ITEM 1.

BUSINESS

Recent Developments

We operate through our wholly-owned subsidiary, Unilens Corp. USA, located in Largo, Florida. We changed our domicile from British Columbia, Canada, where we were incorporated in 1989, to the State of Delaware on April 1, 2010. In June 2010, as a final step in our corporate reorganization, we organized Unilens Vision Sciences Inc., a Delaware corporation and a wholly-owned subsidiary of Unilens Corp. USA, and transferred our principal intellectual property assets and licensing arrangements to that company. Our shares trade on the OTC Markets Group - OTCQB, utilizing the symbol “UVIC” and on the TSX Venture Exchange under the symbol “UVI”.

We license, manufacture, distribute and market specialty optical lens products using proprietary design and manufacturing technology. Our products are sold primarily in the United States solely to eye care professionals through in house sales representatives, independent sales brokers and a network of distributors. Our lens products are marketed as a family of specialty vision correction products that can serve the majority of the population’s vision correction needs. Our specialty optical lens business is divided into four categories: (i) disposable lenses; (ii) custom soft lenses; (iii) gas permeable lenses; and (iv) replacement and other lenses. During the twelve months ended June 30, 2011 our C-Vue disposable products accounted for approximately 60% of our sales.

In January 2010, we repurchased 2,188,861 shares of our common stock, representing approximately 48% of our outstanding shares, from our then largest shareholder, Uniinvest Holding AG in Liquidation (“Uniinvest”) for an aggregate purchase price of $6,894,912 or $3.15 per share.  We funded the transaction primarily through a $6.9 million 5-year term loan facility and a $1.5 million line of credit provided by Regions Bank to Unilens Corp. USA. The loan facility and line of credit bear a floating interest rate consisting of a premium over LIBOR and are secured by certain of our assets. On August 6, 2010, we entered into an interest rate swap agreement facilitated by Regions Bank, which effectively converted our variable rate debt under the term loan of LIBOR plus 3.75% to a fixed rate of 5.16% (currently 5.66%), without exchanging the notional principal amount.

On March 31, 2011, we entered into an amendment to the term loan facility, which reduced our minimum monthly principal payments by approximately 45%, while retaining the January 2015 expiration date at which time a final balloon payment will be due. The amendment, also provided that if we generate cash flow in excess of certain specified amounts we may be required to make additional quarterly principal payments, up to the amount of the original monthly principal amortization. Furthermore, we agreed on a redefinition of certain financial covenants and restrictions on the amount of our cash dividend payments (See Note 6, Line of Credit and Term Note, to our Consolidated Financial Statements included in this Annual Report).

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On April 15, 2011, we entered into a seven-year capital equipment credit facility with Regions Bank for up to $500,000. The capital equipment credit facility bears interest at a floating rate of 30-day LIBOR plus 3.85%. This capital equipment financing was put in place for the purchase of manufacturing equipment for additional production capacity and efficiencies.

Products and Services

Our disposable lenses line consists of the C-Vue, a mulitfocal cast molded blister-packed box of six lenses sold for frequent replacement, the C-Vue Aspheric single vision lens, a single vision disposable soft contact lens sold for 2-week replacement and the C-Vue 1 Day Aspheric single vision daily disposable soft contact lens sold for one day wear then just simply thrown away. The C-Vue multifocal lens is manufactured for us by a third party utilizing one of our patented soft lens designs and is marketed exclusively in the United States to eye care professionals. The cast molded C-Vue Aspheric single vision lens and the C-Vue 1 Day Aspheric single vision lens are each manufactured for us by a third party utilizing Wavefront inspired technology. We market the C-Vue Aspheric single vision lens in a blister-packed box of six lenses and the C-Vue 1 Day Aspheric single vision lens in blister-packs of 30 and 90 lenses.  

Our custom soft lenses line of soft lathe-cut products includes the C-Vue Toric Multifocal, designed for patients with an astigmatism that require bifocal correction, the C-Vue Custom Toric and the C-Vue 55 multifocal, a high-add multifocal, manufactured in a comfortable high-water content material, all available in our Advanced line of biocompatible materials. In September 2009, we launched the new C-Vue Advanced Toric Multifocal lens in blister-packs for monthly replacement, featuring free trial lenses for practitioners. In January 2011, we launched our new C-VUE Advanced^® HydraVUE™ line of silicone hydrogel custom contact lenses for monthly replacement. This new family of silicone hydrogel products incorporates our most highly-developed lens design technology into our Toric Multifocal and Multifocal designs and in our made-to-order Custom Toric and Single Vision options.

Our gas permeable lens line of products consist of the Unilens GP™, a multifocal contact lens intended for patients with astigmatism who need low to moderate presbyopic correction; the Unilens GP Plus™, designed to accommodate wearers requiring higher presbyopic correction; the C-Vue GP, a front aspheric design incorporating the C-Vue design technology and the C-Ray GP utilizing our recently patented design technology, featuring an on eye ray traced power profile over an elliptical base.

