UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON~~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 Quarter Ended ~~June~~April 30, ~~2004~~2006

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

For the transition period from _______ to _______

Commission file ~~File~~number ~~Number 0~~001-~~7704~~12776

~~REFAC~~ ___________________

~~(Exact~~REFAC OPTICAL ~~name of registrant as specified in its charter)~~GROUP

(Exact Name of Registrant as Specified in Its Charter)

Delaware	13-1681234
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

One Bridge Plaza, Suite 550

Fort Lee, New Jersey 07024-7102

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (201) 585-0600

Indicate by check mark whether the ~~registrant~~Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant ~~registrant~~ was required to file such reports), and (2) has been subject to the ~~such~~ filing requirements for at least the past 90 days. Yes x No o q

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. ~~(as~~See ~~defined~~definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). ~~Yes o No x~~

~~The~~Large accelerated ~~number~~filer ofq Accelerated filer ~~shares outstanding of the Registrant’s Common Stock, par value $.001 per share, as of August 12, 2004 was 6,993,393.~~q Non-accelerated filer x

~~REFAC~~Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes q No x

The number of shares outstanding of the Registrant’s Common Stock, par value $.001 per share, as of June 8, 2006 was 17,856,148.

~~INDEX~~REFAC OPTICAL GROUP

PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Balance Sheets
June 30, 2004 (unaudited) and December 31, 2003	1
Statements of Operations
Six and Three Months Ended June 30, 2004 and 2003 (unaudited)	2
Condensed Statements of Cash Flows
Six Months Ended June 30, 2004 and 2003 (unaudited)	3
Notes to Condensed Financial Statements (unaudited)	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures About Market Risk	19
Item 4. Controls and Procedures	19
PART II. OTHER INFORMATION	20
Item 4. Submission of Matters to a Vote of Security Holders	20
Item 6. Exhibits and Reports on Form 8-K	20

INDEX TO FORM 10-Q

REFAC BALANCE SHEETS (Amounts in thousands, except share and per share data)
PART I. FINANCIAL INFORMATION	1
		June 30, 2004			December 31, 2003
Item 1. Financial Statements	1
		(UNAUDITED)
Condensed Consolidated Balance Sheets (unaudited)
ASSETS
as of April 30, 2006 and January 31, 2006	1
Current Assets
Condensed Consolidated Statements of Income (unaudited) for the
Cash and cash equivalents		$	694		$	799
Three Months Ended April 30, 2006 and 2005	2
Royalties and accounts receivable			419			478
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Notes receivable – current portion			63			302
Three Months Ended April 30, 2006 and April 30, 2005	3
Investments being held to maturity			28,739			28,682
Notes to Condensed Consolidated Financial Statements (unaudited)	4
Income taxes receivable			636			636
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Prepaid expenses and other current assets			874			899
Item 3. Quantitative and Qualitative Disclosures About Market Risk	28
Total current assets			31,425			31,796
Item 4. Controls and Procedures	28
Property and equipment – net			821			777
PART II. OTHER INFORMATION	29
Available for sale securities			1,000			1,000
Item 1. Legal Proceedings	29
Notes receivable			174			205
Item 1A. Risk Factors	29
Deferred incentive compensation			-			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Deferred income taxes and other assets			396			468
Item 6. Exhibits	31
Restricted investments being held to maturity			4,697			4,743
SIGNATURES	32
Total Assets		$	38,513		$	39,023
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses		$	856		$	1,093
Deferred revenue			45			145
Other liabilities			164			198
Total current liabilities			1,065			1,436
Deferred incentive compensation			846			946
Commitments and Contingencies
Temporary Equity			4,697			4,743
Stockholders’ Equity
Common stock, $.001 par value; authorized 20,000,000 shares; issued 7,006,049 as of December 31, 2003 and 7,016,049 as of June 30, 2004			7			7
Additional paid-in capital			22,956			22,742
Retained earnings			9,466			9,673
Treasury stock, at cost, 22,656 shares of common stock, $.001 par value in 2003 and 2004			(159	)		(159	)
Receivable from issuance of common stock			(365	)		(365	)
Total stockholders’ equity			31,905			31,898
Total Liabilities and Stockholders’ Equity		$	38,513		$	39,023

~~See~~PART ~~accompanying~~I ~~Notes~~- toFINANCIAL ~~the condensed financial statements (unaudited).~~INFORMATION

Item 1. - Financial Statements

REFAC OPTICAL GROUP CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands, except share and per share amounts)
	April 30, 2006			January 31, 2006
ASSETS
Current Assets:
Cash and cash equivalents	$	8,260		$	10,129
Accounts receivable, net of allowances for doubtful accounts of $247 and $220 at April 30, 2006 and January 31, 2006, respectively		8,287			10,676
Investments being held to maturity		23,461			24,229
Inventories		20,645			20,205
Prepaid expenses and other current assets		1,039			1,057
Restricted cash and investments being held to maturity		4,223			4,849
Assets held for sale		1,697			2,092
Total current assets		67,612			73,237
Property and equipment, net		33,183			34,544
Licensed optical department agreements		17,107			14,595
Goodwill		6,137			4,746
Other intangibles, net		288			300
Assets held for sale, non-current		8,833			5,384
Other assets		1,299			1,452
Total assets	$	134,459		$	134,258

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	9,184		$	8,627
Accrued expenses		6,514			8,958
Accrued salaries and related expenses		2,018			1,783
Customer deposits		3,552			3,358
Deferred revenue		3,353			3,174
Current portion of capital lease obligations		695			724
Current portion of long-term debt		3,586			4,926
Liabilities of held for sale business		3,390			3,991
Other current liabilities		470			940
Total current liabilities		32,762			36,481

Capital lease obligations, net of current portion		1,214			1,372
Long-term debt, net of current portion		2,826			3,378
Revolving line of credit		12,023			14,983
Subordinated vendor debt		9,000			10,000
Other long-term liabilities		330			389
Minority interest		-			3,956
Temporary equity		4,223			4,849
Stockholders’ equity:
Common stock, $.001 par value; 25,000,000 shares authorized; 18,019,997 and 16,572,558 shares issued; 17,856,293 and 16,484,335 shares outstanding at April 30, 2006 and January 31, 2006, respectively		18			16
Additional paid-in capital		97,374			84,892
Treasury stock, at cost; 163,704 and 88,223 shares at April 30, 2006 and January 31, 2006, respectively		(1,365	)		(738	)
Unearned compensation		-			(89	)
Accumulated deficit		(23,638	)		(24,923	)
Receivable from issuance of common stock		(308	)		(308	)
Total stockholders’ equity		72,081			58,850
Total liabilities and stockholders’ equity	$	134,459		$	134,258

See accompanying notes to the condensed consolidated financial statements (unaudited).

Page 1

REFAC STATEMENTS OF OPERATIONS (Amounts in thousands, except share and per share data) (UNAUDITED)
REFAC OPTICAL GROUP CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Amounts in thousands, except share and per share data)
	SIX MONTHS						THREE MONTHS
	For the Three Months Ended April 30,
	ENDED JUNE 30,						ENDED JUNE 30,
	2006			2005
	2004			2003			2004			2003
Net revenues:
Revenues
Product sales	$	42,550		$	39,949
Licensing-related activities	$	799		$	994		$	461		$	543
Services		5,315			4,680
Related party consulting services		95			-			30			-
Licensing related activities		55			1,795
Total revenues		894			994			491			543
Other		30			390
Costs and Expenses
Total revenues		47,950			46,814
Licensing-related activities		61			57			30			28
Operating expenses:
General and administrative expenses		1,351			2,992			632			873
Cost of product sales		12,708			12,047
Total costs and expenses		1,412			3,049			662			901
Cost of services		2,002			1,746
Other Income and Expenses
Selling, general and administrative		29,192			27,660
Dividend and interest income		196			119			98			60
Merger expense		547			-
Total other income and expenses		196			119			98			60
Depreciation and amortization		1,683			1,623
Loss before benefit for taxes on loss		(322	)		(1,936	)		(73	)		(298	)
Total operating expenses		46,132			43,076
Benefit for taxes on loss		(109	)		(578	)		(34	)		(196	)
Operating income		1,818			3,738
Net loss from continuing operations		(213	)		(1,358	)		(39	)		(102	)
Other income (expense):
Income from discontinued operations - net of taxes		5			28			-			19
Dividends and interest income		310			192
Net loss	$	(208	)	$	(1,330	)	$	(39	)	$	(83	)
Interest expense		(625	)		(621	)
Basic and diluted loss per share:
Income from continuing operations before income taxes and minority interest		1,503			3,309
From continuing operations	$	(0.03	)	$	(0.31	)	$	(0.01	)	$	(0.02	)
Minority interest		245			236
From discontinued operations		-			0.01			-			-
Provision for income taxes		113			35
Net loss	$	(0.03	)	$	(0.30	)	$	(0.01	)	$	(0.02	)
Income from continuing operations		1,145			3,038
Basic weighted average shares outstanding		6,990,811			4,429,875			6,993,393			5,151,811
Income from discontinued operations, net of taxes and minority interest		364			238
Diluted weighted average shares outstanding		6,990,811			4,429,875			6,993,393			5,151,811
Net income	$	1,509		$	3,276
Earnings per share:
Basic:
Continuing operations	$	0.07		$	0.19
Discontinued operations	$	0.02		$	0.01
Total	$	0.09		$	0.20
Diluted:
Continuing operations	$	0.07		$	0.19
Discontinued operations	$	0.02		$	0.01
Total	$	0.09		$	0.20
Weighted average shares outstanding:
Basic		17,533,613			16,491,902
Diluted		17,847,642			16,494,818

See accompanying ~~Notes~~notes to the condensed consolidated financial statements (unaudited).

Page 2

REFAC
REFAC OPTICAL GROUP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
CONDENSED STATEMENTS OF CASH FLOWS
	For the Three Months Ended April 30,
(Amounts in thousands)
	2006			2005
(UNAUDITED)
Cash flows from operating activities:
	Six Months Ended June 30,
Net income	$	1,509		$	3,276
	2004			2003
Adjustments to reconcile net income to net cash provided by operating activities:
Cash Flows from Operating Activities	$	(369	)	$	1,868
Depreciation and amortization		1,713			1,694
Cash Flows from Investing Activities
Non-cash stock-based compensation		134			-
Notes receivable		257			133
Loss on disposal of fixed assets		143			20
Proceeds from investments being held to maturity		33,504			-
Minority interest		277			279
Purchase of investments being held to maturity		(33,515	)		(21,423	)
Other		156			109
Purchase of fixed assets		(126	)		(22	)
Changes in operating assets and liabilities, net of effect of acquisitions:
Net cash provided by (used in) investing activities		120			(21,312	)
Accounts receivable		2,370			205
Cash Flows from Financing Activities
Inventories		(415	)		(1,237	)
Stock issuance costs		-			16,869
Prepaid expenses and other current assets		(158	)		(210	)
Appraisal settlement		-			(187	)
Accounts payable and accrued expenses		(1,468	)		759
Proceeds from exercise of stock options		144			39
Deferred revenue and customer deposits		401			1,361
Net cash provided by financing activities		144			16,721
Assets and liabilities of business held for sale		(91	)		34
Net decrease in cash and cash equivalents		(105	)		(2,723	)
Other current liabilities		(485	)		(398	)
Cash and cash equivalents at beginning of period		799			3,330
Net cash provided by operating activities		4,086			5,892
Cash and cash equivalents at end of period	$	694		$	607
Cash flows from investing activities:
Proceeds from (purchase of) investments being held to maturity		3,993			(1,207	)
Payments received on notes receivable		129			43
Expenditures for property and equipment		(497	)		(985	)
Investments in acquisitions, net of cash acquired		(20	)		(75	)
Proceeds from sale of businesses		-			3,580
Net cash provided by investing activities		3,605			1,356
Cash flows from financing activities:
Net payments on revolving line of credit		(2,225	)		(9,505	)
Principal payments on long-term debt and capital leases		(1,292	)		(2,040	)
Principal payments on subordinated debt		(1,000	)		(75	)
Proceeds from issuance of preferred stock		-			4,445
Proceeds from issuance of common stock		-			528
Proceeds from exercise of stock options		16			-
Purchase of treasury stock		(617	)		-
Net cash used in financing activities		(5,118	)		(6,647	)
Net increase in cash and cash equivalents		2,573			601
Cash and cash equivalents at beginning of period		7,371			4,747
Cash and cash equivalents included in assets held for sale		(1,684	)		(1,436	)
Cash and cash equivalents at end of period	$	8,260		$	3,912
Supplemental disclosure of non cash transaction
Issuance of common stock in exchange for minority interest	$	11,804		$	-

See accompanying ~~Notes~~notes to the condensed consolidated financial statements (unaudited).

Page 3 ~~REFACNOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)~~

~~1. The~~REFAC OPTICAL accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three (3) and six (6) month period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report for the year ended December 31, 2003.GROUP

~~2. On~~NOTES TO ~~January~~CONDENSED ~~27,~~CONSOLIDATED ~~2004,~~FINANCIAL the Company announced that it will focus its acquisition efforts on opportunities in the asset management sector of the financial services industry. The Company also announced that it has engaged a leading provider of executive search services to identify opportunities in this segment and to recruit individuals and/or teams within the industry to join the Company and build this business STATEMENTS (~~See Note 11~~UNAUDITED). In view of the costs associated with this search, the uncertainty as to when, and if, an acquisition will be made, the completion of the amortization of merger-related management incentive compensation during the first quarter, the Company's relocation to new offices at the end of the second quarter, an anticipated decline in income from the Company’s contract with Patlex Corporation and the default and financial distress of one of its key commercial real estate subtenants (see Note 12D) the results for the six months ended June 30, 2004 cannot be considered indicative of the results to be expected for the entire year.

~~3. On~~Note ~~March~~1 ~~28,~~- ~~2003,~~Business ~~the~~and ~~Company~~Summary entered into a stock purchase agreement with its controlling stockholder, Palisade Concentrated Equity Partnership, L.P. (“Palisade”), which closed on May 19, 2003. Pursuant thereto, Palisade acquired an additional 3,469,387 new shares of ~~the~~Significant ~~Company’s~~Accounting common stock, at a price of $4.90 per share, or an aggregate price of approximately $17,000,000. Following the completion of the stock purchase transaction, Palisade’s ownership increased to approximately 90% of the Company’s outstanding shares. The purpose of the stock purchase transaction was to provide the Company with additional capital for making acquisitions.Policies

4Refac Optical Group (formerly known as Refac and together with its subsidiaries, is referred to herein as “we”, “us”, “our”, “Company” or “Refac”) was incorporated in the State of Delaware in 1952. On ~~March~~For 22most of our history, we were engaged in intellectual property licensing activities. During the period from 1997 to 2002, we were also engaged in the ~~Company~~business ~~announced~~of ~~that~~product itdevelopment ~~was~~and graphic ~~repositioning~~design ~~itself~~and ~~for~~had ~~sale~~invested orthese ~~liquidation~~creative resources, together with our licensing skills, in certain product development ventures. ~~Since~~As ~~that~~a ~~date~~result of a corporate repositioning, ~~the~~during ~~Company~~2002, ~~has~~we disposed of ~~its~~our then operating segments with the exception of ~~its~~our licensing business and itwe ~~has~~have limited the operations of that segment to managing certain existing license agreements and related contracts. InFrom ~~accordance~~January ~~with~~27, ~~SFAS~~2004 ~~144~~to March 21, ~~“Accounting~~2005, ~~for~~we focused our acquisition efforts on opportunities in the ~~Impairment~~asset ormanagement ~~Disposal~~sector of ~~Long-Lived~~the ~~Assets~~financial services industry. On March 21, 2005, our Board of Directors (the “Board”) decided to broaden the ~~Creative~~scope ~~Consulting~~of ~~Services~~the acquisition search to include other industries and, ~~Manufacture~~on August 22, 2005, we announced that we had signed merger agreements with two affiliated companies, U.S. Vision, Inc. (“U.S. Vision”), which currently operates 515 retail optical locations in 47 states and ~~Marketing~~Canada, consisting of ~~Consumer~~509 ~~Products~~licensed ~~groups~~departments ~~are~~and ~~included~~6 freestanding stores, and OptiCare Health Systems, Inc. (“OptiCare”), which operates 18 retail optical centers, two surgery centers and through our professional affiliate, OptiCare, P.C., provides professional ophthalmic and optometric services in the ~~statement~~State of ~~operations~~Connecticut and is a managed vision care provider in the United States. These merger transactions closed on March 6, 2006 and, as ~~discontinued~~a ~~operations~~result, ~~net~~Palisade Concentrated Equity Partnership, L.P. (“Palisade”), the controlling stockholder of ~~taxes~~all three companies, asowns ~~they~~approximately ~~have~~89% ~~been~~of ~~sold~~our outstanding ~~pursuant~~common tostock ~~the~~(on ~~Company’s~~a ~~repositioning~~fully diluted basis).

