both facilities bore interestof 1.75% above LIBOR, or 4.35% at March 29, 2008. A hypothetical change inthe interest rate of 100 basis points would have an effect on our annualresults of operations and cash flows of approximately $1.0 million.

 

On March 10, 2008, we entered into aninterest rate swap agreement (the “Swap”) to manage our exposure to floatinginterest rate risk on our credit facility. The Swap has an initial notionalamount of approximately $49.1 million and is scheduled to decline to reflectcertain scheduled principal payments under the Term Loan Facility. Currently,we are borrowing under the Term Loan Facility at  a floating interest rate based on 3-monthLIBOR (plus 1.75% under the terms of our Term Loan Facility)  and will pay under the Swap a fixed interestrate of 3.22% (plus 1.75% under the terms of our Term Loan Facility)  through December 19, 2012. The Swap hasbeen designated as a cash flow hedge under SFAS No. 133 and we will recordthe effective portion of any change in the fair value as other comprehensiveincome (loss), net of tax, and reclassify the gains and losses to interestexpense during the hedged interest payment period.

 

We are subject to risk from changes in theforeign exchange rates relating to our Canadian and U.K. subsidiaries, and ourMexico joint venture. Assets and liabilities of these entities are translatedto U.S. dollars at period-end exchange rates. Income and expense items aretranslated at average rates of exchange prevailing during the period.Translation adjustments are accumulated as a separate component ofshareholders’ equity. Gains and losses, which result from foreign currencytransactions, are included as other income (expense) in the accompanyingcondensed consolidated statements of income. The potential loss resulting froma hypothetical 10.0% adverse change in the quoted foreign currency exchangerate amounts would not have a material impact on our annual results ofoperations and cash flows.

 

**ITEM 4.    Controls andProcedures.**

 

**(a) Evaluation of Disclosure Controls andProcedures**

 

        Weevaluated the effectiveness of our disclosure controls and procedures, asdefined in the Exchange Act, as of the end of the period covered by thisreport. Alec Taylor, our Chief Executive Officer, and Anthony Di Paola, ourChief Financial Officer, participated in this evaluation. Based upon that evaluation,our Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of the end of the periodcovered by the report.

 

        Ourmanagement, including the Chief Executive Officer and Chief Financial Officer,does not expect that our disclosure controls and procedures or our internalcontrol over financial reporting will prevent all errors and all fraud. Acontrol system, no matter how well designed and operated, can provide onlyreasonable, not absolute, assurance that the objectives of the control systemare met. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within the Company have been detected.

 

**(b) Changes in Internal Control over FinancialReporting**

 

        Asa result of the evaluation completed by our Chief Executive Officer and ChiefFinancial Officer, we have concluded that there were no changes during the fiscalquarter ended March 29, 2008 in our internal control over financialreporting that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART ****II—OTHERINFORMATION**

 

**ITEM 1.    Legal Proceedings.**

 

        In May 2005, CodaGargoyles, LLC, filed a lawsuit in the Supreme Court of the State of New York,County of New York alleging that one of the Company’s subsidiaries madeinsufficient efforts to market products and collect accounts receivable toproduce sufficient revenue to trigger earn-out provisions under the Company’s December 2003purchase agreement relating to the acquisition of the Company’s premium brands,*Anarchy, Angel*and *Gargoyles.*The plaintiffclaimed not less than $2.0million in damages plus interest, attorney’s fees and costs. One of the countsof the plaintiff’s three-count complaint was a claim for breach of an impliedduty of good faith and fair dealing, which was dismissed by the trial court on October 31,2005. The two remaining counts were breach of contract and a demand for anaccounting. Upon completion of mediated settlement discussions, the Companysettled the lawsuit on March 13, 2008. Under the terms of the settlement,the Company paid the plaintiff $0.355 million in exchange for mutual releases of all claims and a dismissal ofthe lawsuit with prejudice. The Company did not admit any liability and enteredinto the settlement to avoid the uncertainty and expense of the lawsuit. TheCompany recorded the settlement costs in the consolidated financial statementsfor the fiscal year ended December 29, 2007.

 