Our replacement and other lenses line of products primarily consists of the Unilens™, an aspheric multifocal contact lens; the SoftSite™, a highadd multifocal contact lens; the SimulVue™, a simultaneous vision bifocal contact lens with the capabilities for correcting advanced presbyopia; the Unilens EMA, a visibility tinted multifocal contact lens available in planned replacement modality; the LifeStyle brand of toric multifocal, toric and spherical daily, and extended wear lenses and the Sof-Form single vision lenses marketed under the Lombart brand; the UniVision, an aspheric low vision lens; and the, Aquaflex and SoftCon spherical daily and extended wear brand of lenses acquired from CIBA Vision.

Customers, Sales & Suppliers

We currently market and distribute our products exclusively to qualified practitioners through a combination of authorized independent distributors, authorized manufactures’ representatives, and in house sales representatives.

In October 2001, we licensed the exclusive worldwide rights to our multifocal soft contact lens design to Bausch & Lomb Incorporated (“Bausch & Lomb”), which manufactures and markets a cast-molded multifocal soft contact lens using our technology.  We receive a royalty ranging from two to five percent of Bausch & Lomb’s worldwide net sales of the product for as long as it manufactures and sells products utilizing our technology. During the fiscal years ended June 30, 2011, 2010, and 2009 we recorded $2,702,324, $2,976,945, and $2,874,028, respectively, in royalty income. There can be no assurance, however, that Bausch & Lomb will continue to sell products utilizing our technology in the future.

Our sales are not substantially subject to seasonality, except that sales during the quarter ending December 31 are normally lower than other quarters due to a decrease in patient visits to eye care professionals during the Christmas holiday season.

We rely on several suppliers, for most of the raw materials used in the production of our soft contact lenses. During fiscal year 2011 we began purchasing silicone hydrogel raw material, which we did not previously have access to, from Contamac US. Shortly thereafter in January 2011, we launched our new C-Vue Advanced HydraVue family of silicone hydrogel custom

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contact lenses.  Except for silicone hydrogel, our raw materials are readily available in our industry and alternate vendors have been identified as potential suppliers with competitive pricing and quality.  Over the past three fiscal years, we have not experienced any volatility in the price of raw materials.

We have a supply agreement with one supplier for the manufacture of our molded C-Vue multifocal lens, which currently accounts for approximately 53% of our annual sales.  The agreement is renewable from year to year and is terminable pursuant to customary termination clauses. Although to date the supplier has met our requirements, there can be no assurances that it will continue to do so.

Backlog is not a material factor in our business.

Competition

We operate within the highly competitive contact lens market.  We compete with industry leaders, such as Vistakon, Inc. a unit of Johnson and Johnson Vision Care, Inc., Bausch & Lomb, Ciba Vision Corporation, a division of Novartis AG, and Cooper Vision, Inc. a unit of Cooper Companies, Inc. Our ability to compete successfully is dependent in part on eye care professionals’ perceptions of product quality, product development, technical innovation, and price. We market our products worldwide.  For the fiscal years ending June 30, 2011, 2010, and 2009, approximately 1%, 1% and 2%, respectively, of our revenue was derived from sales outside the United States, primarily from sales in Germany, Switzerland, Spain and Brazil.  

The conventional soft multifocal contact lens business has been affected over the past several years by the introduction of molding manufacturing technology, allowing for the mass production of most lens types at a fraction of the cost to lathe lenses. The entry of these molded lenses into the marketplace has created significant price competition. The reduced cost of the molded lens allows for liberal amounts of trial lenses to be provided to eye care professionals for a more productive fitting session and immediate dispensing of lenses.  Furthermore, lower manufacturing costs led to the introduction of frequent replacement and disposable lenses, a modality preferred by many consumers.  Recognizing this trend, we signed an agreement with a third party in 2002 for the supply of disposal multifocal molded soft contact lenses (C-Vue) utilizing our patented design.  The C-Vue brand was launched to eye care professionals in the United States during September 2002. In February 2006, we announced the launch of the first aspheric, single vision daily wear, two week disposable soft contact lens ever available under the C-Vue brand. The C-Vue Aspheric single vision lens is manufactured by a third party utilizing, Wavefront inspired technology. In May 2008, we launched the all-new C-Vue 1 Day ASV, which is the first aspheric daily disposable contact lens sold under the C-Vue brand. The cast molded C-Vue 1 Day ASV lens is manufactured for us by a third party utilizing Wavefront inspired technology, and is marketed to eye care professionals in blister-packs of 30 and 90 lenses. During fiscal 2011, our C-Vue disposable products accounted for approximately 60% of sales. We expect that sales of the C-Vue brand multifocal, the C-Vue Aspheric single vision and the C-Vue 1 Day ASV lenses in total will make up a smaller percentage of our future sales as sales of our custom soft lenses escalates.