5A. ~~The~~ ~~Company’s~~Interim ~~operations~~Financial in the licensing of intellectual property rights are not considered held for sale because of the Company’s intent to manage certain outstanding licensing-related agreements through their termination. While the Company’s licensing operations are still considered a continuing business, it has not undertaken any new technology licensing projects during the current or preceding five fiscal years and it is highly unlikely that it will undertake any such projects in the future. The statement of operations reflects the results of the licensing of intellectual property rights in its results of continuing operations. Information

~~Page~~The accompanying 4unaudited ~~REFACNOTES~~condensed TOconsolidated ~~CONDENSED~~financial ~~FINANCIAL~~statements ~~STATEMENTS~~have been prepared in accordance with U.S. generally accepted accounting principles (~~UNAUDITED~~“US GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, these condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of our financial position as of April 30, 2006 and January 31, 2006, the results of operations for the three months ended April 30, 2006 and 2005, and cash flows for the three months ended April 30, 2006 and 2005. These condensed consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission (~~Continued~~the “SEC”). Interim results are not indicative of results that may be expected for the full year. Our results of operations are affected by seasonal fluctuations in sales and operating profits with sales and operating profits generally higher in the first fiscal quarter and lower in the fourth quarter.

~~On August 19, 2002, the Company entered into a merger agreement with Palisade, which provided for the merger (the “Palisade Merger”) of a Palisade subsidiary with the Company~~B. OnPrinciples ~~February 28, 2003, the Company’s shareholders adopted the merger agreement, as amended (the “Palisade Merger Agreement”), and the Palisade Merger was consummated. Under the terms~~ of the Palisade Merger, for each share of the Company’s common stock, par value $.10 per share (“Old Refac Common Stock”), owned immediately prior to the effective time of the merger, stockholders (other than Palisade and stockholders who properly exercised appraisal rights) received or are expected to receive (i) $3.60 in cash, (ii) 0.2 shares of common stock, par value $.001 per share (“Common Stock”), and (iii) the non-transferable right (the “Payment Right”) to sell the shares of the Common Stock to the Company for a price (the “Payment Amount”) which depends upon the Company’s liquid distributable assets (“LDA”) as of June 30, 2005. This right to sell the shares is limited to stockholders who held their shares at the completion of the Palisade Merger and continue to hold their shares until the amount of liquid distributable assets at June 30, 2005 is determined.Consolidation

The consolidated ~~Company~~financial ~~has~~statements ~~treated~~include the ~~Palisade~~accounts ~~Merger as a recapitalization for accounting purposes and has adjusted the difference in the par value~~ of the ~~Old~~Company ~~Refac~~and ~~Common~~all affiliated ~~Stock~~subsidiaries and ~~the~~entities ~~Common~~controlled ~~Stock from common stock to additional paid-in capital. Pursuant to the Palisade Merger Agreement, the treasury stock owned~~ by the Company. atAll ~~the~~intercompany accounts ~~effective~~and ~~time~~transactions ofhave ~~the Palisade Merger has~~ been ~~cancelled with a corresponding decrease to the Company’s retained earnings~~eliminated.

As the Payment Right represents a non-transferable right of stockholders to sell to the Company their shares of Common Stock received in the Palisade Merger for cash, the estimated Payment Amount ($7.02 per share as of June 30, 2004) has been reflected on the balance sheet as temporary equity with a similar amount reducing additional paid-in capital. Subsequent changes in the estimated Payment Amount through June 30, 2005, computed on a quarterly basis, will increase or decrease the temporary equity amount with an offsetting decrease or increase in additional paid-in capital.Page 4

~~Pursuant~~REFAC OPTICAL to the Palisade Merger Agreement, the Company has restricted a portion of its investments being held to maturity to maintain the Contingent Fund (as defined in the Palisade Merger Agreement) reserved to pay the Payment Amount. GROUP

~~6. The~~NOTES TO ~~Company~~CONDENSED ~~has~~CONSOLIDATED ~~adopted~~FINANCIAL the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123.” The Statement requires prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company accounts for stock compensation awards under the intrinsic method of Accounting Principles Board Opinion No. 25. Opinion No. 25 requires compensation cost to be recognized based on the excess, if any, between the quoted market price of the stock at the date of grant and the amount an employee must pay to acquire the stock. All options awarded under all of the Company’s plans are granted with an exercise price at least equal to the fair market value on the date of the grant. The following table presents the effect on the Company’s net earnings and earnings per share for the six and three month periods ended June 30, 2004 and 2003 had it adopted the fair value method of accounting for stock-based compensation under SFAS No. 123, “Accounting for Stock-Based Compensation.”STATEMENTS (UNAUDITED)

~~Page~~C. 5Fiscal ~~REFACNOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~Year

	Six Months Ended June 30,						Three Months Ended June 30,
Description	2004			2003			2004			2003
Net loss, as reported	$	(208,000	)	$	(1,330,000	)	$	(39,000	)	$	(83,000	)
Less: Total stock-based employee compensation expense determined under fair value based on methods for awards granted, modified, or settled, net of related tax effect		(67,000	)		(94,000	)		(42,000	)		(62,000	)
Add: Additional compensation expense for modification of non-employee director stock options		-			48,000			-			-
Proforma net loss	$	(275,000	)	$	(1,376,000	)	$	(81,000	)	$	(145,000	)
Loss per share, as reported
Basic	$	(0.03	)	$	(0.30	)	$	(0.01	)	$	(0.02	)
Diluted	$	(0.03	)	$	(0.30	)	$	(0.01	)	$	(0.02	)
Proforma loss per share
Basic	$	(0.04	)	$	(0.31	)	$	(0.01	)	$	(0.03	)
Diluted	$	(0.04	)	$	(0.31	)	$	(0.01	)	$	(0.03	)

On May 10, 2006, the Board approved a change in our fiscal year end from December 31 to January 31. As a result, the quarterly periods for our fiscal year ending January 31, 2007 will be:

~~The~~First Quarter ~~fair~~- ~~value~~February of1, ~~each~~2006 ~~option~~through ~~grant~~April is30, ~~estimated as of the date of grant using the Black-Scholes option-pricing model.~~ 2006

~~7. The~~Second Quarter ~~following~~- ~~table~~May ~~reconciles~~1, ~~the~~2006 ~~numerators~~through ~~and~~July ~~denominators of the basic and diluted earnings per share computations pursuant to SFAS No. 128~~31, ~~“Earnings Per Share.”~~2006

	Six Months Ended June 30,						Three Months Ended June 30,
Description	2004			2003			2004			2003
Basic shares		6,990,811			4,429,875			6,993,393			5,151,811
Dilution: stock options and warrants		-			-			-			-
Diluted shares		6,990,811			4,429,875			6,993,393			5,151,811
Loss from continuing operations	$	(213,000	)	$	(1,358,000	)	$	(39,000	)	$	(102,000	)
Basic loss	$	(0.03	)	$	(0.31	)	$	(0.01	)	$	(0.02	)
Diluted loss	$	(0.03	)	$	(0.31	)	$	(0.01	)	$	(0.02	)

Third Quarter - August 1, 2006 through October 31, 2006

~~There~~Fourth Quarter ~~are approximately 4,533 and 3,801 options excluded from the earnings per share computation for the six and three month periods ended June 30, 2004, respectively, since their effect would be anti~~-~~dilutive.~~ ~~There~~November ~~were approximately 10~~1,~~768~~ ~~and~~2006 ~~2,321~~through ~~options~~January ~~excluded from the earnings per share computation for the six and three month periods ended June 30~~31, ~~2003, respectively, since their effect would be anti-dilutive.~~2007

~~Page~~Prior to the 6change ~~REFACNOTES~~in TOthe ~~CONDENSED~~fiscal ~~FINANCIAL~~year ~~STATEMENTS~~end, ~~(UNAUDITED)~~Refac -and ~~(Continued)~~OptiCare had a fiscal year that ended on December 31 while U.S. Vision’s fiscal year ended on January 31. As a result, the quarterly periods for the fiscal year ending January 31, 2006 reflect the combination of the prior fiscal year quarterly periods of Refac, OptiCare and U.S. Vision as follows:

8. Related Party Transactions

Company	Prior Year Fiscal Periods
Refac and OptiCare	First Quarter - January 1, 2005 through March 31, 2005 Second Quarter - April 1, 2005 through June 30, 2005 Third Quarter - July 1, 2005 through September 30, 2005 Fourth Quarter - October 1, 2005 through December 31, 2005
U.S. Vision	First Quarter - February 1, 2005 through April 30, 2005 Second Quarter - May 1, 2005 through July 31, 2005 Third Quarter - August 1, 2005 through October 31, 2005 Fourth Quarter - November 1, 2005 through January 31, 2006

~~Palisade Capital Management~~The revenues, ~~L.L.C.~~net (~~“PCM”~~loss), ~~the~~income ~~investment~~before ~~manager~~extraordinary ~~for Palisade~~items, ~~on behalf of itself~~ and~~/or~~ ~~portfolio~~net ~~companies~~(loss) income of Refac ~~funds~~and ~~that~~OptiCare ~~it manages, requests, from time to time, that the Company provide certain consulting services. In consideration~~ for ~~these services, PCM pays~~ the ~~Company~~one amonth ~~basic~~period ~~monthly~~ended ~~retainer~~January ~~of $5~~31,~~000~~ ~~subject~~2006 toare ~~quarterly~~as follows ~~adjustment,~~(in by mutual agreement, at the end of each calendar quarter to reflect the services rendered during such quarter. Either party has the right to terminate this agreement at any time without any prior notice. Under this arrangement, the Company has earned $40,000 and $15,000 with respect to services rendered during the six and three month periods ended June 30, 2004, respectively.thousands):

As of February 2004, the Corporation has agreed to provide consulting services directly to Neurologix, Inc., a public company in which PCM beneficially owns approximately 30% of the outstanding capital stock at a basic monthly retainer of $5,000 subject to quarterly adjustment, by mutual agreement, at the end of each calendar quarter to reflect the services rendered during such quarter. Either party has the right to terminate this agreement at any time without any prior notice. Under this arrangement, the Company has earned $55,000 and $15,000 with respect to services rendered during the six and three month periods ended June 30, 2004, respectively.

	Refac			OptiCare
Revenues	$	18		$	2,588
Net (loss) income before extraordinary items	$	(230	)	$	6
Net (loss) income	$	(230	)	$	6

~~Other~~Included in ~~related~~the ~~party~~net ~~transactions include management indebtedness~~ (~~see Note 9~~loss), aincome ~~subleasing~~amounts ~~arrangement~~above ~~with~~are ~~Palisade Capital Securities~~$104,000 ~~LLC (“PCS”), an affiliate of Palisade~~ and ~~PCM~~$68,000 ~~under which it occupied approximately 1,185 gross rentable square feet through June 19, 2004 (see Note 13) and maintenance~~ of ~~brokerage~~merger expenses ~~accounts at PCS~~ for ~~the~~Refac ~~Company’s~~and ~~marketable securities (principally~~OptiCare, Urespectively.~~S. treasury bills being held to maturity).~~

9D. ~~Employment~~ ~~Agreements~~Revenue ~~and Incentive Compensation~~Recognition

~~The~~Licensing-related Activities ~~Company~~- Royalty revenue isfrom ~~party~~our tointellectual anproperty ~~employment~~licensing ~~contract~~activities ~~with~~is ~~its~~recognized ~~President~~when earned ~~and~~in accordance ~~Chief~~with ~~Executive Officer, which became effective upon~~ the ~~completion~~terms of the ~~Palisade~~related ~~Merger, and, as amended and restated, has a term ending on March 31, 2005~~license agreement. ~~During~~Nonrecurring ~~the~~lump ~~term,~~sum ~~the~~payments ~~officer~~that isrepresent ~~entitled~~settlements ~~to an annual base salary~~ of licensing-related ~~$300,000.~~claims ~~Upon~~are ~~completion~~recognized ofwhen the ~~Palisade~~settlements ~~Merger,~~occur ~~the officer received a signing bonus of $800,000~~ and collectibility is ~~entitled~~reasonably ~~to retention payments totaling $500,000 payable in fifteen (15) equal consecutive monthly installments of $33,000 each commencing on January 1, 2004~~assured. ~~In addition, he is entitled to incentive compensation equal to an aggregate of 16% of “GLDA.” “GLDA” is defined in the employment agreement as the sum of the following:~~

·Managed Vision ~~the~~Revenue ~~liquid~~- ~~distributable~~On April 24, ~~assets~~2006, ofwe ~~the~~entered ~~Company~~into asa Stock Purchase Agreement to sell our managed care business to a wholly-owned subsidiary of ~~June~~Centene 30Corporation. Our managed vision care division, ~~2005~~which has been held for sale since January 31, 2006, provides vision care services as ~~calculated~~a preferred provider to health maintenance organizations (“HMOs”), preferred provider organizations, third party administrators and insurance indemnity programs. The contractual arrangements with these entities operate primarily under capitated programs. Capitation payments are accrued when they are due under the ~~Palisade~~related ~~Merger~~contracts ~~Agreement~~at the agreed-upon per-member, ~~plus~~per-month rates. ·Revenue ~~the~~from ~~signing~~non-capitated ~~bonus~~services, ~~retention~~such as fee-for-service and ~~incentive~~other preferred ~~compensation~~provider ~~payments~~arrangements, ~~paid~~is orrecognized ~~payable~~when tothe ~~him~~services are provided and ~~the~~our ~~signing~~customers ~~bonus~~are ~~and~~obligated ~~incentive~~to ~~compensation~~pay ~~payments~~for ~~paid~~such orservices. ~~payable~~For our Direct to Employer ~~the~~managed ~~Company’s~~care ~~Vice~~product, ~~President~~reinsurance aspremiums aare ~~result~~assumed ofratably over the period ~~Palisade~~in ~~Merger,~~which ~~less~~coverages ·are ~~$17,844,000~~provided.

In 1996, the officer exercised options previously granted under the Company’s 1990 Stock Option Plan to purchase 100,000 shares of Old Refac Common Stock. In connection with such exercise, the Company provided the officer with a loan of $375,000 (which was reduced to $365,000 after the Page 5

~~Page~~REFAC OPTICAL ~~7 REFACNOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~GROUP

~~officer~~NOTES TO ~~paid~~CONDENSED ~~back~~CONSOLIDATED ~~$10,000).~~FINANCIAL ~~The note, as modified in March 2002, bears interest at the rate of 6% per annum and is payable in ten~~ STATEMENTS (10UNAUDITED) ~~equal annual installments commencing on December 31, 2004.~~

~~The~~Product Sales ~~Company~~Revenue is- ~~also~~We recognize ~~party~~revenue toon anproduct ~~employment~~sales ~~contract~~at ~~with~~the ~~its~~time ~~Vice~~of ~~President~~delivery ~~and~~to ~~Chief Financial Officer. As amended and restated,~~ the ~~officer’s current employment agreement became effective~~ customer and upon ~~the~~customer ~~completion~~acceptance of the ~~Palisade Merger, and has a term ending on March 31, 2005~~merchandise. ~~During~~Product ~~the~~sales ~~term,~~revenue ~~the~~represents sales ~~officer~~of isoptical ~~entitled~~products to ancustomers ~~annual~~through ~~base salary of $175,000. Upon completion of~~ the ~~Palisade~~retail ~~Merger,~~optical ~~the~~centers ~~officer~~that we ~~received a signing bonus of $314,000~~operate. InFunds ~~addition,~~received hefrom iscustomers ~~entitled~~prior to ~~the~~customer ~~payment~~acceptance ofare considered ~~incentive compensation equal~~ to anbe ~~aggregate~~customer ~~of 4% of “GLDA~~deposits.~~” “GLDA” is determined in the same manner as under the President and Chief Executive Officer’s employment agreement.~~

AsService Revenue a- ~~result~~We provide ofcomprehensive ~~such~~eye ~~amendments~~care services to ~~the employment agreements~~consumers, ~~these~~including ~~officers~~medical ~~received~~and surgical ~~signing~~treatment ~~bonuses~~of ~~aggregating~~eye ~~$1,114,000~~diseases onand ~~February~~disorders ~~28,~~by ~~2003. Additionally~~ophthalmologists, asand ofvision measuring ~~December~~and ~~31,~~non-surgical ~~2003,~~correction ~~the~~services ~~Company~~by ~~estimated that the management incentive compensation payable could aggregate $846,000~~optometrists. AWe ~~deferred~~also ~~asset~~charge a fee ~~which~~for ~~was~~providing ~~originally~~the ~~recorded~~use inof anour ~~amount~~ambulatory ~~equal~~surgery centers to ~~the~~professionals for surgical ~~estimated~~procedures. Revenues ~~incentive~~from ~~compensation~~ophthalmic, ~~payable~~optometric ~~(subject~~and toambulatory surgery ~~quarterly~~centers ~~adjustment)~~services are ~~has~~recorded ~~been~~at ~~amortized~~established ~~over~~rates ~~the~~reduced ~~thirteen~~by ~~month~~an estimate ~~period~~for ~~ending~~contractual ~~March 31, 2004~~disallowances. AnContractual ~~amendment~~disallowances toarise due to the ~~President~~terms ~~and~~of ~~Chief~~certain ~~Executive~~reimbursement ~~Officer’s~~contracts ~~agreement~~with inthird-party ~~November~~payors ~~2003~~that provide ~~extended~~for ~~the~~payments ~~term~~to ~~from~~us ~~March~~at ~~31,~~amounts ~~2004~~different tofrom ~~March~~its ~~31,~~established ~~2005~~rates. The contractual ~~and~~disallowance ~~recast~~represents the ~~payment~~difference ~~schedule~~between ~~for~~ the ~~retention~~charges ~~bonuses.~~at established ~~Such~~rates ~~retention~~and ~~payments~~estimated ~~aggregating~~recoverable ~~$500,000~~amounts ~~which~~and ~~had~~is ~~been~~recognized ~~scheduled~~in tothe period bethe ~~paid~~services ~~prior to March 31, 2004~~ are ~~now~~rendered. ~~payable~~The incontractual ~~fifteen~~disallowance ~~(15)~~recorded ~~equal~~is estimated ~~consecutive~~based ~~monthly~~on ~~installments~~an analysis of ~~$33,000~~collection ~~commencing~~experience ~~January~~in 1,relation ~~2004.~~to Asamounts billed ofand ~~October~~other ~~31,~~relevant ~~2003,~~information. ~~the~~Any ~~Company’s~~differences ~~financial~~between ~~statements~~estimated contractual ~~reflected~~adjustments anand ~~unamortized~~actual ~~balance~~final ~~for~~settlements ~~such~~under ~~retention~~reimbursement contracts ~~bonuses~~are ofrecognized ~~$192,000.~~as ~~Commencing~~adjustments ~~November~~to ~~2003,~~revenue ~~this~~in ~~balance is being amortized over~~ the ~~extended~~period ~~employment~~of ~~agreement~~final settlements. See ~~term~~Note ~~at a monthly amortization of $~~11~~,000~~.