        In February 2007,Sun Optics, Inc. (“Sun Optics”) filed a lawsuit against the Company in theUnited States District Court, Central District of Utah alleging infringement bythe Company of two of their design patents for eyeglass cases and seeking aninjunction, damages, attorneys’ fees and a jury trial. On March 8, 2007,the plaintiff voluntarily dismissed that lawsuit and then re-filed it in theUnited States District Court, District of Delaware on March 8, 2007.Plaintiff promptly sought a preliminary injunction concerning the designpatents. On April 5, 2007, plaintiff moved to amend its pleadings toinclude a count of infringement of a utility patent for an eyeglass display andsought a preliminary injunction concerning the utility patent. On August 2,2007, the plaintiff’s motion to amend was granted, but both motions for apreliminary injunction were denied. On October 26, 2007, plaintiff broughta third motion for preliminary injunction directed to additional products. On April 4,2008, the Company settled the dispute by obtaining a non-exclusive license tothe three Sun Optics patents at issue in the lawsuit and to all other patentsowned or licensed by Sun Optics relating to partially or completely transparenttube cases for eyewear and/or corresponding displays. The Company did not admitany liability and entered into the settlement to avoid the uncertainty andexpense of the lawsuit. The Company paid Sun Optics an initial license fee of$0.054 million and agreed to pay royalties of 5% of net sales of licensedproducts sold on or after January 1, 2008 in exchange for mutual releasesof all claims and a dismissal of the lawsuit with prejudice. The Company hadpreviously accrued for the settlement costs in the consolidated financialstatements for the fiscal year ended December 29, 2007.

 

**ITEM 1A.    Risk Factors**

 

Therehave been no material changes in our Risk Factors from those disclosed in our2007 Form 10-K.

 

**ITEM 2.    Unregistered Salesof Equity Securities and Use of Proceeds.**

 

*Share Repurchase Program*

 

In February 2008, the Board of Directorsof the Company authorized a $12.0 million ordinary share repurchase program for a one-year period or until earlierterminated by the Company’s Board of Directors. During the three months ended March 29,2008, the Company repurchased 42,000 ordinary shares for an aggregate purchaseprice of approximately $0.5 million as illustrated in the table below. Allof the purchases during the quarter were made in the open market andrepurchased shares were returned to the status of authorized and unissued. At March 29,2008, we had approximately $11.5 million of remaining availability under the$12.0 million share repurchase program authorized by the Board of Directors ofthe Company.

 

 

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| **Period**                                         | ** ** | **Total  Number of  Shares  Repurchased** | ** ** | **Average  Price  Paid per  Share** | ** ** | **Total Number of Shares  Purchased as Part  of Publicly  Announced Plans  or Programs** | ** ** | **Approximate Dollar   Value of Shares that May   Yet Be Purchased Under   the Plans or Programs** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|
| December 30,  2007 to   January 26, 2008 |       | —                                                        |       | —                                                  |       | —                                                                                                                      |       | —                                                                                             |       |
| January 27,  2008 to   February 23, 2008 |       | —                                                        |       | —                                                  |       | —                                                                                                                      |       | —                                                                                             |       |
| February 24,  2008 to   March 29, 2008   |       | 42,000                                                        |       | $                                                       | 12.00      |                                                                                                                        | 42,000     |                                                                                               | $          | 11,496,000 |   |
| Total                                              |       | 42,000                                                        |       | $                                                       | 12.00      |                                                                                                                        | 42,000     |                                                                                               | $          | 11,496,000 |   |

 

 

**ITEM 3.    DefaultsUpon Senior Securities.**

 

        Notapplicable.

 

**ITEM 4.    Submission ofMatters to a Vote of  Security Holders.**

 

        None.

 

**ITEM 5.    Other Information.**

 

        None.

 

**ITEM 6.    Exhibits.**

 

 Theexhibits listed in the Exhibit Index following the signature page arefiled herewith.

 

 

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**SIGNATURES**

** **

         Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this Report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 
| May 8,  2008 | **FGX INTERNATIONAL HOLDINGS LIMITED** |
|-------------------|----------------------------------------|
|              | ** **                             |
|              |                                   | ** ** |
|              | By:                                    | /s/  ANTHONY  DI PAOLA |
|              |                                   | Anthony  Di Paola |
|              | Title:                                 | Executive Vice President and Chief Financial  Officer(Principal  Financial and Accounting Officer) |

 

 

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| **Exhibit********Number** | ** ** | **Exhibit Description**                                                                                                 |
|---------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                         |
| 3.2                       |       | Amended  and Restated Articles of Association of the Registrant. (1)                                                         |
|                      |       |                                                                                                                         |
| 10.1                      |       | Employment  Agreement by and among FGX International Inc. and Richard W. Kornhauser,  dated as of January 31, 2008. (2) |
|                      |       |                                                                                                                         |
| 10.2                      |       | Summary  of 2008 Cash Bonus Plan                                                                                             |
|                      |       |                                                                                                                         |
| 31.1                      |       | Section 302  Certification of CEO                                                                                       |
|                      |       |                                                                                                                         |
| 31.2                      |       | Section 302  Certification of CFO                                                                                       |
|                      |       |                                                                                                                         |
| 32.1                      |       | Section 906  Certification of CEO                                                                                       |
|                      |       |                                                                                                                         |
| 32.2                      |       | Section 906  Certification of CFO                                                                                       |

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(1)          Incorporated by reference tothe filing of such exhibit with our Form 8-K filed on April 9, 2008.

 

(2)          Incorporated by reference tothe filing of such exhibit with our Form 10-K filed on March 14,2008.

 

 

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