Market demographics indicate that speciality contact lenses will continue to be the fastest growing segment of the contact lens market. Specialty contact lenses include toric, toric multifocal, and cosmetic lenses. We believe that our custom soft speciality lenses, including our C-Vue multifocal lens for presbyopia, our C-Vue custom toric lens for correcting astigmatism and the C-Vue Advanced toric multifocal lens, will grow over time due to market demographics favoring specialty lenses, and our patented multifocal technology.

Our new C-Vue Advanced HydraVue family of silicone hydrogel custom contact lenses are part of our increased emphasis on silicone hydrogel products in our soft custom lens business. The contact lens market has experienced a shift in recent years towards molded and lathe cut lenses manufactured with silicone hydrogel materials. While we currently do not have access to molded silicone hydrogel products, in the meantime, we will continue to compete based on our patented lens design technology and with our new silicone hydrogel lathe cut custom contact lenses.

We regularly compete with a number of other companies in the contact lens industry that have substantially greater financial resources than we do.  Our ability to compete is based upon marketing quality products to eye care professionals utilizing our patented technology.

Government Regulation

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Contact lenses are regulated as medical devices in the U.S., the EU and other countries.  In the U.S., all devices must receive pre-market approval by the FDA.  There are two review procedures to gain this pre-market approval: a Premarket Approval Application (“PMA”) procedure and a Section 510(k) submission.  Under a PMA, the manufacturer must submit to the FDA supporting evidence sufficient to prove the safety and effectiveness of the device.  The FDA has 180 days to review a PMA.  Certain products, however, may qualify for a submission authorized by Section 510(k).  Under this procedure, the manufacturer gives the FDA a pre-market notification that it intends to commence marketing the product, and that it has established that the product is substantially equivalent to another product already on the market.  The FDA has 90 days to review a Section 510(k) submission.  In the EU, the "CE" mark is required for all medical devices sold.  We hold a CE mark for the classes of contact lenses that we sell.  The CE mark allows us to market products upon signing a declaration of conformity with the EU's Medical Device Directive requirements, which we do for each product sold.  In addition, medical device sales in the EU require auditing by a Notified Body to ensure that the manufacturer's quality systems are in compliance with the requirements of the ISO 9000 standards.  We have a Notified Body, which routinely audits our quality systems.  See "Item 1A --"Risk Factors" – Our manufacturing facility located in the U.S. and our products sold in the U.S. are subject to stringent regulation by the Food and Drug Administration. See "Item 1A --"Risk Factors". Our products are subject to stringent regulation by various foreign jurisdictions in which our products are sold. The cost of compliance with U.S. and foreign regulatory requirements is significant and, particularly when we introduce new products, may from time to time be material to our business. 

Research and Development

We have ongoing research and development activities relating to different contact lens products, other applications of our technology and component materials.  Research and development expenditures for fiscal years ending June 30, 2011and 2010 were $75,934 and $79,234, respectively.  Future new product development may involve additional costs including the cost of obtaining FDA approval, which may take a significant amount of time.

Patents and Technology

We are materially dependent on our software and lens design technology.  Our technology allows us to license and manufacture high quality reproducible lenses.  We have been granted U.S. Patent No. 5,754,270 for our key technology, which is a unique aspheric design that may be configured in a soft multifocal, toric, rigid gas permeable lens, or intraocular lens. In November 2010 we were granted U.S. Patent No. 7,828,435 BI, which features a unique ray traced power profile, currently incorporated into our C-Ray gas permeable lens.

Employees

All of our 45 employees are full time and are located in the Tampa – St. Petersburg Florida area, primarily in our Largo, Florida facility.  

Reports to Security Holders

We are subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, we file annual, quarterly and other reports and information with the Securities and Exchange Commission. You may read and copy these reports and other information we file at the Securities and Exchange Commission's public reference rooms in Washington, D.C., at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3p.m.  The public may obtain information on the operation of the public reference room by calling the Securities and Exchange Commission at 1-800-SEC-0330. Our filings are also available to the public from commercial document retrieval services and the Internet worldwide website maintained by the Securities and Exchange Commission at www.sec.gov. You may also request copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC by requesting copies of such reports in writing. Such written requests shall be made to our corporate secretary and sent to our executive offices at the address set forth on the cover page of this Form 10-K.  Additional information relating to us is on the SEDAR website at www.sedar.com.

ITEM 1A.

RISK FACTORS

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The following information describes certain significant risks and uncertainties inherent in our business. You should take these risks into account in evaluating us or any investment decision involving us. This section does not describe all risks applicable to us, our industry or our business, and it is intended only as a summary of certain material factors. You should carefully consider such risks and uncertainties, together with the other information contained herein. If any of the following risks and uncertainties, or if any other disclosed risks and uncertainties, actually occurs, our business, financial condition or operating results could be adversely affected.