10We have also provided certain marketing, managed care and other administrative services to individual ophthalmology and optometry practices pursuant to agreements, most of which have been terminated or settled as of April 30, 2006. ~~Income~~ ~~Taxes~~This revenue is recognized monthly at the contractually agreed upon fee, based on a percentage of cash collections by the practices or, at the time binding settlement agreements are executed, at the negotiated amounts.

~~Tax~~E. ~~Refund~~Deferred Revenue

~~During 2003,~~ At the time ~~Company received federal income tax refunds~~ of ~~$4,254,000~~an ~~resulting~~eyewear ~~from carrying back a net capital loss incurred in 2002 with respect to its~~ sale ~~of Refac International~~, ~~Ltd.~~some ~~(“RIL”)~~customers ~~and~~purchase ~~its~~a ~~2002~~warranty ~~net~~contract ~~operating~~covering eyewear ~~loss.~~defects ~~Even~~or ~~though~~damage during the ~~Company~~12-month ~~has~~period ~~received~~subsequent ~~these tax refund payments, it remains subject~~ to ~~Internal~~the ~~Revenue Service (“IRS”) audit with respect thereto and, should there be an assessment for any amounts determined to have been erroneously refunded, interest would be payable on~~ date of the ~~amount assessed~~sale. ~~Currently,~~Revenue inrelating ~~accordance with a requirement~~ to ~~examine~~these ~~refund~~contracts ~~claims over $2,000,000, IRS~~ is ~~reviewing~~deferred ~~the~~and ~~Company’s~~classified ~~tax~~as deferred ~~refunds.~~revenue ~~While~~on ~~IRS has advised~~ the ~~Company~~accompanying ~~that~~consolidated ~~its~~condensed ~~review~~balance ~~does not constitute an audit, it can change the scope of its review at any time and can initiate an examination of all open tax years~~sheet. Such revenue Inis ~~connection~~recognized ~~with~~ratably ~~the~~over ~~pending review and~~ the ~~outcome~~life of ~~any audit that IRS may initiate,~~ the ~~Company~~warranty ~~has~~contract ~~established~~(one ~~a reserve of approximately $275,000 as of June 30, 2004~~year). Costs ~~While~~incurred ~~the~~to ~~Company~~fulfill ~~believes that this reserve is adequate, since IRS has not completed its review and~~ the ~~statute~~warranty ofare ~~limitations~~expensed ~~has~~when ~~not passed, no assurances can be given as to the sufficiency of this reserve~~incurred.

~~Income~~F. ~~Tax Provision~~Inventory

~~For the six months ending June 30~~Inventory, consisting ~~2004,~~principally ~~the Company had a loss before taxes from continuing operations~~ of ~~$322,000~~frames and ~~a tax benefit of $109~~lenses,~~000~~ oris ~~approximately~~valued ~~34%~~at ofthe ~~such~~lower ~~loss. This tax benefit consists~~ of ~~a federal income tax carryforward ($243~~cost or market,~~000)~~ ~~offset~~determined by athe ~~decrease~~ first-in, ~~deferred~~first-out ~~taxes during the~~ method.

Page ~~8 REFACNOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~ 6

~~period~~REFAC OPTICAL of $134,000. The effective tax benefit from continuing operations during the six months ended June 30, 2003 was 30% of the pre-tax loss. The effective tax benefit in such period was affected by expenses, principally merger related, that were deducted for financial reporting purposes but are not deductible for federal income tax purposes. GROUP

~~11. Asset~~NOTES TO ~~Management~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~On January 27, 2004, the Company announced that it will focus its acquisition efforts on opportunities in the asset management sector of the financial services industry~~G. The Company also announced that it has engaged a leading provider of executive search services to identify opportunities in this segment and to recruit individuals and/or teams within the industry to join the Company and build this business. The agreement provides for a non-refundable retainer of $300,000, which is payable in four consecutive, equal monthly payments starting on January 27, 2004 and is creditable against a success-based fee based upon the first year total cash compensation of the team members recruited. The amounts paid to the executive search firm were amortized over a five month period beginning February 1, 2004.Investments

~~The~~We categorize ~~Company~~and ~~also~~account ~~granted~~for toour ~~the~~investment ~~principal~~holdings ofas ~~the~~“held ~~search~~to ~~firm~~maturity securities”. ~~an option~~ Held to maturity ~~purchase~~securities are recorded ~~25,000 shares of the Company’s common stock~~ at atheir ~~per~~amortized ~~share exercise price equal to the fair market value of the Company’s common stock on the date of grant of $5~~cost.~~02.~~ ~~The~~This ~~option~~categorization ~~vests~~is based upon ~~the~~our ~~first~~positive intent ~~anniversary date of the closing of the transaction contemplated in the engagement agreement (the "Closing")~~ and ~~shall~~ability ~~have~~to ahold ~~term~~these ofsecurities ~~five~~to ~~years from the date of grant~~maturity. ~~The fair value of the option will be measured using the Black-Scholes option-pricing model as of the Closing and expensed in its entirety as of such date.~~

12H. ~~Business~~ ~~and~~Licensed ~~Asset~~Optical ~~Dispositions~~Department Agreements

ALicensed optical department agreements represent our right to operate optical departments in designated stores of certain retailers. ~~Sale~~ Management anticipates that these licenses will provide substantial benefit for a period of time that extends beyond the ~~Graphic~~foreseeable ~~Design~~horizon. ~~Group~~In addition, we have historically obtained renewals and/or extensions of these licenses without any material modifications to the agreements. Accordingly, these licenses have been determined to have an indefinite life.

~~On November 1, 1999, the Company acquired certain assets and assumed certain liabilities of David Morris Creative, Inc~~I. ~~(the~~Stock “Graphic Design Group”) for $1,525,000 in cash. The excess of the aggregate purchase price over the net tangible assets acquired was allocated to goodwill. As a result of achieving certain earnings targets during the two year period ended December 31, 2001, the Company was required to make a $250,000 contingent purchase price payment to the former shareholder of David Morris Creative, Inc. This payment was accounted for as additional purchase price consideration. The operating results of the Graphic Design Group have been included in the Company’s consolidated financial statements from the date of acquisition to August 1, 2002, the effective date of its sale.Options

InEffective January ~~furtherance~~31, 2006, we adopted FASB Statement of ~~its~~Financial ~~plan~~Accounting toStandards No. ~~reposition~~123 ~~itself~~(revised ~~for~~2004), ~~sale~~“Share-Based orPayment” ~~liquidation~~(“SFAS 123R”), which is ~~the~~a ~~Company~~revision ~~sold~~of ~~certain~~Statement ~~assets,~~of ~~including~~Financial ~~certain~~Accounting ~~accounts~~Standards ~~receivable~~No. 123, “Accounting ~~furniture~~for ~~and~~Stock-Based ~~equipment~~Compensation,” ~~customer~~and ~~lists~~supersedes ~~and~~APB ~~goodwill~~Opinion 25, “Accounting ~~subject~~for Stock Issued to ~~certain~~Employees” ~~liabilities,~~(“APB 25”). SFAS 123R ofrequires that the ~~Graphic~~cost ~~Design~~of ~~Group~~all share-based payments to aemployees, ~~company~~including stock ~~formed~~option bygrants, ~~its~~be ~~president~~recognized ~~and~~in ~~former~~the ~~owner~~financial statements over the vesting period based on their fair values. The ~~transaction~~standard ~~was~~applies ~~effective~~to asnewly ofgranted ~~August~~awards and 1,previously ~~2002~~granted ~~and~~awards ~~the~~that ~~purchase~~are ~~price~~not ~~was~~fully ~~$371,000~~vested ~~consisting~~on the date of aadoption. We ~~lump-sum~~adopted ~~payment~~SFAS ~~due~~123R onusing orthe ~~before~~modified ~~August~~prospective 31method, ~~2002~~which ofrequires that compensation ~~$54,000~~expense ~~and~~be arecorded 6%over ~~promissory~~the ~~note~~remaining service period for ~~$317,000,~~all unvested ~~which~~stock isoptions ~~payable~~beginning in ~~sixty~~the ~~(60)~~first ~~equal~~quarter ~~consecutive~~of ~~monthly~~adoption ~~installments~~ of $6SFAS 123R. Accordingly,~~000~~ ~~commencing~~no ~~January~~prior 1,periods ~~2003.~~have been restated.

As a result ~~part~~ of ~~this~~adopting ~~transaction,~~SFAS as123R ofon ~~July~~January 31, ~~2002~~2006, ~~the~~both ~~employment~~our ~~agreement~~income ~~with~~from continuing ~~the~~operations ~~President~~before ofincome ~~the~~taxes ~~Graphic~~and ~~Design~~minority ~~Group~~interest and ~~stock~~net ~~options~~income for ~~granted~~the tothree ~~him~~months ended April 30, 2006 were $88,700 lower than if we had continued to ~~purchase~~account for share based compensation under APB 25. Both our basic and diluted net income per share for the three months ended April 30,~~000~~ 2006 are ~~shares~~the ofsame as the ~~Company’s~~basic ~~stock~~and ~~were~~diluted ~~terminated~~net income per share if the company had continued to account for share based compensation under APB 25. Also, in ~~consideration~~connection with the adoption of aSFAS ~~lump~~123R, the unearned stock-~~sum~~based compensation ~~payment~~balance of $9689,000. ~~The~~was ~~Company~~reclassified ~~also~~to ~~entered~~additional paid-in capital.

~~Page~~Prior to January 931, ~~REFACNOTES~~2006, TOwe ~~CONDENSED~~accounted ~~FINANCIAL~~for ~~STATEMENTS~~stock ~~(UNAUDITED)~~option grants in accordance with APB 25 and related interpretations. Under APB 25, because the exercise price of the stock options equaled the fair value of the underlying common stock on the date of grant, no compensation cost was recognized. In accordance with SFAS 123, “Accounting for Stock-Based Compensation,” we did not recognize compensation cost based on the fair value of the options granted at the grant date. If we had elected to recognize compensation cost based on the fair value of the options granted at the grant date, net income and net income per share would have been the pro forma amounts indicated in the following table (~~Continued~~amounts in thousands, except per share amounts):

into a sublease with the acquiring company for 3,492 square feet of commercial rentable space. The sublease expires in mid-November 2009, which is co-terminus with the Company’s master lease. As of June 30, 2004, the rent for the remaining term of the sublease was $454,000.Page 7

~~B. Sale~~REFAC OPTICAL ~~of Licensing-Related Assets~~GROUP

OnNOTES TO ~~August~~CONDENSED ~~19,~~CONSOLIDATED ~~2002,~~FINANCIAL ~~Refac International, Ltd.~~ STATEMENTS (~~“RIL”~~UNAUDITED) sold its Gough licensing property and royalties receivable to Gough Holdings (Engineering), Ltd. (“GHE”) for $450,000, payable in five semi-annual installments, without interest, commencing September 30, 2002. GHE paid the first two installments aggregating $140,000 but asked the Company for an accommodation on the $100,000 third installment which was due on September 30, 2003. The Company agreed to accept payment of $30,000 in cash and GHE’s promissory note for the balance of $70,000. This note is payable in seven (7) equal consecutive monthly installments of $10,000 each, with interest at the rate of 10% per annum, with the first installment becoming due on November 1, 2003. In March 2004, GHE approached the Company regarding a lump-sum settlement payment of its obligations. On April 14, 2004, the Company and GHE entered into a discounted payment settlement agreement pursuant to which the Company received $215,000 on April 15, 2004. In connection with this settlement, the Company recorded a loss of $12,000 in the first quarter of 2004.

C. OXO International

	For the Three Months Ended April 30, 2005
Net income - as reported	$	3,276
Pro forma compensation cost, net of taxes		(61	)
Net income - pro forma	$	3,215
Net income per share - as reported:
Basic	$	0.20
Diluted	$	0.20
Net income per share - pro forma:
Basic	$	0.19
Diluted	$	0.19

~~On September 20, 2002, RIL amended its agreement with OXO International (“OXO”), a division of World Kitchen, Inc~~J. ~~This~~Income amendment, which was approved by the court overseeing OXO’s bankruptcy, provided for payments to the Company of $550,000 of which $10,000 was for past due royalties; $180,000 for royalties for the six month period ending December 31, 2002 and $360,000 for royalties for the year ending December 31, 2003. As of February 2004, the $550,000 was paid in full.Taxes

DWe account for income taxes in accordance with SFAS No. ~~Sale~~ 109, “Accounting for Income Taxes” (“SFAS 109”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates to allow for temporary differences between the book and tax bases of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the ~~Product~~deferred ~~Design~~tax ~~Group~~asset will not be realized.

~~On September 20, 2002, RIL sold its Product Design Group to Product Genesis, LLC (“PG”) for a variable purchase price based upon 2½% of net revenues up to an aggregate of $300,000~~K. ~~Due~~Use ~~to the uncertainties~~ of collection of the purchase price, the Company did not allocate any cost basis to this contract right and recorded the $36,000 received in 2003 from PG as income from such discontinued operations. In December 2003, PG notified the Company that it was discontinuing its product design operations and, in January 2004, it advised the Company that it had entered into an agreement with Factors NY, LLC, a company wholly-owned by a former employee of PG, to purchase the goodwill and certain assets of PG. By agreement, dated February 10, 2004, the Company agreed to accept the fixed payment of $30,000, payable in four equal payments during 2004, in full settlement of the contingent balance of the variable purchase price provided for in the purchase agreement pursuant to which the Company sold its product design business to PG. As of June 30, 2004, the Company had received two payments, and no further payments are expected.Estimates

The preparation ~~Company also entered into a sublease with PG for 9,574 square feet~~ of ~~commercial~~financial ~~rentable~~statements ~~space. The sublease expires~~ in ~~mid-November~~conformity ~~2009, which is co-terminus~~ with ~~the~~US ~~Company’s~~GAAP ~~master~~requires management ~~lease.~~to Onmake ~~December~~certain ~~22,~~estimates ~~2003, by lease amendment, the Company released its security interest in PG’s machinery, equipment, furniture, fixtures~~ and ~~chattels~~assumptions ~~located~~that ataffect the ~~leased~~amounts reported ~~premises~~ in ~~consideration of a cash security deposit in~~ the ~~sum~~financial ofstatements ~~$75,000.~~and ~~As of June 30, 2004,~~ the ~~rent~~accompanying ~~for the remaining term of the sublease was $1,363,000~~notes. ~~The~~Actual ~~due~~results could ~~and~~differ ~~timely~~from ~~performance~~those ~~of PG’s obligations under the sublease has~~ estimates.

~~Page~~L. 10Concentration ~~REFACNOTES~~of TOSales ~~CONDENSED~~Under ~~FINANCIAL~~Licensed ~~STATEMENTS~~Optical ~~(UNAUDITED)~~Department ~~- (Continued)~~Agreements

~~been~~Approximately 59% ~~guaranteed~~of byour ~~its~~revenues ~~affiliated~~were ~~companies,~~derived ~~Product~~from ~~Genesis,~~licensed ~~Inc.~~retail ~~and~~optical ~~Product~~departments ~~Genesis~~in one retailer ~~Business~~for ~~Trust~~both (the ~~“PG~~three ~~Affiliates”)~~months ended April 30, 2006 and 2005. ~~PG’s~~Sales ~~sale~~derived from the licensed retail optical departments in another retailer accounted for approximately 11% of total revenues for the ~~business~~same ~~referred~~periods. toApproximately in54% of our accounts receivable were derived from the ~~preceding~~same ~~paragraph~~two ~~does~~retailers ~~not~~at ~~include~~both ~~this~~April 30, ~~sublease~~2006 and PGJanuary ~~intends~~31, to2006. ~~sublease~~A termination of either of these ~~premises~~department license agreements would result in a significant loss of sales and would have a material adverse effect on operating results.

OnApproximately 15% ~~July~~and 6,19% ~~2004,~~of ~~the~~our ~~Company~~revenues ~~was~~for ~~notified~~the bythree amonths ~~representative~~ended ofApril ~~PG that~~30, ~~due~~2006 toand ~~extreme financial hardship~~2005, respectively ~~neither~~were PGderived ~~nor~~from ~~the~~being PGa ~~Affiliates~~participating ~~will~~provider beof ~~able~~managed tocare benefits ~~pay~~primarily ~~the~~through ~~July~~Cole ~~2004~~Managed ~~rent~~Vision (“CMV”), a national orvision ~~any~~care ~~further~~program ~~rent~~operated orby bea ~~further~~subsidiary ~~bound~~of byLuxottica ~~the~~Group ~~sublease~~S.p.A (“Luxottica”), an operator ~~Based~~of ~~upon~~retail ~~the~~optical ~~prevailing~~stores ~~real~~and ~~estate~~a ~~market~~competitor ~~conditions,~~of ~~the~~both ~~Company~~U.S. ~~has~~Vision ~~been~~and OptiCare. ~~advised~~U.S. ~~that~~Vision’s itparticipating ~~could~~provider ~~take~~agreement ~~six~~with toCMV ~~nine~~terminates ~~months~~on December or31, ~~longer~~2008 toand ~~sublease~~there ~~the~~is ~~premises~~no ~~and~~assurance that ~~the~~CMV, ~~real~~Luxottica ~~estate~~or ~~market~~U.S. ~~rental~~Vision will ~~rate~~be iswilling ~~substantially~~to ~~below~~renew or extend the ~~rent~~agreement. ~~that~~During PGthe ~~was~~term ~~paying.~~of ~~The~~the ~~Company~~current agreement, U.S. Vision cannot ~~make~~become a participating provider in any ~~assurance~~other managed ~~regarding~~vision ~~such~~network ~~sublease~~without orthe ~~any~~permission ~~terms~~of ~~thereof~~CMV.

~~E. Sale of RIL~~ Page 8

OnREFAC OPTICAL September 30, 2002, the Company completed the transfer of the assets and assumption of the liabilities of its subsidiary, RIL, to the Company, excluding the capital stock of Refac Consumer Products, Inc. (“RCP”), a manufacturer of a line of consumer electronics products, and certain trademarks, patents and a patent application relating to RCP’s business. After such transfer, the Company sold RIL to RCP Products, LLC, a limited liability company established by a former employee, for $50,000 plus a variable purchase price based upon 2½% of the revenues received in excess of $1,000,000 from the sale of its consumer electronics products during the eight year period commencing January 1, 2003, up to a maximum of $150,000 in any given year and a cumulative total of $575,000. Due to the uncertainties of collection of the purchase price, the Company has not allocated any cost basis to this contract right and will record any monies that it may receive from RCP Products, LLC with respect thereto as income from such discontinued operations. As of June 30, 2004, the Company had not received any variable purchase price payments and based upon information provided by the purchaser, it does not expect to receive any such payments in the future.GROUP

~~13. Leaseholds~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In January ~~May 1999~~2006, ~~the~~Luxottica ~~Company~~announced ~~relocated~~that ~~its~~it ~~corporate~~was ~~offices~~integrating ~~and~~its ~~creative~~EyeMed ~~studio~~Vision Care and toCMV ~~newly~~into ~~constructed~~one ~~leased~~managed ~~facilities~~vision incare ~~Edgewater, New Jersey~~company. ~~This~~As ~~lease~~a ~~expires on November 16~~result, ~~2009~~the ~~and~~number ~~provides~~of ~~for~~CMV plans ~~two~~has ~~successive~~been, ~~five-year~~and ~~renewal~~is ~~options.~~continuing Into ~~October 2001~~be, ~~the~~reduced ~~Company~~which ~~subleased a portion of its Edgewater facility~~has, ~~together~~and ~~with~~will ~~furniture~~continue to, ~~for~~adversely anaffect ~~annualized~~the ~~payment~~amount of ~~$270,000~~our ~~through~~revenues ~~May~~derived ~~2005.~~from Inthis ~~connection~~managed ~~with~~vision care ~~the~~relationship. ~~sale~~During of the ~~Company’s~~quarter ~~Graphic~~ended ~~Design~~April ~~Group~~30, ~~the~~2006, ~~Company~~managed ~~also~~vision care sales ~~entered~~were ~~into~~approximately a$1.7 ~~sublease~~million, ~~with~~or ~~the~~19.2%, ~~acquiring~~below ~~company~~the amount recorded for the ~~3,492~~comparable ~~square~~period ~~feet~~in ~~of commercial rentable space~~2005. ~~The~~We ~~sublease~~are ~~expires~~encouraged inby ~~mid-November~~our ~~2009,~~current ~~which~~dialogue ~~is co-terminus~~ with Luxottica ~~the~~to ~~Company’s~~find ~~master~~an ~~lease.~~amicable Asresolution of ~~June~~this ~~30,~~matter: ~~2004,~~however ~~the~~no ~~rent~~assurances can ~~for~~be ~~the~~given ~~remaining~~that ~~term~~we ofwill ~~the~~be ~~sublease~~able ~~was~~to ~~$454,000.~~reach Insuch ~~connection~~resolution ~~with~~on ~~the~~terms ~~sale~~acceptable to of the Company’s. ~~Product~~If ~~Design~~we ~~Group,~~are ~~the~~unable ~~Company~~to ~~entered~~reach ~~into~~an aacceptable ~~sublease~~resolution ~~with~~to ~~the~~this matter ~~acquiring~~with ~~company for 9~~Luxottica,~~574~~ ~~square~~we ~~feet~~will ofseek ~~commercial~~other ~~rentable~~agreements ~~space.~~and ~~The~~alternatives ~~sublease~~to ~~expires~~replace or inminimize ~~mid-November~~the ~~2009,~~lost ~~which~~managed isvision ~~co-terminus~~care ~~with~~revenues ~~the~~and ~~Company’s~~evaluate ~~master~~our ~~lease~~legal remedies. AsHowever ofno ~~June~~assurance ~~30,~~can ~~2004,~~be ~~the~~given ~~rent~~that ~~for~~we ~~the~~will ~~remaining~~be ~~term~~able ofto ~~this~~enter ~~sublease~~into other ~~was~~agreements ~~$1,363,000.~~or ~~See~~find ~~Note~~suitable ~~12D regarding the abandonment of the premises by the acquiring company~~alternatives.

InThere have ~~February~~been ~~2003,~~no ~~the~~other ~~Company~~material ~~and~~changes ~~its~~in ~~landlord~~our ~~amended~~risk ~~the~~factors ~~master~~from ~~lease~~those todisclosed in our ~~reduce~~Annual ~~the~~Report ~~rentable~~on ~~square~~Form ~~footage~~10-K byfor ~~9,757 square feet and~~ the ~~aggregate~~year ~~rent~~ended ~~payable~~December ~~over the remaining term of the lease by $840~~31,~~000~~ 2005. ~~Taking this amendment into account, the annual rent due under the lease in 2004 and thereafter is $446,000 subject to a maximum cost of living increase of 2.5% per annum.~~

~~Page~~M. ~~11 REFACNOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)~~Reclassifications

~~The~~Certain prior Company relocated its corporate office on May 1, 2003 to Fort Lee, New Jersey where it occupied approximately 1,185 gross rentable square feet under a sublease with PCS, an affiliate of PCM, at a monthly rent of $3,000. As of June 11, 2004, the Company commenced possession under a direct lease with the landlord for larger space in this building encompassing 4,751 gross rentable square feet. The Company completed its move into such premises as of June 19, 2004. At such time, its sublease with PCS was terminated. The new lease expires on June 30, 2009 and provides for a five-year ~~renewal~~amounts ~~option.~~have ~~The~~been ~~expected~~reclassified ~~rent for the entire term of the sublease is $677,000, subject~~ to ~~escalations.~~conform ~~Under the lease, the Company was required~~ to ~~pay $55,000 toward~~ the ~~construction~~current offinancial statement ~~the premises~~presentation.

~~14. Wrench~~Note ~~versus~~2 ~~Taco~~— ~~Bell~~Palisade ~~Litigation~~Merger

ByOn February 28, ~~Agreement~~2003, ~~dated~~we ascompleted ofa ~~January~~merger ~~31,~~with ~~2002,~~a ~~the~~wholly-owned ~~Company~~subsidiary ~~and Ms. Arlene Scanlan~~of Palisade, ~~who~~which ~~was~~is ~~then~~referred ~~President~~to ofherein ~~Refac~~as ~~Licensing,~~the ~~Inc. (~~“RLPalisade Merger”),. Under the ~~agreed~~terms ~~to a termination~~ of ~~her~~the ~~employment~~Palisade ~~agreement~~Merger, ~~and~~for ~~stock~~each ~~options~~share ~~and to a conveyance~~ of ~~her~~our ~~19%~~common ~~interest~~stock, inpar ~~RL to the Company~~value $.10 per ~~This~~share ~~termination~~(“Old Refac ~~agreement~~Common ~~also~~Stock”), owned immediately ~~requires~~prior ~~Ms. Scanlan~~ to ~~pay~~ the ~~Company~~effective ~~50%~~time of the ~~first $3~~merger,~~000,000~~ ~~that~~stockholders ~~she,~~(other than Palisade orand ~~any~~stockholders ~~entity~~who ~~controlled~~properly byexercised ~~her,~~appraisal ~~may~~rights) ~~receive~~received or were ~~relating~~expected to areceive ~~certain lawsuit against Taco Bell Corp~~(i) $3.,60 ~~entitled~~in ~~Wrench LLC~~cash, ~~Joseph Shields and Thomas Rinks v~~(ii) 0.2 shares ~~Taco Bell Corp. which was filed in the United States District Court for the Western District~~ of common ~~Michigan. On June 4~~stock, ~~2003,~~par ~~the~~value ~~jury awarded~~ $~~30,000,000~~.001 per toshare ~~the plaintiffs and~~(“Common Stock”), ~~on September 30, 2003,~~ and (iii) the ~~Court~~non-transferable ~~amended~~right (the ~~judgment~~ “Payment Right”) to sell ~~include~~the ~~pre-judgment~~shares ~~interest~~ of ~~$12,000,000. Based upon Ms. Scanlan’s interest in this judgment, when and if~~ the ~~judgment~~common isstock ~~paid,~~to ~~the~~us ~~Company~~at ~~would~~a beprice ~~entitled to the maximum~~ of $~~1,500,000~~8.29 ~~While~~per ~~YUM!~~share ~~Brands, Inc.~~ (the “~~YUM~~Payment Amount”),. This right ~~which~~to ~~owns~~sell ~~Taco~~the ~~Bell,~~shares ~~has~~was ~~recorded~~limited ato ~~charge~~stockholders ofwho ~~$42,000,000~~held ontheir itshares at the ~~books,~~completion itof ~~maintains that~~ the ~~plaintiff’s~~Palisade ~~claims~~Merger ~~are without merit~~ and ~~has~~continued ~~appealed the verdict~~ to ~~the~~hold ~~Sixth~~their ~~Circuit~~shares ~~Court~~until August 8, of2005, ~~Appeals. Due to~~ the ~~uncertainty~~date asthat to the ~~ultimate~~calculation ~~outcome~~ of ~~this litigation,~~ the ~~Company~~Payment ~~has~~Amount ~~not accrued any income with respect thereto~~was finalized.

~~Page~~We have treated 12the ~~REFACMANAGEMENT'S~~Palisade ~~DISCUSSION~~Merger ~~AND~~as ~~ANALYSIS~~a OFrecapitalization ~~FINANCIAL~~for ~~CONDITION~~accounting ~~ANDRESULTS~~purposes OFand have ~~OPERATIONS~~adjusted the difference in the par value of the Old Refac Common Stock and the common stock from common stock to additional paid-in capital. Pursuant to the Palisade Merger Agreement, the treasury stock that we owned at the effective time of the Palisade Merger was cancelled with a corresponding decrease to our retained earnings.

~~Item~~As the Payment 2.Right ~~Management’s~~represents ~~Discussion~~a ~~and~~non-transferable ~~Analysis~~right of ~~Financial~~stockholders ~~Condition~~to ~~and~~sell ~~Results~~to us their shares of ~~Operations~~common stock received in the Palisade Merger for cash, the Payment Amount has been reflected on the balance sheet as temporary equity with a similar amount reducing additional paid-in capital. Subsequent changes in the estimated number of shares still having this Payment Right will be computed on a quarterly basis through September 30, 2006. Based upon same, we will decrease the temporary equity amount with an offsetting increase in additional paid-in capital.

~~Results~~Pursuant to the Palisade Merger Agreement, we have restricted a portion of ~~Continuing~~our ~~Operations~~cash and investments being held to maturity to maintain the Contingent Fund (as defined in the Palisade Merger Agreement) reserved to pay the Payment Amount. As at January 31, 2006 and April 30, 2006, this amount is shown as a short-term asset on the balance sheet as the exercise period, as extended by us, for the Payment Right expires on September 30, 2006.

Revenues from continuing operations for the six months ended June 30, 2004 were $894,000 as compared to revenues of $994,000 for the same period in 2003. Revenues from licensing-related activities decreased by $195,000, in the six month period ended June 30, 2004, mostly related to the fact that the Company’s agreement with OXO International terminated at the end of 2003 (See Note 12C to the condensed financial statements). This property accounted for $180,000 of the Company’s licensing-related revenues in the first half of 2003. Partially offsetting the decline in licensing-related revenues was an increase in consulting income of $95,000. Page 9

~~Revenues~~REFAC OPTICAL from continuing operations for the three months ended June 30, 2004 were $491,000, as compared to revenues of $543,000 for the same period in 2003. Revenues from licensing-related activities decreased by $82,000 in the second quarter of 2004 primarily due to OXO. This property accounted for $82,000 of the Company’s licensing-related revenues in the second quarter of 2003. Partially offsetting the decline in licensing-related revenues was an increase in consulting income of $30,000.GROUP

~~Revenues~~NOTES TO ~~from~~CONDENSED ~~continuing~~CONSOLIDATED ~~operations~~FINANCIAL ~~for the six and three months are summarized as follows:~~STATEMENTS (UNAUDITED)

	For the Six Months Ended June 30,						For the Three Months Ended June 30,
Description	2004			2003			2004			2003
Licensing-related activities		89	%		100	%		94	%		100	%
Related party consulting services		11	%		-			6	%		-
Total		100	%		100	%		100	%		100	%

As of April 30, 2006, stockholders holding an aggregate of 141,000 shares have exercised their Payment Rights. Any Contingent Fund amounts related to Payment Rights that are not properly exercised on or before September 30, 2006 will become unrestricted.

~~With~~Note ~~the~~3 ~~sale~~— ofAcquisition ~~the Heli-Coil, Dodge and Gough licensing properties in 2002 and the termination~~ of its agreement with OXO in December 2003, the Company’s significant remaining licensing property is its agreement with Patlex Corporation (“Patlex”). The Company’s income from its contract with Patlex is variable and is based upon revenues derived by Patlex from the licensing of two laser patents. The more significant of the two patents licensed by Patlex Corporation is the Gas Discharge Laser Patent (U.S. ~~Patent~~Vision ~~No. 4,704,583), which expires in November 2004. The other patent is the Brewster’s Angle Patent (U.S. Patent No. 4,746,201) which expires in May 2005. While the amount of the income is uncertain~~ and Patlex has not provided the Company with any projections, the Company currently estimates that it will have revenues of approximately $1,000,000 in 2004. Given the expiration of the Gas Discharge Patent in November 2004 and the Brewster’s Angle Patent in May 2005, the Patlex income will significantly decline in 2005 as this program winds down. Other license agreements are expected to provide gross revenues of approximately $220,000 during each of 2004 and 2005, respectively, after which such gross revenues will decrease significantly.OptiCare

~~Page~~On March 6, 132006, ~~REFACMANAGEMENT'~~we completed our acquisitions of U.S. Vision ~~DISCUSSION~~and OptiCare ~~AND~~and ~~ANALYSIS~~changed OFour ~~FINANCIAL~~name ~~CONDITION~~to ~~ANDRESULTS~~Refac OFOptical ~~OPERATIONS~~Group to better reflect our new businesses. Prior to the completion of these transactions, the Company, OptiCare and U.S. Vision were all controlled by Palisade, which owned approximately 91%, 88% and 84% (on fully diluted basis), of the Company, U.S. Vision and OptiCare, respectively. Since Palisade had a controlling interest in each entity, the acquisitions are deemed to be a combination of entities under common control and have been accounted for in a manner similar to a pooling of interests, which required that the historical financial statements be restated retrospectively. As of April 30, 2006, Palisade owns approximately 89% of our outstanding shares on a fully diluted basis.