We rely primarily on royalty income from one source.

In October 2001, we entered into an exclusive worldwide license on one of our patented multi-focal design technologies with Bausch & Lomb, which generates a significant portion of our net income.  We collect royalties based on Bausch & Lomb's worldwide net sales of products utilizing the design technology.  There can be no assurance, however, that Bausch & Lomb will continue to sell products in the future utilizing our technology at the same levels as it currently does or at all .

We rely on one supplier for our molded contact lenses and one supplier for our silicone hydrogel raw material used in the production of our soft lathe-cut contact lenses.

In June 2002, we entered into a supply agreement with one of our suppliers for the manufacture of our Molded C-Vue multifocal lens, which accounts for a significant portion of our sales (approximately 53% during the 2011 fiscal year). The agreement is renewable from year to year and is terminable pursuant to customary termination clauses. Although to date the supplier has met our requirements, there can be no assurance that it will continue to meet its obligations under our agreement or as to any renewal of our supply agreement.  The supplier is not under any obligation to supply products utilizing other materials or manufacturing processes, or to meet our possible future requirements for design or material changes and enhancements. While alternate suppliers for the manufacture of specialty molded or partially molded contact lenses have been identified, should the need arise , there can be no assurance that an alternate supplier can successfully manufacture lenses to our specifications or material requirements on acceptable terms, or within the constraints of our exclusive license agreement with Bausch & Lomb.

The raw materials used for the production of most of our lathe-cut soft contact lenses are purchased from several suppliers. Over the past three years we have not experienced any interruption in the supply of these raw materials. While alternate vendors have been identified, should the need arise , there can be no assurance that an alternate supplier can provide the raw materials in accordance with our specifications or on acceptable terms. Our silicone hydrogel raw material used in our advanced soft lathe–cut contact lenses, which prior to the 2011 fiscal year we did not have access to, is purchased from only one supplier, Contamac US.  

We face intense competition, and our failure to compete effectively could have a material adverse effect on our profitability and results of operations.

The market for soft contact lenses is intensely competitive and many competing products have lower prices than do ours . Our ability to increase U.S. market penetration is dependent on persuading eye care professionals to recommend our products to consumers, as well as persuading consumers of competing products to switch to our products , on the basis of quality, features and value .  Our products compete with similar products offered by a number of larger companies, including Vistakon, Inc. a unit of Johnson and Johnson Vision Care, Inc., Bausch & Lomb, Ciba Vision Corporation, a division of Novartis AG, and Cooper Vision, Inc., a unit of Cooper Companies, Inc. Many of our competitors have substantially greater financial, marketing and technical resources, greater market penetration and larger manufacturing capacities and volumes.  Among other things, these advantages may afford our competitors greater ability to manufacture large volumes of lenses, reduce product prices and influence customer buying decisions. We believe that certain of our competitors are expanding, or are planning to expand, their manufacturing capacity, and are implementing automated manufacturing processes, in order to support anticipated increases in volume.  Because many of the costs incurred in producing contact lenses are relatively fixed, a manufacturer that can increase its volume can generally reduce its per unit costs and thereby increase its flexibility to reduce prices.  Our competitors could also reduce prices to increase sales volumes, so as to utilize their production capacity, or for other reasons.  Price reductions by competitors could make our products less competitive, and we cannot assure you that we would be able to either match a competitor's pricing plan or reduce our prices in response.  Our ability to respond to competitive pressures by decreasing our prices without adversely affecting our gross margins and operating results will depend on our ability to decrease our costs per lens.  Any significant decrease in our costs per lens will depend, in part, on our ability to increase sales volume and production capacity, of which there can be no assurance . Our failure to respond to

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competitive pressures and particularly price competition in a timely manner could have a material adverse effect on our business, financial condition and results of operations.

We believe that certain of our competitors are planning to introduce new multifocal or other specialty lens designs in the near future. Competition from products utilizing new lens designs may have a material adverse effect on our business, financial condition and results of operations.

The contact lens market has experienced a shift in recent years towards lenses manufactured with silicone hydrogel materials, which feature higher oxygen permeability. Many of our competitors have had access to higher oxygen permeable silicone hydrogel materials for some time. During the first half of calendar year 2011, we began purchasing this material from one supplier.  Shortly thereafter, we launched our new C-Vue Advanced HydraVue family of silicone hydrogel custom contact lenses. We expect that the launch of our silicone hydrogel lathe cut custom lens line will help our ability to grow our custom soft lens business, and retain or grow our specialty lens market share and margins resulting in a positive effect on our business, financial condition and results of operations. We currently do not have access to molded silicone hydrogel products, in the meantime, we will continue to compete based on our patented lens design technology and with our new silicon hydrogel lathe cut custom contact lenses.

We also encounter competition from manufacturers of eyeglasses and from alternative technologies, such as surgical refractive procedures (including new refractive laser procedures such as PRK, or photo refractive keratectomy, and LASIK, or laser in situ keratomileusis).  If surgical refractive procedures become increasingly accepted as an effective and safe technique for permanent vision correction, they could substantially reduce the demand for contact lenses by enabling patients to avoid the ongoing cost and inconvenience of contact lenses.  Accordingly, we cannot assure you that these procedures, or other alternative technologies that may be developed in the future, will not cause a substantial decline in the number of contact lens wearers and thus have a material adverse effect on our business, financial condition and results of operations.

We depend upon certain key management and technical personnel.

Our future success will depend in part upon our ability to attract and retain highly qualified personnel.  We compete for such personnel with other companies, academic institutions, government entities and other organizations.  We cannot assure you that we will be successful in retaining or hiring qualified personnel.  The loss of any of our senior management or other key research, clinical, regulatory, or sales and marketing personnel, particularly to competitors, could have a material adverse effect on our business, financial condition and results of operations.

We are a holding company.  Our only source of cash, other than from debt or equity financings, is from distributions from our subsidiaries and interest earnings on cash invested.

We are a holding company with essentially no operations of our own and conduct substantially all of our business operations through our subsidiary, Unilens Corp. USA and it’s subsidiary Unilens Vision Sciences, Inc.  Our only significant asset is the outstanding capital stock of such subsidiaries.  We are wholly dependent, other than from debt or equity financings, on the cash flow of such subsidiaries and dividends and distributions from such subsidiaries in order to service any current and future indebtedness obligations we may have.

Our common shares are traded in the U.S. only on the OTC Markets Group, so the liquidity of our common shares in the U.S. may be limited.

Our common shares trade in Canada on the TSX Venture Exchange and in the United States on the OTC Markets Group - OTCQB.  Stocks in the OTC Markets Group market ordinarily have much lower trading volume than in other markets, such as The NASDAQ Global, Global Select and Capital Markets.  Very few market makers take interest in shares traded over-the-counter and, accordingly, the markets for such shares are less orderly than is usual for NASDAQ stocks.  As a result of the low trading volumes ordinarily obtained in the OTC Markets Group market, sales of our common shares in any significant amount could not be absorbed without a dramatic reduction in price.  Moreover, thinly-traded shares in the OTC Markets Group market are more susceptible to trading manipulations than is ordinarily the case for more actively traded shares.

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“Penny stock” rules may make buying or selling our common shares difficult, severely limiting the market price of our common shares and the liquidity of our shares in the U.S.

Trading in our common shares is subject to the “penny stock” regulations adopted by the U.S. Securities and Exchange Commission.  These regulations generally define a “penny stock” to be any equity security that does not meet certain listing standards.  These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction.  Unless an exception is available, the regulations require delivery, prior to any transaction involving a “penny stock,” of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market.  In addition, broker-dealers must disclose commissions payable to both the broker-dealer and registered representative and current quotations for the securities they offer.  The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our stock, which could severely limit their market price and the liquidity of our stock.

The price of our common shares in the U.S. and Canada continues to be highly volatile.

The market price of our common shares in the U.S. and Canada is, and is likely to continue to be, volatile and may be significantly affected by factors such as: actual or anticipated fluctuations in our operating results or those of our competitors; competitive factors; trade practice litigation; new products offered by us or our competitors; developments with respect to patents or proprietary rights; conditions and trends in our industry and other related industries; regulatory actions; adoption of new accounting standards; changes in financial estimates by securities analysts; general market conditions; and other factors.  

Dividends to holders of our common shares cannot be assured.  

We have paid special and quarterly dividends only since August 2006. For the fiscal year ending June 30, 2012, the Company has so far paid quarterly cash dividends totaling $0.045 per common share. The amount of future dividends will depend on earnings, cash flow, and other aspects of our business as determined and declared by the Board of Directors. There can be no assurance that we can generate sufficient earnings and cash flow to continue paying quarterly dividends.

Our manufacturing facility located in the U.S. and our products sold in the U.S. are subject to stringent regulation by the Food and Drug Administration.

Under the Food, Drug and Cosmetic Act (the "FDC Act") and implementing regulations, the Food and Drug Administration (the "FDA") regulates the testing, manufacturing, labeling, distribution, and promotion of medical devices such as contact lenses.  Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of product distribution, failure of the government to grant premarket clearance or approval for devices, withdrawal of marketing clearances or approvals, and criminal prosecution.  The FDA also has the authority to request the recall, repair, replacement or refund of the cost of any device manufactured or distributed by us.

Before a new device can be introduced into the U.S. market, it must receive FDA premarket notification clearance under Section 510(k) of the FDC Act ("Section 510(k)") or premarket approval pursuant to the more costly and time-consuming PMA procedure.  For devices that are cleared through the Section 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the device, will require new Section 510(k) submissions. While less expensive, and less time-consuming than obtaining PMA clearance, securing Section 510(k) clearance may involve the submission of a substantive review of six months or more.  Any products manufactured or distributed pursuant to Section 510(k) clearance are subject to pervasive and continuing regulation by the FDA, including record keeping requirements and reporting of adverse experience with the use of the device.