~~Expenses~~In connection ~~from~~with the ~~licensing~~acquisition of ~~intellectual~~OptiCare, ~~property~~Palisade ~~rights~~received ~~consist~~approximately 0.0403 shares ~~principally~~of our Common Stock for each share of ~~amounts~~OptiCare ~~paid~~common stock owned by it immediately prior to ~~licensors~~the attransaction ~~contractually~~and ~~stipulated~~preferred ~~percentages~~stockholders received 0.0403 shares of ~~the~~our ~~Company’s~~Common ~~licensing~~Stock ~~revenues~~for ~~and,~~each ~~expenses~~share ~~related~~of OptiCare common stock issued to ~~the~~them ~~administration~~upon conversion of ~~the~~OptiCare ~~license~~preferred ~~rights~~stock. ~~and~~All other ~~related~~shares ~~licenses.~~of ~~These~~OptiCare ~~expenses~~common ~~increased~~stock byoutstanding ~~$4,000~~immediately ~~for~~prior to the transaction ~~six~~were ~~months~~converted ~~ended~~into ~~June~~the ~~30,~~right ~~2004~~to receive 0.0472 shares Asof aour Common ~~percentage~~Stock. ofIn ~~licensing~~the ~~revenues~~U.S. Vision transaction, ~~these~~U.S. Vision ~~expenses~~stockholders received ~~were~~0.4141 shares 7of our Common Stock for each share of U.6%S. Vision ~~and~~common 5stock.7% inUpon ~~2004~~completion of the transactions, 4,532,000 and ~~2003~~6,409,000 ~~respectively.~~shares ~~Expenses~~of ~~related~~our toCommon ~~the~~Stock ~~licensing~~were ofissued ~~intellectual~~to ~~property~~OptiCare ~~rights~~and U.S. Vision ~~increased~~shareholders, byrespectively, $2and,~~000~~ ~~for~~as ~~the~~of ~~three~~April ~~months~~30, ~~ended~~2006 ~~June~~we 30had 17,856,293 ~~2004~~shares outstanding.

~~General~~The acquisition ~~and~~of ~~administrative~~the ~~expenses~~non-Palisade ~~decreased~~interest byin ~~$1,641,000~~OptiCare inand ~~the~~U.S. ~~six~~Vision ~~month~~was accounted ~~period~~for ~~ended~~as ~~June~~the ~~30,~~acquisition ~~2004~~of asminority ~~compared~~interest toat ~~the~~fair ~~previous~~value ~~year~~and purchase price accounting was applied. ~~This~~The ~~reduction~~purchase isprice ~~primarily~~of $11,804,000 was determined based upon the ~~result~~number of ~~the~~Refac ~~absence~~shares ingiven to the ~~first~~former ~~half~~OptiCare ofand ~~2004~~U.S. Vision ofshareholders ~~certain~~in ~~non-recurring~~exchange ~~expenses~~for ~~that~~their ~~were~~equity ~~incurred~~interest in the ~~first~~respective entities. ~~half~~The ofvalue ~~2003,~~assigned ~~such~~to asthe ~~merger-related~~Refac ~~costs~~shares ofwas ~~$484,000~~the ~~and~~value ~~accelerated~~at ~~depreciation~~which ofthe shares ~~leasehold~~were ~~improvements~~trading ~~associated~~on ~~with~~August a22, ~~reduction~~2005, of the ~~Company’s~~date ~~leased~~on ~~premises~~which inthe ~~Edgewater,~~details ~~New~~of ~~Jersey~~the share ofexchange ~~$273,000,~~were agreed to and aannounced. ~~decrease~~The purchase price in ~~management~~excess ~~incentive~~of the historical ~~compensation~~recorded value of ~~$931,000.~~the net assets was allocated as follows (in thousands):

General and administrative expenses were $241,000 lower in the second quarter of 2004 as compared to 2003. This reduction is primarily the result of the absence in the second quarter of 2004 of certain non-recurring expenses that were incurred in the second quarter of 2003, such as merger-related costs of $55,000 and accelerated depreciation of leasehold improvements associated with a reduction of the Company’s leased premises in Edgewater, New Jersey of $91,000, and a decrease in management incentive compensation of $277,000 offset by the amortization of $180,000 in executive search firm retainer fees.

	U.S. Vision		OptiCare
Licensed Optical Department Agreements	$	2,512	$	-
Managed Care Contracts		-		640
Managed Care Software		-		159
Goodwill		-		4,251
	$	2,512	$	5,050

~~Dividend~~The value assigned ~~and~~to ~~interest~~the ~~income~~managed ~~increased~~care ~~by $77~~contracts,~~000~~ ~~for~~managed ~~the~~care ~~six~~software ~~month~~and ~~period ended June 30~~$2,877,000 of goodwill ~~2004~~was asassigned ~~compared~~ to the ~~previous~~Managed ~~year~~Vision ~~primarily~~reporting asunit aand ~~result~~is ofincluded in assets ~~the purchase of additional investments being~~ held tofor ~~maturity~~sale ~~with~~on ~~cash proceeds from~~ the ~~realization~~April ~~of income tax refunds and Palisade’s investment of approximately $17~~30,~~000,000~~ in2006 ~~May 2003~~balance sheet.

Income Taxes - For the six months ending June 30, 2004, the Company had a loss before taxes from continuing operations of $322,000 and a tax benefit of $109,000 or approximately 34% of such loss. This tax benefit consists of a federal income tax carryforward ($243,000) offset by a decrease in deferred taxes during the period of $134,000. The effective tax benefit from continuing operations during the six months ended June 30, 2003 was 30% of the pre-tax loss. The effective tax benefit in such period was affected by expenses, principally merger related, that were deducted for financial reporting purposes but are not deductible for federal income tax purposes. Page 10

~~During~~REFAC OPTICAL 2003, the Company received federal income tax refunds totaling $4,254,000 resulting from carrying back a net capital loss incurred in 2002 with respect to its sale of Refac International, Ltd. (“RIL”) and its 2002 net operating loss. Even though the Company has received these tax refund payments, it remains subject to Internal Revenue Service (“IRS”) audit with respect thereto and, should there be an assessment for any amounts determined to have been erroneously refunded, interest would be payable on the amount assessed. Currently, in accordance with a requirement to examine refund claims over $2,000,000, IRS is reviewing the Company’s tax refunds. While IRS has advised the Company that its review does not constitute an audit, it can change the scope of its review at any time and can initiate an examination of all open tax years. In connection with the pending review and the outcome of any audit that IRS may initiate, the Company has established a reserve of approximately $275,000 as of June 30, 2004. While the Company believes that this reserve is adequate, since IRS has not completed its review and the statute of limitations has not passed, no assurances can be given as to the sufficiency of this reserve.GROUP

~~Page~~NOTES TO 14CONDENSED ~~REFACMANAGEMENT'S~~CONSOLIDATED ~~DISCUSSION AND ANALYSIS OF~~ FINANCIAL ~~CONDITION ANDRESULTS OF OPERATIONS~~STATEMENTS (UNAUDITED)

AsFor the three ofmonths ~~June~~ended April 30, ~~2004~~2006, ~~the~~we ~~Company~~incurred ~~had deferred tax assets relating to the State of New Jersey aggregating~~ $~~362~~547,000 of ~~which~~merger ~~$240~~expenses,~~000~~ primarily ~~is attributable to New Jersey net operating loss carryforwards of $789~~legal,~~000~~ ~~and~~accounting ~~$1,882,000 in 2004~~ and ~~2003~~consulting, ~~respectively, which can be applied against any New Jersey taxable income the Company might earn during the seven year period after the year~~ in ~~which~~connection ~~such~~with ~~carryforward was recognized for tax purposes. The Company is currently focusing its acquisition efforts in~~ the ~~asset management sector of the financial services industry, and at this point, it cannot determine whether this business will generate any New Jersey taxable income~~ acquisitions. Due to such uncertainty, the Company has estimated that only $12,000 of its New Jersey related deferred taxes assets will be realized and has established a valuation allowance to cover the $350,000 difference. The need for a valuation allowance will continue to be reviewed periodically and adjusted as necessary.

AsNote of4 ~~June~~— ~~30,~~Long-Term 2004, the Company had federal deferred tax assets aggregating $967,000 of which $272,000 is attributable to federal net operating loss carryforwards of $790,000 and $11,000 in 2004 and 2003, respectively, which can be used during the twenty year period after the year in which such carryforward was recognized for tax purposes. No valuation allowance has been taken for the Company’s federal deferred tax assets. The need for a valuation allowance will continue to be reviewed periodically and adjusted as necessary.Debt:

~~Results~~The details of ~~Discontinued~~our ~~Operations~~ long-term Indebt ~~furtherance~~are ofas ~~its~~follows ~~plan to reposition itself for sale or liquidation, the Company sold its Creative Consulting Services and Manufacture and Marketing of Consumer Products groups~~ (in ~~the~~thousands): third quarter of 2002. Income from discontinued operations in 2003 was principally attributable to the receipt of variable purchase price payments in connection with the sale of the Company’s Product Design Group. The Company received $15,000 in 2004 from the acquiror of its Product Design Group, and no further payments are expected.

Liquidity and Capital Resources

	April 30, 2006		January 31, 2006
Senior term loan with Commerce Bank, N.A., which requires monthly interest payments at 8% and quarterly principal payments based on a graduated schedule ranging from $400 to $925 with the final payment due in October 2006. The loan is secured by substantially all assets of U.S. Vision.	$	2,177	$	3,102
$17.5 million revolving line of credit with Commerce Bank, N.A., which expires on October 31, 2007. Interest is payable monthly at the lower of prime plus 150 basis points, or 30-day LIBOR plus 375 basis points (8.75% at April 30, 2006). The rate cannot drop below 5.5%. The revolving line of credit is secured by liens on substantially all assets of U.S. Vision.		12,023		14,983
Revolving credit note to CapitalSource Finance LLC, due January 25, 2007. The note bears interest at a rate equal to Citibank, N.A.'s prime rate plus 1.5% (9.25% at April 30, 2006) and cannot drop below 6.0%. The note is secured by liens on substantially all of the assets of OptiCare. See Note 12.		1,063		509
Term note payable to CapitalSource, due January 25, 2006. Monthly principal payments of $25 with balance due at maturity. See Note 12.		-		1,425
Vendor I (of U.S. Vision) subordinated note due November 2007. Requires quarterly interest payments at 6.0%. The entire principal balance is due on November 1, 2007.		4,000		4,000
Vendor II (of U.S. Vision) subordinated note requires quarterly interest payments at 6%. The entire principal balance is due on January 31, 2009.		2,000		3,000
Former Vendor III (of U.S. Vision) subordinated note due January 2008. Requires quarterly interest payments at 6%. The entire principal balance is due on January 31, 2008.		3,000		3,000
Other		3,172		3,268
		27,435		33,287
Less: current portion		3,586		4,926
	$	23,849	$	28,361

Cash and cash equivalents decreased by $105,000 from $799,000 at December 31, 2003 to $694,000 at June 30, 2004. Available for sale securities and investments being held to maturity increased by $57,000 from $29,682,000 at December 31, 2003 to $29,739,000 at June 30, 2004. Page 11

~~Operations~~REFAC OPTICAL used $369,000 of cash during the six months ended June 30, 2004 whereas during the same period in 2003 operations provided $1,868,000 of cash principally from the realization of part of the income tax refund due to the Company. GROUP

~~Investing~~NOTES TO ~~activities~~CONDENSED ~~provided~~CONSOLIDATED ~~$120,000~~FINANCIAL of cash principally from the payment of notes receivable during the six months ended June 30, 2004 whereas during the same period in 2003 investing activities used $21,312,000 of cash principally from purchases of investments being held to maturity.STATEMENTS (UNAUDITED)

~~Page~~The Senior 15Term ~~REFACMANAGEMENT'~~Loan and the Revolving Credit Agreement between U.S. ~~DISCUSSION~~Vision ~~AND~~and Commerce ~~ANALYSIS~~Bank, OFN.A. ~~FINANCIAL~~(“Commerce”) contains ~~CONDITION~~various ~~ANDRESULTS~~financial OFcovenants ~~OPERATIONS~~including maintaining a specified net worth level, current ratio, and a leverage ratio. U.S. Vision was in compliance with these covenants at April 30, 2006. The Senior Term Loan and the Revolving Line of Credit restricts the declaration and payment of dividends or any distributions to us and limits U.S. Vision’s total capital expenditures to $7 million in any fiscal year. The Senior Term Loan and the Revolving Credit Agreement contains a subjective acceleration provision whereby Commerce can declare a default upon a material adverse change in U.S. Vision’s business operations. We do not believe that any such conditions exist.

~~Net~~Pursuant to ~~cash~~the ~~provided~~Amended byand ~~financing~~Restated ~~activities~~Revolving ~~was $144~~Credit,~~000~~ ~~during~~Term ~~the~~Loan ~~six~~and ~~months~~Security ~~ended~~Agreement (“CapitalSource Loan ~~June~~Agreement”) between 30OptiCare and CapitalSource LLC (“CapitalSource”), as amended on August 16, 2004, ~~from~~August ~~the~~27, ~~exercise~~2004 and January 12, 2005, OptiCare has a revolving credit facility equal to 85% of ~~stock~~its ~~options~~eligible asaccounts ~~compared~~receivable and 55% of eligible inventories. The loan bears interest at a rate equal to Citibank, ~~the~~N.A.’s ~~same~~prime ~~period~~rate inplus ~~2003~~1.5% ~~when~~(but ~~$16~~not less than 6.0%),~~721~~ is secured by substantially all of OptiCare’s assets and matures on January 25,~~000~~ ~~was~~2007. ~~provided~~The CapitalSource ~~primarily~~Loan ~~from~~Agreement ~~Palisade~~contains certain restrictions on the conduct of OptiCare’s ~~investment~~business including, among other things, restrictions on incurring debt, purchasing or investing in the ~~Company~~securities of, ~~approximately~~or ~~$17~~acquiring any other interest in,~~000~~ all or substantially all of the assets of any person or joint venture,~~000~~ indeclaring ~~May~~or ~~2003~~paying any cash dividends or making any other payment or distribution on our capital stock, and creating or suffering liens on our assets.

~~The~~If OptiCare ~~Company~~terminates ~~believes~~the ~~its~~CapitalSource ~~liquidity~~revolving ~~position~~credit isfacility ~~adequate~~prior to ~~meet all of its current operating needs and existing obligations. However~~ maturity, it is ~~currently~~required ~~focusing~~to ~~its~~pay ~~acquisition~~CapitalSource ~~and~~a ~~business~~prepayment ~~development~~penalty ~~efforts on opportunities in the asset management sector~~ of ~~the financial services industry and~~$450, ~~at this stage~~000. Additionally, if the ~~Company~~revolving ~~cannot~~credit ~~predict~~facility ~~what~~is ~~acquisition~~prepaid orpursuant ~~business~~to ~~development~~a refinancing ~~opportunities~~with ~~will~~another ~~become~~commercial ~~available~~financial toinstitution, it ~~and~~must pay CapitalSource the ~~amount~~greater of ~~capital~~$450,000 ~~resources~~or ~~that~~the ~~may~~Yield beMaintenance ~~required~~Amount to(as defined ~~take advantage of any such opportunities~~therein). ~~The~~See ~~Company~~Note ~~does not have any long-term debt and has not established any acquisition-related lines of credit~~12.

~~The~~U.S. Vision ~~Company’s~~has ~~portfolio~~long-term ofsupply ~~investments~~agreements ~~being~~with ~~held~~Vendor I toand ~~maturity~~II ~~consists~~above, ~~primarily~~which require of U.S. ~~treasury~~Vision ~~bills~~to ~~bought~~purchase ~~with~~certain anamounts ~~original~~of ~~maturity~~products offrom ~~six~~these ~~months~~vendors at ormarket ~~less~~rates. ~~The~~These ~~portfolio~~supply isagreements ~~invested~~expire inon ~~short-term~~the ~~securities~~same todate ~~minimize~~that ~~interest~~the subordinated ~~rate~~notes ~~risk~~are due and ~~facilitate rapid deployment in support of~~ the ~~Company’s~~subordinated ~~acquisition~~notes ~~plans.~~provide ~~The Company’s available~~ for ~~sale~~the ~~securities consist~~ extension of ~~variable~~the ~~cumulative~~due ~~preferred~~date ~~stock~~to ~~from~~match athe ~~single~~term ~~issuer~~of ~~with~~any aextension ~~dividend~~of ~~rate~~the ~~which~~supply ~~is determined by an auction method every forty-nine days~~agreement.

~~Pursuant to the Palisade Merger Agreement~~On March 24, ~~the Company has restricted $4~~2006,~~697,000~~ ofU.S. ~~its~~Vision ~~investments~~and ~~being~~Vendor ~~held~~II toagreed ~~maturity~~ to ~~maintain~~amend the ~~Contingent Fund (as defined in the Palisade Merger Agreement). This amount is being shown as a~~ long-term ~~asset~~supply agreement ~~on the balance sheet as the Payment Right is not determinable~~ and ~~payable~~subordinated ~~until after June 30, 2005~~note. ~~This~~Pursuant ~~right~~ to ~~sell~~this ~~the~~amendment, ~~shares~~we ispaid ~~limited~~Vendor II $1 tomillion ~~stockholders~~thereby ~~who~~reducing ~~held their shares at~~ the ~~completion~~principal ~~of the Palisade Merger and continue to hold their shares until the~~ amount ofdue ~~liquid~~Vendor ~~distributable~~II ~~assets~~under ~~at June 30, 2005 is determined. Since~~ the subordinated ~~Company~~note ~~does~~from ~~not~~$3 ~~have~~million ~~direct access~~ to ~~stockholder~~$2 ~~trading~~million. ~~information~~In return, ~~the~~a ~~Company~~claim ~~has~~for ~~not~~interest in ~~reduced~~excess ~~the~~of ~~Contingent~~6% ~~Fund.~~per ~~The~~annum ~~Contingent~~was ~~Fund~~waived ~~will~~and ~~be adjusted if~~ the ~~Company~~maturity ~~becomes aware~~ of ~~any actual sales of Common Stock issued in connection with~~ the ~~merger.~~note Aswas ofextended from ~~June~~April 30, ~~2004,~~2007 ~~the~~to ~~price~~January of31, ~~the~~2009. ~~Payment~~The ~~Right~~note ~~was~~provides ~~estimated~~that toVendor beII ~~$7.02~~can declare ~~per~~a ~~share~~default and accelerate the ~~closing~~maturity ~~price~~date ofshould ~~Common Stock was $4~~U.~~80 per share~~S. ~~Any~~Vision ~~Contingent Fund amounts which are not paid pursuant~~ fail to purchase ~~the~~$2.2 ~~procedure~~million inof the ~~Palisade~~Vendor’s ~~Merger~~merchandise ~~Agreement~~during ~~will~~any ~~become~~fiscal ~~unrestricted~~year onof ~~or about August 15, 2005~~the Company.

The Company has commitments under leases covering its facilities (see Note 13 to the condensed financial statements) and under a 1996 Retirement Agreement with its founder and former chief executive officer, which provides an annuity of $100,000 per annum during his life as well as medical and health benefits for him and his spouse during their lives. Provision was made for amounts payable under the Retirement Agreement in the Company’s 1996 financial statements based upon his then life expectancy. As of December 31, 2003, such liability was fully amortized. During the first half of 2004, such amounts payable have been expensed.Page 12

~~Page~~REFAC OPTICAL ~~16 REFACMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS~~GROUP

~~The~~NOTES TO ~~following~~CONDENSED ~~table~~CONSOLIDATED ~~represents~~FINANCIAL ~~the Company’s future material, long-term contractual obligations as of June 30, 2004:~~STATEMENTS (UNAUDITED)

	Payments Due By Period
Contractual Obligations	Total		Less than one year		1 - 3 years		3 – 5 Years		More than 5 years
Operating Lease Obligations	$	3,193,000	$	581,000	$	1,161,000	$	1,172,000	$	279,000
Management Incentive Compensation (see Note 9)	$	1,146,000		300,000		846,000		-		-

Due to Vendor III’s insolvency and inability to give U.S. Vision adequate assurance of performance of its obligations, U.S. Vision maintains that this Vendor has repudiated its supply agreement. While it has been able to purchase its requirements for this product category from other vendors, U.S. Vision intends to hold this vendor accountable for any damages caused by its breach.

~~Critical~~The carrying ~~Accounting~~amounts ~~Policies~~of our debt approximate their fair values based on the nature of these accounts, and the fact that the interest rate embedded in the long-term debt agreements was consistent with current market rates for debt with similar attributes.

~~Pursuant to the terms~~ Maturities of ~~the~~long-term ~~Palisade~~debt ~~Merger, the Company’s projected “Liquid Distributable Assets” (as defined in the Palisade Merger Agreement and referred to herein as “LDA”) is required~~ for ~~the~~each ~~calculation~~ of the ~~Payment~~next ~~Right,~~five ~~and~~years ~~the related Contingent Fund~~ and ~~temporary~~thereafter ~~equity~~are ~~account~~ as well as the management incentive compensation accrual. This calculation of LDA is dependent upon management’s judgments and estimates as to the amount of cash that the Company realizes by June 30, 2005 with respect to certain assets of the Company at the time of the Palisade Merger, the utilization of certain tax attributes and operating results from the time of the Palisade Merger through June 30, 2005. Management continually revises these estimates based on changes follows (in ~~actual~~thousands): results as they occur. The LDA is reviewed quarterly and adjusted to reflect any material changes in the estimate. Any changes in the LDA will also change the related Payment Right, Contingent Fund and management incentive compensation accrual.

New Accounting Pronouncements

Period Ended April 30,		Amount
2007	$	3,586
2008		21,234
2009		204
2010		2,411
2011		-
	$	27,435

InNote ~~May~~5 ~~2003,~~— ~~the~~Income FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 does not have a current effect on the Company’s financial statements. Taxes:

~~FORWARD~~As of December ~~LOOKING~~31, ~~STATEMENTS~~2005, Refac has federal net operating loss carryforwards of $1.0 million, which will begin to expire in the year 2022 and can be used by Refac, OptiCare and U.S. Vision. OptiCare has federal net operating loss carryforwards of $14.5 million, which will begin to expire in the year 2020 and are limited to use by OptiCare and its subsidiaries. As of January 31, 2006, U.S. Vision had federal net operating loss carryforwards of approximately $40.7 million, which will begin to expire in the year 2006 and are limited to use by U.S. Vision and its subsidiaries. Approximately $30.3 million of these carryforwards are subject to section 382 limitations due to prior changes in ownership. Approximately $732,000 will become available for use each year through the year 2022. Management has recorded a 100% valuation allowance against net deferred tax assets as we believe that it is more likely than not that the benefit of the operating losses will not be realized. The need for a valuation allowance will be reviewed periodically and adjusted as necessary.

~~This~~The difference ~~document~~between ~~includes certain statements of~~ the Company’s ~~that~~effective ~~may~~tax ~~constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended,~~ and ~~Section 21E of~~ the ~~Securities~~taxes ~~Exchange~~computed ~~Act~~at ~~of 1934, as amended, and which are made pursuant to~~ the federal ~~Private~~statutory ~~Securities~~tax ~~Litigation~~rate ~~Reform~~is ~~Act~~due ~~of 1995. These forward-looking statements and other information relating~~ to the ~~Company~~utilization ~~are based upon the beliefs~~ of ~~management~~net ~~and~~operating ~~assumptions made by and information currently available to the Company~~loss carryforwards. ~~Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, or performance, as well as underlying~~

~~Page~~Note 176 ~~REFACMANAGEMENT'S~~— ~~DISCUSSION~~Earnings ~~AND~~per ~~ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS~~Share:

·Basic earnings ~~the~~per ~~inability~~share to(“EPS”) was computed ~~identify~~by ~~suitable~~dividing ~~acquisition opportunities in~~ the ~~asset~~net ~~management~~income ~~sector~~for of the ~~financial~~three ~~services~~months ~~industry~~ended ~~and/or~~April ~~teams~~30, ~~within the industry to join the Company~~ 2006 and ~~build~~2005, ~~this business; · the outcome of the current IRS review of the Company’s tax refunds aggregating $4~~respectively,~~254,000~~ ~~and~~by the ~~possibility~~weighted ~~that~~average ~~IRS~~number ~~can elect to change the scope~~ of ~~the~~common review and/or audit other open tax years and determine that all or a material part of the refunds received in 2003 were erroneously refunded; · the failure to realize currently projected income from the Company’s remaining licensing properties; · changes in the interest rate environment; · general economic conditions may be less favorable than expected; and · changes may occur in the securities marketsshares outstanding.

Other factors and assumptions not identified above could also cause the actual results to differ materially from those set forth in the forward-looking statements. Although the Company believes these assumptions are reasonable, no assurance can be given that they will prove correct. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results. Further, the Company undertakes no obligation to update forward-looking statements after the date they are made or to conform the statements to actual results or changes in the Company’s expectations. Page 13

REFAC OPTICAL GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Diluted EPS was computed by dividing the net income for the three months ended April 30, 2006 and 2005, respectively, by the weighted average number of common shares outstanding, plus all common share equivalents. Diluted EPS takes into consideration the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

The reconciliations of basic to diluted weighted average shares outstanding are as follows (amounts in thousands):

	For the Three Months Ended April 30,
	2006		2005
Basic shares		17,534		16,492
Dilution: stock options and warrants		314		3
Diluted shares		17,848		16,495

Excluded from the earnings per share computations for the three months ended April 30, 2006 and 2005 are 186,012 and 422,000 out of the money options, respectively.

Note 7

— Segment Information

We have aggregated our business units into two reportable segments: Eye Care Centers & Professional Services and Licensed Optical Departments. These operating segments are managed separately, offer separate and distinct products and services, and serve different customers and markets. Discrete financial information is available for each of these segments and our management assesses performance and allocates resources among these two operating segments.

The Eye Care Centers & Professional Services segment sells retail optical products to consumers and operates integrated eye health centers and surgical facilities where comprehensive eye care services are provided to patients. The Licensed Optical Departments segment is a retailer of optical products and services principally through licensed departments within national and regional department and other chain stores.

In addition to its reportable operating segments, our “All Other” category includes other non-core operations and transactions, which do not meet the quantitative thresholds for a reportable segment.

Page 14

REFAC OPTICAL GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Summarized financial information concerning our reportable segments is shown in the following table (in thousands):

	For the Three Months Ended April 30,
	2006		2005
Revenues:
Eye Care Centers & Professional Services	$	8,335	$	7,664
Licensed Optical Departments		39,530		36,965
Reportable Segment Totals		47,865		44,629
All Other		85		2,185
Total Net Revenues	$	47,950	$	46,814

	For the Three Months Ended April 30,
	2006			2005
Segment Income:
Operating Income:
Eye Care Centers & Professional Services	$	460		$	228
Licensed Optical Departments		2,448			2,339
Total Reportable Segment Operating Income		2,908			2,567
All Other		(1,090	)		1,171
Dividends and Interest		310			192
Interest Expense		(625	)		(621	)
Income from Continuing Operations Before Income Taxes and Minority Interest	$	1,503		$	3,309

Page 15

REFAC OPTICAL GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	April 30, 2006		January 31, 2006
Total Assets:
Eye Care Centers & Professional Services	$	14,298	$	12,831
Licensed Optical Departments		79,203		78,800
Reportable Segment Totals		93,501		91,631
All Other		30,428		35,151
Discontinued Operations		10,530		7,476
	$	134,459	$	134,258

Note 8

— Commitments and Contigencies

OptiVest, LLC v. OptiCare Health Systems, Inc., OptiCare Eye Health Centers, Inc. (“OEHC”) and Dean Yimoyines was filed in the Superior Court, Judicial District of Waterbury, Connecticut on or about January 14, 2002. Plaintiff is a Connecticut limited liability corporation that entered into an Asset Purchase Agreement for certain of OptiCare’s assets for $11,000,000, subject to a reduction if the working capital, as of the closing date, was less than $4,500,000. OptiCare believes it properly terminated the Asset Purchase Agreement based upon Plaintiff’s failure to obtain a financing commitment and to close within the time parameters of the asset Purchase Agreement. Plaintiff claims that it incurred expenses in investigating the purchase of assets under the Asset Purchase Agreement and that OptiCare misled Plaintiff with respect to OptiCare’s financial condition. Furthermore, Plaintiff alleges that OptiCare breached terms of the Asset Purchase Agreement and engaged in innocent misrepresentation, negligent misrepresentation, intentional and fraudulent misrepresentation and unfair trade practices with respect to the Asset Purchase Agreement. As a result of the foregoing, Plaintiff claims to have suffered damages. Plaintiff seeks specific performance of the Asset Purchase Agreement and an injunction prohibiting OptiCare from interfering with concluding the transactions contemplated by the Asset Purchase Agreement.

By an Arbitration Agreement, dated as of January 30, 2004, the parties have agreed to arbitrate the controversy before a single arbitrator. In connection with the arbitration, on March 29, 2006, Plaintiff submitted a report claiming that its damages are no less than $15,440,000. OptiCare believes that Plaintiff’s claims are without merit and that OptiCare has meritorious defenses to Plaintiff’s claims. Due to the possibility that the arbitrator might have a conflict of interest following our merger with OptiCare, we asked him to recuse himself and the arbitration was terminated. We now expect plaintiff to commence a new civil action in the Superior Court, Judicial District of Waterbury, Connecticut.

We believe that there are no other material pending legal proceedings or threatened claims to which the Company or any of its subsidiaries is a party or of which any of our properties are subject. However, from time to time we face litigation exposure for existing and potential claims. These claims primarily relate to intellectual property matters, the manufacture and sale of medical devices, disputes with our distributors and employment matters.

Note 9

— Wrench versus Taco Bell Litigation

By Agreement, dated as of January 31, 2002, the Company and Ms. Arlene Scanlan, who was then President of Refac Licensing, Inc. (“RL”), agreed to a termination of her employment agreement and stock options and to a conveyance of her 19% interest in RL to us. This termination agreement required that Ms. Scanlan pay us 50% of the first $3,000,000 that she received relating to a certain lawsuit brought by a former licensing client of RL against Taco Bell Corp. On January 27, 2005, the lawsuit was settled and on February 4, 2005 we received payment of $1,500,000, representing our share of the settlement. This amount was recorded as revenue from licensing related activities in the quarter ended April 30, 2005.

Page 16

REFAC OPTICAL GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10

— Discontinued Operations

We close nonperforming stores in the ordinary course of business. The decision to close stores is primarily based on the cash flows generated by each respective store. Therefore, upon the closing of the store, we treat the operating results of that store as a discontinued operation in those instances where the Company is unable to transfer its business to another store.

On January 31, 2006, the Board of Directors of OptiCare approved a plan to sell OptiCare's managed vision business and, on April 24, 2006, OptiCare entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with a wholly-owned subsidiary of Centene Corporation (“Centene”). Pursuant to the Stock Purchase Agreement, Centene will acquire the managed vision business of OptiCare, which contracts with insurers, employer groups, managed care plans, HMOs and other third-party payors to manage claims payment and other administrative services of eye health benefits for those contracting parties (the “Managed Vision Business”). Excluded from the sale is a managed care contract that accounted for revenues of $113,500 in 2005.

Centene has agreed to pay $7,500,000 for the Managed Vision Business, subject to a minimum net worth requirement of $500,000 at closing and certain other adjustments. Net worth was defined to mean assets (excluding intangible assets) minus liabilities, determined in accordance with US GAAP. The Stock Purchase Agreement also provides for an escrow agreement, whereby $1,000,000 of the sales proceeds of the managed vision business will be held for 12 months following the closing in connection with OptiCare's indemnification obligations under the Stock Purchase Agreement. Such obligations are generally subject to a cap on liability of $1,000,000, subject to certain exceptions, which we have guaranteed.

The assets to be sold include the OptiCare trademarks, corporate name, domain names and e-mail address subject to a license agreement under which OptiCare will have a perpetual, royalty-free, exclusive right and license, with certain rights to sublicense, for use of the marks solely within the States of Connecticut, Massachusetts, Rhode Island, Maine, New Hampshire and Vermont and solely in connection with OptiCare’s consumer vision business.

Accordingly, the results of operations of the managed vision business are reflected as a discontinued operation in all periods presented.

Page 17

REFAC OPTICAL GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Operating results (exclusive of interest expense) from discontinued operations are as follows (in thousands):

	For the Three Months Ended April 30,
	2006		2005
Product sales	$	224	$	856
Managed vision		6,002		6,352
Total net revenues		6,226		7,208
Operating expenses:
Cost of product sales		74		268
Cost of services		3,960		4,669
Selling, general, and administrative expenses		1,828		2,033
Income from discontinued operations	$	364	$	238

Note 11

— Related Party Transactions

Palisade Capital Management, L.L.C. (“PCM”), the investment manager for Palisade, on behalf of itself and/or portfolio companies of funds that it manages had requested, from time to time, that we provide certain consulting services. In consideration for these services, we earned $21,000 with respect to services rendered during the quarter ended April 30, 2005.

Pursuant to employment agreements entered into on April 1, 2005, our General Counsel and Chief Financial Officer may enter into separate arrangements for their own account with Palisade and/or any of its affiliated companies that are engaged in private equity or investment management pursuant to which they may become a member, partner, officer, director or stockholder of such entity or may provide consulting or professional services thereto provided that such activities do not materially interfere with the regular performance of their duties and responsibilities under such employment agreements. Given this arrangement, we have not provided any services to PCM after the quarter ended March 31, 2005 and do not expect to do so in the future, unless such services can be rendered by employees other than such officers.