We are seeking Section 510(k) clearances for all of the new products we intend to manufacture and market in the U.S.  New products may require clinical studies to support a Section 510(k) clearance or PMA.  There is no certainty that clinical studies involving new products will be completed in a timely manner or that the data and information obtained will be sufficient to support the filing of a PMA or Section 510(k) clearance.  We may not be able to obtain necessary clearances and approvals to market new devices or any other products under development on a timely basis, if at all, and delays in receipt or failure to

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receive such clearances or approvals, the loss of previously received clearances, or failure to comply with existing or future regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.  

As a manufacturer of medical devices, we are required to register with the FDA and comply with the FDA's Code of Federal Regulations quality system requirements.  If the FDA believes that we may not be operating in compliance with applicable laws and regulations, it can record its observations on a Form FDA 483; place us under observation and re-inspect the facilities; institute proceedings to issue a warning letter apprising of violative conduct; detain or seize products; mandate a recall; enjoin future violations; and assess civil and criminal penalties against us, our officers or our employees.  In addition, in appropriate circumstances, the FDA could withdraw clearances or approvals.  Failure to comply with regulatory requirements or any adverse regulatory action could have a material adverse affect on us.

Manufacturers of medical devices for marketing in the U.S. also must comply with the medical device reporting ("MDR") requirements of the FDA, that require companies report to the FDA any incident in which its product may have caused or contributed to a death or serious injury, or in which its product malfunctioned and, if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury.  Labeling and promotional activities are subject to scrutiny by the FDA.  Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses.  We are subject to routine inspection by the FDA for compliance with quality systems requirements, MDR requirements, and other applicable regulations.  We cannot assure you that we will not incur significant costs to comply with laws and regulations in the future or that laws and regulations will not have a material adverse effect upon our business, financial condition or results of operation.

We face an inherent risk of exposure to product liability claims in the event that the use of the products we manufacture or sell results in personal injury.

We face an inherent risk of exposure to product liability claims in the event that the use of the products we manufacture and/or sell results in personal injury.  Although we have not experienced any losses due to product liability claims, we cannot assure you that we will not experience such losses in the future.  We maintain insurance against product liability claims, but we cannot be certain that such coverage will be adequate to cover any liabilities that we may incur, or that such insurance will continue to be available on terms acceptable to us.  A successful claim brought against us in excess of available insurance coverage, or any claim that results in significant adverse publicity against us, could harm our business.

All of our manufacturing operations are conducted at a single facility.

We conduct all of our manufacturing operations at a single facility in Largo, Florida.  As a result, any prolonged disruption in the operations of our manufacturing facility, whether due to technical or labor difficulties, destruction of or damage to the facility or other reasons, could have a material adverse effect on our business, financial condition and results of operations.  In this regard, because our principal manufacturing facility is located in Largo, Florida, such facility is exposed to the risks of damage from certain weather conditions including, without limitation: hurricanes, windstorms, and floods.  If our facility were to be out of production for an extended period, our business, financial condition and results of operation would be materially adversely affected.  

Our manufacturing capacity may not be adequate to meet the demands of our business.

Our products are manufactured in quantities sufficient to satisfy our current level of product sales.  If we experience increases in sales, we will need to increase our production beyond our present manufacturing capacity.  The process for transferring the manufacture of our products to new facilities is lengthy and requires regulatory approval, and our manufacturing and related costs could increase as a result of the transaction.  Any prolonged disruption in the operation of our manufacturing facilities or those of our third-party manufacturers, or any significant increase in associated costs, could materially harm our business, financial condition and results of operations.

If we are unable to protect our intellectual property rights, our business and prospects may be harmed.

Our ability to compete effectively is dependent upon the proprietary nature of the designs, processes, technologies and materials owned by, used by or licensed to us.  Although we attempt to protect our proprietary property, technologies and

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processes both in the U.S. and in foreign countries through a combination of patent law, trade secrets and non-disclosure agreements, these may be insufficient.  In addition, because of the differences in foreign patent and other laws concerning proprietary rights, our products may not receive the same degree of protection in foreign countries as they would in the U.S.

We may be subject to intellectual property litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling our products.