From February 2004 to July 2005, we provided consulting services directly to Neurologix, Inc., a public company in which PCM beneficially owned more than 10% of the outstanding capital stock. Under this arrangement, we earned $23,000 during the three month period ended April 30, 2005.

OptiCare incurred rent expense of $264,000 and $265,000 during the three months ended April 30, 2006 and 2005, respectively. Such amounts were paid to entities in which Dean J. Yimoyines, M.D., a member of our Board and the Chief Executive Officer of OptiCare and its professional affiliate, OptiCare, P.C., had an interest, for the lease of facilities. OptiCare believes that these leases reflect the fair market value of and contain customary terms for leased commercial real estate in the geographic area where they are located.

Page 18

~~Item~~REFAC OPTICAL ~~3. Quantitative and Qualitative Disclosures About Market Risk~~GROUP

AsNOTES TO ofCONDENSED ~~June~~CONSOLIDATED ~~30,~~FINANCIAL 2004, the Company had investments held to maturity including restricted investments held to maturity of $33,436,000 primarily consisting of U.S. treasury bills with original maturities at the date of purchase of six months or less. These highly liquid investments are subject to interest rate and interest income risk and will decrease in value if market interest rates increase. Because the Company has the positive intent and ability to hold these investments until maturity, it does not expect any decline in value of its investments caused by market interest rate changes. As of June 30, 2004, the Company also had $1,000,000 in variable cumulative preferred stock from a single issuer with a dividend rate which is determined by an auction method every forty-nine days. Given the nature of this security, the Company does not believe the principal amount of this investment is subject to material risk. Declines in interest rates over time will, however, reduce our interest or dividend income. The Company has no derivative instruments, debt, or foreign operations. It does not use derivative financial instruments in its investment portfolio. STATEMENTS (UNAUDITED)

~~Item~~OptiCare’s subsidiary, 4OptiCare Eye Health Centers, Inc. ~~Controls~~(“OEHC”), is party to a Professional Services and ~~Procedures~~Support Agreement (the “PSSA”) with OptiCare, P.C. Dr. Yimoyines is the sole nominee stockholder of OptiCare, P.C. and its President and Chief Executive Officer pursuant to an Employment Agreement terminable “at will” by OptiCare, P.C. and on 180 days prior written notice by Dr. Yimoyines. The agreement provides for an annual salary of $245,000 plus certain fringe benefits. Pursuant to the PSSA, OptiCare, P.C. employs medical personnel and performs all ophthalmology and optometry services at our facilities in Connecticut. OEHC selects and provides the facilities at which the services are performed and provides all administrative and support services for the facilities for which OptiCare, P.C. provides medical personnel and performs its ophthalmology and optometry services. OEHC bills and receives the payments for the services rendered by the medical personnel of OptiCare, P.C. and OptiCare, P.C. pays its physicians compensation for such medical services rendered.

~~Evaluation~~In January 2002, Palisade purchased 2,571,429 shares of ~~Disclosure~~OptiCare’s ~~Controls~~Series B Preferred Stock for $3,600,000 in cash and ~~Procedures~~Ms. Yimoyines, the wife of Dr. Yimoyines, purchased 285,714 shares of Series B Preferred Stock for $400,000 in cash. Also in January 2002, OptiCare issued an additional 309,170.5 shares of Series B Preferred Stock to Palisade to satisfy an outstanding loan of $400,000 of principal and $33,000 of accrued interest and issued an additional 38,646.3 shares of Series B Preferred Stock to Ms. Yimoyines to satisfy an outstanding loan of $50,000 of principal and $4,000 of accrued interest due to Ms. Yimoyines. As of March 31, 2005, accrued and unpaid dividends on these shares owned by Palisade and Ms. Yimoyines totaled $1,839,000 and $207,000, respectively. Under the terms of our merger agreement with OptiCare and Ms. Yimoyines, these shares were converted at the exchange ratio of 0.0403 into shares of our common stock.

AsOn January of12, ~~the~~2005, ~~end~~Palisade ofand ~~the~~Ms. ~~fiscal~~Yimoyines ~~quarter~~purchased ~~ended June 30~~280,618 ~~2004,~~shares ~~the Company~~of OptiCare’s ~~principal~~newly ~~executive~~created ~~officer~~Series ~~and~~D ~~principal~~Preferred ~~financial~~Stock ~~officer~~for ~~evaluated~~an ~~the~~aggregate ~~effectiveness~~purchase price of ~~the~~approximately ~~design~~$4,400,000. ~~and~~On ~~operation~~the ofsame ~~the~~date, ~~Company~~OptiCare’s ~~disclosure controls and procedures (as defined in Rules 13a~~wholly-15owned subsidiary, ~~(e)~~OptiCare ~~and~~Acquisition ~~15d-15~~Corp., ~~(e)~~entered ~~under~~into ~~the~~an ~~Securities~~Asset ~~Exchange~~Purchase ~~Act~~Agreement with ofWise ~~1934~~Optical, asLLC ~~amended (the “Exchange Act”) )~~ and ~~concluded~~AECC/Pearlman ~~that~~Buying ~~the~~Group, ~~Company’s~~LLC, ~~disclosure~~both ~~controls~~entities ~~and~~formed by ~~procedures~~Dr. ~~are~~Yimoyines, ~~effective~~pursuant to ~~ensure~~which ~~that~~OptiCare, ~~information~~effective ~~required~~as toof beDecember ~~disclosed~~31, 2004, sold bysubstantially ~~the~~all ~~Company~~of ~~in reports that it files or submits under~~ the ~~Exchange~~assets ~~Act is accumulated~~ and ~~communicated~~certain toliabilities ~~the~~of ~~Company’s management, including~~ its ~~officers~~Distribution division, aswhich ~~appropriate~~consisted toof ~~allow~~its ~~timely~~contact ~~decisions~~lens ~~regarding~~distributor, ~~required~~Wise ~~disclosure~~Optical, and its Optical ~~are~~Buying ~~effective~~Group, tofor ~~ensure~~an ~~that~~aggregate ~~such~~purchase ~~information~~price isof ~~recorded~~approximately $4, ~~processed~~200, ~~summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms~~000.

~~Changes~~Other related inparty ~~Internal~~transactions ~~Controls~~include management indebtedness of $308,000 and maintenance of brokerage accounts at Palisade Capital Securities (“PCS”), an affiliate of Palisade and PCM, for our marketable securities (principally, U.S. treasury bills being held to maturity).

~~The~~U.S. Vision ~~Company’s~~has ~~principal~~a ~~executive~~Revolving ~~officer~~Line ~~and~~of ~~principal~~Credit ~~financial~~and ~~officer~~Senior ~~have~~Term ~~also~~Loan ~~concluded~~(Note ~~there~~4) ~~were~~with Commerce noBank. ~~significant~~The ~~changes~~President inand ~~the~~Chief ~~Company’s~~Executive ~~internal~~Officer ~~control~~of ~~over~~U.S. ~~financial~~Vision ~~reporting~~is a member orof ~~in other factors that could significantly affect these controls subsequent to~~ the ~~date~~Board of ~~their~~Directors ~~evaluation,~~of ~~including~~Commerce ~~any corrective actions with regard to significant deficiencies and material weaknesses~~Bank.

Note 12

— Subsequent Event

On June 9, 2006, the Company paid $1,000,000, including a $100,000 termination fee, to CapitalSource in full payment and satisfaction of its indebtedness to CapitalSource.

Page 19

~~PART~~REFAC OPTICAL ~~II. OTHER INFORMATION~~GROUP

~~Item~~MANAGEMENT’S DISCUSSION 4.AND ~~Submission~~ANALYSIS ofOF ~~Matters~~FINANCIAL toCONDITION ~~a Vote of Security Holders~~

~~The~~AND RESULTS ~~Annual~~OF Meeting of Stockholders was held on May 7, 2004 to elect three Class 2 directors, each to hold office for a term of 3 years. All three director nominees were elected. The number of votes for each nominee is set forth below: OPERATIONS

Name of Director Nominee	Number of Shares Voted For		Number of Shares Voted Against
Eugene K. Bolton		6,941,084		12,132
Mark S. Newman		6,941,084		12,132
Robert L. Tuchman		6,941,084		12,132

Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Mark~~Forward-looking statements, Swithin the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Form 10-Q. ~~Hoffman~~For this purpose, ~~Melvin~~any ~~Meskin~~statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. These forward-looking statements and other information relating to the Company are based upon the beliefs of management and assumptions made by and information currently available to the Company. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, or performance, as well as underlying assumptions and ~~Jeffrey~~statements Dthat are other than statements of historical fact. When ~~Serkes~~used in this document, the ~~Class~~words 3“expects,” ~~directors~~“anticipates,” “estimates,” “plans,” “intends,” “projects,” “predicts,” “believes,” “may” or “should,” and ~~Clark~~similar Aexpressions, are intended to identify forward-looking statements. These ~~Johnson~~statements reflect the current view of the Company’s management with respect to future events and ~~Mark~~are Nsubject to numerous risks, uncertainties, and assumptions. ~~Kaplan~~Many factors could cause the actual results, performance or achievements of the ~~Class~~Company 1to ~~directors~~be materially different from any future results, ~~have~~performance, ~~terms~~or ~~which~~achievements ~~expire~~that inmay ~~2005~~be expressed or implied by such forward-looking statements. Other factors and ~~2006~~assumptions not identified above could also cause the actual results to differ materially from those set forth in the forward-looking statements. Although the Company believes these assumptions are reasonable, ~~respectively~~no assurance can be given that they will prove correct. Accordingly, ~~these~~you ~~directors~~should ~~were~~ not uprely ~~for~~upon reforward-~~election~~looking atstatements as a prediction of actual results. Further, the ~~meeting~~Company undertakes no obligation to update forward-looking statements after the date they are made or to conform the statements to actual results or changes in the Company’s expectations and including ~~their~~the ~~term~~other ofrisk ~~office~~factors ~~continued~~set ~~after~~forth in our Annual Report on Form 10-K for the ~~meeting.~~year ended December 31, 2005, under the caption “Risk Factors.”

~~Item 6. Exhibits and Reports on Form 8-K (a) EXHIBIT INDEX~~Overview

Exhibit
No.
13	Note 1 to the Company’s consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 is incorporated herein by reference.
31.1	Rule 13a-14(a)/15(d)-14(a) Certification, Chief Executive Officer.
31.2	Rule 13a-14(a)/15(d)-14(a) Certification, Chief Financial Officer.
32.1	Section 1350 Certification, Chief Executive & Chief Financial Officers.

In order to more fully understand the comparison of the results of operations for the first quarter of 2006 as compared to the same period in 2005, it is important to note the following significant changes in our operations that occurred in 2005:

As a result of a corporate repositioning, during 2002, we disposed of our then operating segments, with the exception of our licensing business, and we have limited the operations of that business to managing certain existing license agreements and related contracts. On February 28, 2003, we completed the Palisade Merger. On March 28, 2003, we entered into a stock purchase agreement with Palisade, which closed on May 19, 2003. The purpose of the stock purchase transaction was to provide us with additional capital for making acquisitions. From January 27, 2004 to March 21, 2005, we focused our acquisition efforts on opportunities in the asset management sector of the financial services industry.

On March 21, 2005, our Board of Directors (the “Board”) decided to broaden the scope of the acquisition search to include other industries and, on April 8, 2005, we announced that we had entered into acquisition discussions with two affiliated companies, U.S. Vision, Inc. (“U.S. Vision”) and OptiCare Health Systems, Inc. (“OptiCare”). On August 22, 2005, we signed merger agreements with U.S. Vision and OptiCare and the transactions were completed on March 6, 2006. As a result of these acquisitions, we have become the sixth largest retail optical chain in the United States. As of April 30, 2006, we operate at 535 locations in 47 states and Canada, consisting of 511 licensed departments, 6 freestanding stores, 18 eye health centers and professional optometric practices, two surgery centers, one of which is a laser correction center, and two manufacturing laboratories. Of the 511 licensed departments, 352 are located at J.C. Penney stores, 65 at Sears, 45 in regional department stores, 29 at The Bay, a division of Hudson’s Bay Company, Canada’s oldest and largest traditional department store retailer, 13 departments at Meijer, and, most recently, 7 at Macy’s. These licensed departments are full-service retail vision care stores that offer an extensive selection of designer brands and private label prescription eyewear, contact lenses, sunglasses, ready-made readers and accessories.

Page 20

~~Signatures~~REFAC OPTICAL GROUP

~~Pursuant~~MANAGEMENT’S DISCUSSION toAND ~~the~~ANALYSIS ~~requirements~~OF ofFINANCIAL ~~Section~~CONDITION ~~13 or 15 (d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~

~~REFAC~~AND RESULTS OF OPERATIONS

August 13, 2004	/s/ Robert L. Tuchman
	Robert L. Tuchman, President and
	Chief Executive Officer
August 13, 2004	/s/ Raymond A. Cardonne
	Raymond A. Cardonne, Jr., Vice President
	and Chief Financial Officer
	(Principal Financial Officer)

Prior to the completion of the transactions, Refac, U.S. Vision and OptiCare were all controlled by Palisade, which beneficially owned approximately 91% of Refac’s outstanding common stock, 84% of OptiCare’s outstanding common stock (on a fully diluted basis) and 88% of U.S. Vision’s outstanding common stock. Following the transactions, Palisade owns approximately 89% of our outstanding shares. Since the mergers result in a business combination of entities under common control, we have accounted for this 2006 transaction in a manner similar to that of pooling of interests, requiring that the historical financial statements be restated retrospectively.

Prior to the completion of the mergers on March 6, 2006, our primary business was patent and technology licensing. As a result of the merger transaction, we now have two reportable segments: Eye Care Centers & Professional Services and Licensed Optical Departments. The Eye Care Centers & Professional Services segment sells retail optical products to consumers and operates integrated eye health centers and surgical facilities where comprehensive eye care services are provided to patients. The Licensed Optical Departments segment is a retailer of optical products and services principally through retail optical departments licensed to operate within national and regional department and other chain stores.

On May 10, 2006, our Board also approved a change in our fiscal year end from December 31 to January 31. Accordingly, our quarterly fiscal periods during the year ending January 31, 2007 will be:

First Quarter - February 1, 2006 through April 30, 2006

Second Quarter - May 1, 2006 through July 31, 2006

Third Quarter - August 1, 2006 through October 31, 2006

Fourth Quarter - November 1, 2006 through January 31, 2007

Prior to the change in the fiscal year end, Refac and OptiCare had a fiscal year that ended on December 31 while U.S. Vision’s fiscal year ended on January 31. As a result, the quarterly periods for the fiscal year ending January 31, 2006 reflect the combination of the prior fiscal year quarterly periods of Refac, OptiCare and U.S. Vision as follows:

Company	Prior Year Fiscal Periods
Refac and OptiCare	First Quarter - January 1, 2005 through March 31, 2005 Second Quarter - April 1, 2005 through June 30, 2005 Third Quarter - July 1, 2005 through September 30, 2005 Fourth Quarter - October 1, 2005 through December 31, 2005
U.S. Vision	First Quarter - February 1, 2005 through April 30, 2005 Second Quarter - May 1, 2005 through July 31, 2005 Third Quarter - August 1, 2005 through October 31, 2005 Fourth Quarter - November 1, 2005 through January 31, 2006

Page 21

REFAC OPTICAL GROUP

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The revenues, net (loss) income before extraordinary items, and net (loss) income of Refac and OptiCare for the one month period ended January 31, 2006 are as follows (in thousands):

	Refac			OptiCare
Revenues	$	18		$	2,588
Net (loss) income before extraordinary items	$	(230	)	$	6
Net (loss) income	$	(230	)	$	6

Included in the net (loss) income amounts above are $104,000 and $68,000 of merger expenses for Refac and OptiCare, respectively.

Our results of operations are affected by seasonal fluctuations in sales and operating profits with sales and operating profits generally higher in the first fiscal quarter and lower in the fourth quarter.

Comparison of Results for the First Quarter of 2006 to the First Quarter of 2005

Revenues

Total product sales increased by $2.6 million, or 6.5%, from $39.9 million for the first quarter of fiscal 2005 to $42.6 million for the first quarter of fiscal 2006. Product sales at our Eye Care Centers & Professional Services segment were flat at approximately $3.0 million. Product sales at our Licensed Optical Departments segment increased by $2.6 million, or 6.9%, from $36.9 million for the three months ended April 30, 2005 to $39.5 million for the three months ended April 30, 2006 despite a $1.7 million, or 19.2%, decline in managed vision sales through Cole Managed Vision programs. This increase in net sales was the result of an increase in the average transaction price partially offset by a decrease in the number of transactions. As compared to the first quarter of fiscal 2005, comparable transaction volume decreased by 8.6%, while the average transaction price increased by 14.8%. We believe the increase in the average transaction price and the decrease in the number of transactions is due to sales promotions at this segment. In the first quarter of 2005 our promotions were focused on the value conscious customer. These promotions typically result in an increase in transaction volume but at a lower average transaction price. In the first quarter of fiscal 2006, our promotions were focused on raising the average transaction price while minimizing the decrease in transaction volume.