There is a substantial amount of litigation over patent and other intellectual property rights in the eye care industry, and in the contact lens markets particularly.  The fact that we have patents issued to us for our products does not mean that we will always be able to successfully defend our patents and proprietary rights against challenges or claims of infringement by our competitors.  A successful claim of patent or other intellectual property infringement against us could adversely affect our growth and profitability, in some cases materially.  We cannot assure you that others will not claim that our proprietary or licensed products are infringing their intellectual property rights or that we would not in fact be found to infringe those intellectual property rights.  From time to time, we receive notices of claim of potential infringement.  There may be intellectual property rights of others that may cover some of our technology and of which we are unaware.  If someone claims that our products infringed their intellectual property rights, any resulting litigation could be costly and time consuming and would divert the attention of management and key personnel from other business issues.  The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks.  Claims of intellectual property infringement also might require us to enter into costly royalty or license agreements.  However, we may be unable to obtain royalty or license agreements on terms acceptable to us or at all.  We also may be subject to significant damages or an injunction preventing us from manufacturing, selling or using some or some aspect of our products in the event of a successful claim of patent or other intellectual property infringement.  Any of these adverse consequences could have a material adverse effect on our business and profitability.

If we do not introduce new commercially successful products in a timely manner, our products may become obsolete over time, customers may not buy our products and our revenue and profitability may decline.

Demand for our products may change in ways we may not anticipate because of:  evolving customer needs; the introduction of new products and technologies; evolving surgical practices; and evolving industry standards.  Without the timely introduction of new commercially successful products and enhancements, our products may become obsolete over time, in which case our revenue and operating results would suffer.  The success of our new product offerings will depend on several factors, including without limitation our ability to: properly identify and anticipate customer needs; commercialize new products in a timely manner; manufacture and deliver products in sufficient volumes on time; differentiate our offerings from competitors' offerings; achieve positive clinical outcomes for new products; satisfy the increased demands by healthcare payors, providers and patients for lower-cost products; and innovate and develop new materials and product designs.  Moreover, innovations generally will require a substantial investment in research and development before we can determine the commercial viability of these innovations, and we may not have the financial resources necessary to fund these innovations.  In addition, even if we are able to successfully develop enhancements or new generations of our products, they may not produce revenue in excess of the costs of development, and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of products embodying new technologies or features.  

Our products are subject to stringent regulation by various foreign jurisdictions in which our products are sold.

Our products also are subject to regulation in other countries in which we sell our products.  The laws and regulations of such countries range from comprehensive medical device approval procedures such as those described above to simple requests for product data or certifications.  The number and scope of these laws and regulations are increasing.  In particular, medical devices in the European Union (the "EU") are subject to the EU's medical devices directive (the "Directive").

Under the system established by the Directive, all medical devices other than active implants and in vitro diagnostic products currently must qualify for "CE marking.”  "CE marking" means that a manufacturer certifies that its product bearing the CE mark satisfies all requirements essential for the product to be considered safe and fit for its intended purpose.  We have received CE marking authorization for all products that we currently market in the EU.  In addition, medical device sales in the EU require auditing by a certified third party (a "Notified Body") to ensure that the manufacturer's quality systems are in compliance with the requirements of the ISO 9000 standards.

10

Although member countries must accept for marketing medical devices bearing a CE marking without imposing further requirements related to product safety and performance, each country may require the use of its own language or labels and instructions for use.  Authorities who are required to enforce compliance with the requirements of the Directive can restrict, prohibit and recall CE-marked products if they are unsafe.  Such a decision must be confirmed by the European Commission in order to be valid.  Member countries can impose additional requirements as long as they do not violate the Directive or constitute technical barriers to trade.

Additional approvals from foreign regulatory authorities may be required for international sale of our products in non-EU countries.  Failure to comply with applicable regulatory requirements can result in the loss of previously received approvals and other sanctions and could have a material adverse effect on our business, financial condition and results of operations.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable

ITEM 2.

                PROPERTIES

We lease a 27,000 square foot manufacturing facility in Largo, Florida, pursuant to a lease agreement with a lease term through June 30, 2013. All of our manufacturing, research and development, executive and administrative activities are located in this facility, except for certain administrative functions that are conducted by Unilens Vision Sciences Inc. in offices located in Wilmington, Delaware. We also lease a sales office in Clearwater, Florida, pursuant to a lease agreement with a lease term through July 31, 2012. We believe our facilities are adequate for our needs. We are not aware of any environmental issues with respect to our facilities.

ITEM 3.

                LEGAL PROCEEDINGS

Other than ordinary routine litigation incidental to our business, there are, no material pending legal proceedings to which we are a party or to which any of our properties is subject.

ITEM 4.

[REMOVED AND RESERVED.]

11

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our shares have traded on the TSX Venture Exchange and it predecessors since 1992.  In addition, there has been a U.S. market for the quotation of our common shares on the OTC Markets Group – OTCQB and the “pink sheets” a centralized quotation service that collects and publishes market maker quotes for certain over the counter securities.  Our common shares are subject to the Securities and Exchange Commission rules regarding "penny stocks" which require broker-dealers who sell certain securities that do not satisfy certain listing standards to persons who are not established customers or accredited investors to make specified suitability determinations and to receive the purchaser's written consent to the transaction prior to the sale.

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Holders

As of September 23, 2011, there were 397 shareholders of record, which includes shares held by brokerage and clearing houses, holding a total of 2,369,354 of our common shares.  