Services revenue consists of revenue earned from providing professional eye care services in our Eye Care Centers & Professional Services segment. The revenue from this segment increased $0.6 million, or 13.6%, from $4.7 million for the first quarter of fiscal 2005 to approximately $5.3 million for the first quarter of fiscal 2006. This increase is primarily due to improved reimbursement for optometry services.

Total revenue increased by $1.1 million or 2.4% from $46.8 million for the first quarter of fiscal 2005 to $47.9 million for the first quarter of fiscal 2006. Increased optical product sales and services revenue of $3.2 million were offset by a $2.1 decrease in intellectual property licensing-related activities and other revenue. Prior to the merger of Refac, OptiCare and U.S. Vision, our primary business was patent and technology licensing. However, since 2002, we have limited the operations of this business to managing certain existing license agreements and related contracts, the most significant of which have now been sold, expired or completed. Our focus is now on the retail optical business.

Page 22

REFAC OPTICAL GROUP

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Operating Expenses

Total cost of product sales increased by $0.7 million, or 5.5%, from $12.0 million for the three months ended April 30, 2005 to $12.7 million for the three months ended April 30, 2006. As a percentage of net sales for the three months ended April 30, 2006 cost of product sales decreased to 29.9% from 30.2% for the same period in the prior year primarily due to an increase in the average transaction price at our Licensed Optical Departments segment. Cost of product sales at our Eye Care Centers & Professional Services segment, remained relatively flat at approximately $1.2 million. As a percentage of net sales for the three months ended April 30, 2006 cost of product sales increased to 40.6% from 39.5% for the same period in the prior year due to a slight shift in product mix toward lower margin products such as sun wear. Cost of product sales at our Licensed Optical Departments segment increased by $0.6 million, or 5.6%, from $10.9 million for the three months ended April 30, 2005 to $11.5 million for the three months ended April 30, 2006. As a percentage of net sales for the three months ended April 30, 2006 cost of product sales improved to 29.0% from 29.4% primarily due to the increase in the average transaction price described above.

Total cost of services increased by $0.3 million, or 14.7% from $1.7 million for the three months ended April 30, 2005 to $2.0 million for the three months ended April 30, 2006. As a percentage of net sales for the three months ended April 30, 2006, cost of services increased to 37.1% from 36.7% for the same period in the prior year due to higher doctor compensation costs.

Selling, general and administrative expenses (“SG&A”) increased by $1.5 million or 5.5% from $27.7 million for the three months ended April 30, 2005 to $29.2 million for the three months ended April 30, 2006. The increase in SG&A is primarily due to higher variable costs at the licensed optical department segment due to increased sales. As a percentage of net sales, SG&A increased from 59.1% from the three months ended April 30, 2005 to 60.9% for the three months ended April 30, 2006. The increase in SG&A, as a percent of sales, is due to the decline in other revenues primarily from intellectual property licensing-related activities of approximately $2.1 million. Excluding the impact of the loss of other revenue, SG&A, as a percent of sales, for the three months ended April 30, 2006 would have decreased to 58.4%.

Discontinued Operations

Managed Vision

Managed Vision revenue decreased to approximately $6.0 million for the three months ended April 30, 2006 compared to approximately $6.4 million for the three months ended April 30, 2005, a decrease of approximately $0.4 million or 6.2%. The decrease in Managed Vision revenue relates to approximately $1.4 million lost revenue primarily from contracts terminated by Cigna. These decreases to revenue were partially offset by revenues from new contracts and net growth from existing contracts totaling approximately $1.0 million.

Medical claims expense decreased to approximately $4.0 million for the three months ended April 30, 2006 from approximately $4.7 million for the three months ended April 30, 2005. The medical claims expense loss ratio representing medical claims expense as a percentage of Managed Vision revenue decreased to 65.6% for the three months ended April 30, 2006 from 73.2% for the three months ended April 30, 2005. The favorable change in medical claims expense loss ratio is a result of the termination of contracts with high medical losses, changes to existing contracts and the performance of new contracts entered into in the latter half of 2005.

Page 23

REFAC OPTICAL GROUP

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

SG&A increased by $0.1 million to approximately $1.4 million for the three months ended April 30, 2006 compared to $1.3 million for the three months ended April 30, 2005. Increases in legal costs primarily attributable to regulatory compliance and the pending sale of the managed vision business were the primary reasons for the increase.

Operating income increased by $0.3 million to approximately $0.5 million for the three months ended April 30, 2006 from $0.2 million for the three months ended April 30, 2005 primarily due to the improvement in the medical claims loss ratio described above.

Other

The Licensed Optical Department Segment closed 15 and 4 underperforming stores and reflected a loss of $0.2 million and $0.0 million in discontinued operations during the three months ended April 30, 2006 and 2005, respectively.

Liquidity and Capital Resources

The following table sets forth our cash and cash equivalents and investments being held to maturity, exclusive of the restricted cash and investments being held to maturity discussed below (in thousands):

Description	April 30, 2006		January 31, 2006
Cash and cash equivalents	$	8,260	$	10,129
Investments being held to maturity		23,461		24,229
Total	$	31,721	$	34,358

Cash Flows from Operating Activities: Our cash flow from operations decreased by $1.8 million to $4.1 million in the first quarter of 2006 from $5.9 million in the first quarter of 2005. Net income, adjusted to exclude certain non-cash items, such as depreciation and amortization and stock-based compensation, was approximately $3.9 million and $5.4 million for the first quarter of 2006 and 2005, respectively. The overall impact of changes in certain operating assets and liabilities on total operating cash flows resulted in cash flows of $0.2 million and $0.5 million in the first quarter of 2006 and 2005, respectively.

Cash Flows from Investing Activities: Our investing activities provided $3.6 million of cash during the first quarter of fiscal 2006, principally from the redemption of investments being held to maturity, offset by the additions of property, plant and equipment.

Cash Flows from Financing Activities: Our financing activities used $5.1 million of cash during the first quarter of fiscal 2006, primarily due to the repayment of debt.

Page 24

REFAC OPTICAL GROUP

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

U.S. Vision has a Senior Term Loan with Commerce Bank, N.A. (“Commerce Bank”) amounting to $2.2 million, which requires monthly payment of interest at 8% and quarterly payments based on a graduated schedule ranging from $400 thousand to $925 thousand with the final payment due on October 2006. The loan is secured by substantially all assets of U.S. Vision.

U.S. Vision also has a $17.5 million Revolving Line of Credit with Commerce Bank, which expires on October 31, 2007. Interest is payable monthly at the lower of prime plus 150 basis points or 30-day LIBOR plus 375 basis points (8.75% at April 30, 2006). The revolving line of credit is secured by liens on substantially all assets of U.S. Vision. At April 30, 2006, $12.0 million was outstanding under the revolving line of credit.

U.S. Vision’s ability to access the Commerce Revolving Credit Agreement depends on complying with certain customary affirmative and negative covenants, including but not limited to the maintenance of a specified net worth level, current ratio, debt coverage ratio, fixed charge ratio and a leverage ratio. U.S. Vision was in compliance with these covenants at April 30, 2006. The Commerce Senior Term Loan and Revolving Credit agreement restricts the declaration and payment of dividends or any distributions to us and limits U.S. Vision’s capital expenditures to $7 million in any fiscal year. The Commerce Senior Term Loan and Revolving Credit Agreement contains a subjective acceleration provision whereby Commerce Bank can declare a default upon a material adverse change in U.S. Vision’s business operations.

Capital expenditures, net of amounts financed and accounted for as capital leases, for the first quarter of fiscal 2006 were $0.5 million. Our capital requirements for the remainder of 2006 will depend on many factors, including the rate of our sales growth, the number of new stores opened, acquisitions, the capital spending policies of our host department stores, and general economic conditions.

We believe that our available cash and cash equivalents, investments, cash from operations and cash available under our current loan agreements are sufficient to finance our operations and commitments. However, it is also possible that we may need to raise additional funds to finance unforeseen requirements, new store openings or to acquire other businesses, products or technologies. These funds may be obtained through the sale of equity or debt securities to the public or to selected investors, or by borrowing money from financial institutions. In addition, even though we may not need additional funds, we may still elect to sell additional equity or debt securities or obtain credit facilities for other reasons. No assurance can be given that we will be able to obtain additional funds on terms that would be favorable to us, or at all. If funds are raised by issuing additional equity securities or convertible debt securities, the ownership percentage of existing stockholders would be reduced. In addition, equity or debt securities issued by us may have rights, preferences or privileges senior to those of our common stock.

At April 30, 2006, our portfolio of investments being held to maturity consists of U.S. Treasury Notes bought with an original maturity of six months or less. The portfolio is invested in short-term securities to minimize interest rate risk and facilitate rapid deployment in support of our acquisition plans.

Page 25

REFAC OPTICAL GROUP

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Commitments and Contractual Obligations

The following table discloses aggregate information about our contractual cash obligations as of April 30, 2006 and the periods in which payments are due.

	Payments Due By Period
(Dollars in thousands)	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
Long-term debt obligations (1)	$	27,435	$	3,586	$	21,438	$	2,411	$	-
Capital lease obligations		2,160		843		1,128		189		-
Operating lease obligations		10,123		2,747		4,694		2,299		383
Purchase Obligations		6,058		2,208		2,200		1,650		-
Total future payments on contractual obligations	$	45,776	$	9,384	$	29,460	$	6,549	$	383
(1) Does not include interest that will be payable on outstanding long-term debt obligations.

Effects of Inflation

We believe that the effects of inflation on our operations have not been material during the past three years.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. We believe that the following accounting policies include the estimates that are the most critical and could have the most potential impact on our results of operations: revenue recognition, goodwill, allowance for doubtful accounts, investments, inventory, and income taxes. These and other critical accounting policies are described in Note 1 to the financial statements included in this Form 10-Q, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1 to our 2005 financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2005. During the three months ended April 30, 2006, we did not make any material changes to our estimates or methods by which estimates are derived with regard to our critical accounting policies, except for the change in stock options due to our adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” referred to as SFAS 123R on January 31, 2006.

Page 26

REFAC OPTICAL GROUP

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

SFAS 123R requires that the cost of all share-based payments to employees, including stock option grants, be recognized in the financial statements based on their fair values. This requires estimates and assumptions to be made, including the expected term of stock-based awards, stock price volatility and forfeitures. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on a blend of implied and historical volatility of our common stock. We use historical data on exercises of stock options and other factors to estimate the expected term of the share-based payments granted.

Recently Issued Accounting Pronouncements

FASB Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment.” In December 2004, the FASB issued SFAS 123R, which requires that the cost of all share-based payments to employees, including stock option grants, be recognized in the financial statements based on their fair values. The standard applies to newly granted awards and previously granted awards that are not fully vested on the date of adoption. We adopted the standard on January 31, 2006 using the modified prospective method (see note 1 to our Consolidated Financial Statements).

FASB Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.” In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3”, referred to as SFAS 154, which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS 154 applies to all voluntary changes in accounting principles. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. It does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS 154. We adopted SFAS 154 on January 31, 2006, and it did not have a material impact on our financial statements.

Page 27

Item 3. - Quantitative and Qualitative Disclosures About Market Risk

We are exposed to fluctuations in interest rates on our revolving line of credit with Commerce Bank, N.A. and our revolving note to CapitalSource Finance LLC, which bear interest at variable rates over time. Changes in interest rates will affect the amount of our interest payments over the term of the loans. A 100 basis point increase in interest rates on our variable rate revolving credit facilities would have an annual estimated negative impact on pre-tax earnings of approximately $0.1 million based on the amount outstanding on these facilities at April 30, 2006.

We currently do not hold any derivative instruments and do not earn income denominated in foreign currencies. Because less than 5% of our revenues currently are derived from sales of optical products outside of the U.S., we do not believe we have any significant foreign currency exchange risk and, as a result, do not hedge against foreign currency exchange rate changes. To the extent that changes in interest rates and currency exchange rates affect general economic conditions, we would be affected by such change.

Item 4. - Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(c) Change in Internal Control Over Financial Reporting

On March 6, 2006, we completed our acquisitions of U.S. Vision and OptiCare pursuant to which OptiCare and U.S. Vision became wholly-owned subsidiaries of Refac Optical Group. As a result of the acquisitions, the financial statement closing process required new procedures in the accounting and finance functions to handle the consolidation of the three entities. Please see Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview” for a discussion of the presentation of the financial statements contained in this Quarterly Report on Form 10-Q.

Except as discussed above, there were no changes in our internal control over financial reporting during the fiscal quarter ended April 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Page 28

PART II - OTHER INFORMATION

Item 1. - Legal Proceedings

Item 1A. - Risk Factors

Approximately 15% and 19% of our revenues for the three months ended April 30, 2006 and 2005, respectively were derived from being a participating provider of managed care benefits primarily through Cole Managed Vision (“CMV”), a national vision care program operated by a subsidiary of Luxottica Group S.p.A (“Luxottica”), an operator of retail optical stores and a competitor of both U.S. Vision and OptiCare. U.S. Vision’s participating provider agreement with CMV terminates on December 31, 2008 and there is no assurance that CMV, Luxottica or U.S. Vision will be willing to renew or extend the agreement. During the term of the current agreement, U.S. Vision cannot become a participating provider in any other managed vision network without the permission of CMV.

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In January 2006, Luxottica announced that it was integrating its EyeMed Vision Care and CMV into one managed vision care company. As a result, the number of CMV plans has been, and is continuing to be, reduced which has, and will continue to, adversely affect the amount of our revenues derived from this managed vision care relationship. During the quarter ended April 30, 2006, managed vision care sales were approximately $1.7 million, or 19.2%, below the amount recorded for the comparable period in 2005. We are encouraged by our current dialogue with Luxottica to find an amicable resolution of this matter: however no assurances can be given that we will be able to reach such resolution on terms acceptable to the Company. If we are unable to reach an acceptable resolution to this matter with Luxottica, we will seek other agreements and alternatives to replace or minimize the lost managed vision care revenues and evaluate our legal remedies. However no assurance can be given that we will be able to enter into other agreements or find suitable alternatives.

There have been no other material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005.

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

SALE OF UNREGISTERED SECURITIES

On March 20, 2006, the Company sold and issued 5,074 shares of its common stock to a former employee of OptiCare for an aggregate price of $16,500, pursuant to Stock Performance Agreements, between the former employee and OptiCare, which pursuant to the terms of the OptiCare merger were converted into options to purchase shares of the Company’s common stock. The shares sold to such former employee were not registered in reliance on the exemption set forth in Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). In the notice of exercise of the stock options, the former employee made representations that: (i) he was acquiring the shares for his own account for investment only and had no intention of selling or distributing any of such shares, (ii) he has had access to the Company’s reports as filed with the Securities and Exchange Commission and to the Company’s press releases, and (iii) he has sufficient knowledge and experience in financial and business matters to be able to evaluate the merits and risks of this investment and to bear the economic risks of this investment. The certificate representing the shares issued to such former employee includes a customary legend that the shares are not registered under the Securities Act.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (1)		Maximum Number of Shares That May Yet Be Purchased Under the Plans
January 1 - January 31		1,231	$	8.29		1,231		583,664
February 1 - February 28		62,136	$	8.29		62,136		521,528
March 1 - March 31		12,074	$	8.29		12,074		509,454
April 1 - April 30		40	$	8.29		40		509,414
Total		75,481				75,481

____________

(1) Pursuant to the Company’s merger agreement (the “Palisade Merger Agreement”), dated as of August 19, 2002, as amended, with Palisade, certain stockholders hold a non-transferable right to sell their shares of Company common stock to the Company for a price determined based upon the Company’s liquid distributable assets (“LDA”) as of June 30, 2005. Such calculation has been made and finalized at $8.29 per share. This right to sell the shares is non-transferable and is limited to stockholders who held their shares continuously from the date of the Palisade Merger through August 8, 2005, the date that the LDA calculation was finalized. The Company has restricted $4,223,000 of its cash and investments being held to maturity as of April 30, 2006 to maintain the Contingent Fund (as defined in the Palisade Merger Agreement). As of April 30, 2006 a total of 141,000 shares have been redeemed for a total amount of $1,169,000. Any Contingent Fund amounts that are related to Payment Rights that are not properly exercised on or before September 30, 2006 will become unrestricted. See Note 2 to the financial statements.

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Item 6. - Exhibits

Exhibit No.		Description
31.1		Chief Executive Officer’s Rule 13a-14(a)/15d-14(a) Certification.
31.2		Chief Financial Officer’s Rule 13a-14(a)/15d-14(a) Certification.
32.1		Section 1350 Certification, Chief Executive & Chief Financial Officers.

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SIGNATURES

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

	REFAC OPTICAL GROUP
	(Registrant)

June 19, 2006	/s/ J. David Pierson
	J. David Pierson
	President and Chief Executive Officer
	(Principal Executive Officer)


June 19, 2006	/s/ Raymond A. Cardonne, Jr.
	Raymond A. Cardonne, Jr., Senior Vice President, Chief Financial Officer and Treasurer
	(Principal Financial Officer)

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