Dividends

Since November 1, 2006, our Board of Directors has declared cash dividends for each of our fiscal quarters.  The table below shows all Company dividends paid for each of the last two fiscal years.

On August 1, 2011 the Board of Directors declared a 2012 fiscal year first quarter cash dividend of $0.045 per share paid August 26, 2011 to shareholders of record on August 12, 2011.

The amount and frequency of future dividends declared by our Board of Directors will depend on earnings, cash flow, and other aspects of our business as determined by our Board of Directors, as well as dividend payment restrictions under our term loan facility, which became effective in the last quarter of fiscal 2011 as a result of the changes to our credit facility discussed above.

Securities authorized for issuance under equity compensation plans

The following table sets forth, as of June 30, 2011, outstanding awards and shares remaining available for future issuance under our Incentive Stock Option Plan, which was approved by our shareholders in March 2010 and is our only compensation plan under which equity securities are authorized for issuance.

Our Incentive Stock Option Plan allows for the issuance of common share purchase options of up to 10% of the issued and outstanding common shares to directors, employees, and consultants. The number of shares under option from time to time and the exercise prices of such options, and any amendments thereto, will be and have been determined by the directors in accordance with the policies of the TSX Venture Exchange.

Recent Sales of Unregistered Securities and Uses of Proceeds from Registered Securities

None.

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Issuer Repurchases of Equity Securities

None.

ITEM 6.

SELECTED FINANCIAL DATA

The following constitutes our selected consolidated financial data for the fiscal years ended June 30, 2011, 2010, 2009, 2008 and 2007 in U.S. dollars, presented in accordance with United States generally accepted accounting principles.  The selected consolidated financial data is derived from our financial statements for such periods.  Certain of the prior years’ comparative figures have been reclassified to conform to the presentation adopted for the current year. All amounts are stated in U.S. dollars.  

Notes:

(1) There were no discontinued operations during the periods presented above.         

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management discussion and analysis (“MDA”) is based on and should be read in conjunction with “Selected Financial Data” above and our consolidated Financial Statements and Supplementary Data (the “Financial Statements”), which begins on page 13.  The Financial Statements have been prepared in United States dollars and in conformity with United States generally accepted accounting principles (“US GAAP”). Unless otherwise indicated, all dollar amounts disclosed in this MDA are expressed in United States Dollars.  

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Operating results are not necessarily indicative of results that may occur in future periods. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in the forward-looking statements as a result of many factors including, but not limited to, those set forth under “Cautionary Statement About Forward-Looking Statements” and “Risk Factors” in Item 1A. included above in this Annual Report on Form 10-K. All forward-looking statements included in this document are based on the information available to us on the date of this document and we assume no obligation to update any forward-looking statements contained in this Annual Report on Form 10-K.

Overview

We license, manufacture, distribute and market specialty optical lens products using our proprietary design and manufacturing technology.  Our products are sold primarily in the United States solely to eye care professionals through in house sales representatives, independent sales brokers and a network of distributors. Our lens products are marketed as a family of specialty vision correction products that can serve the majority of the population’s vision correction needs. Our specialty optical lens business is divided into four categories: (i) disposable lenses; (ii) custom soft lenses; (iii) gas permeable lenses; and (iv) replacement and other lenses. During the 2011 fiscal year our C-Vue disposable products accounted for approximately 60% of our sales.

Sales of our specialty optical lens products accounted for the largest percentage of our total revenues, constituting approximately 69% while royalty income derived from our exclusive license of our patented multifocal design to Bausch & Lomb was approximately 31% of revenues during the 2011 fiscal year.

Economic conditions in the United States have restrained our growth. We are however optimistic about the long-term outlook for the contact lens market and the specialty contact lens market, in particular.

Market demographics indicate that speciality contact lenses will continue to be the fastest growing segment of the contact lens market. Specialty contact lenses include toric, toric multifocal, and cosmetic lenses. We believe that our custom soft speciality lenses, including our C-Vue multifocal lens for presbyopia, our C-Vue custom toric lens for correcting astigmatism and the C-Vue Advanced toric multifocal lens, will grow over time due to market demographics favoring specialty lenses.

We believe market demographics favoring specialty contact lenses will continue to drive our revenue and earnings. In January 2011, we launched our new C-VUE Advanced^® HydraVUE™ line of silicone hydrogel custom contact lenses for monthly replacement. They are completely customizable, and feature a risk-free trial program.

A significant portion of our net income is derived from our exclusive license with Bausch & Lomb and such royalty income is a major component of our profitability. However, there can be no assurance, that such royalty income from Bausch & Lomb will grow or that Bausch & Lomb will continue to sell products in the future utilizing our technology.

The contact lens market is highly competitive.  We compete with industry leaders, such as Vistakon, Inc. a unit of Johnson and Johnson Vision Care, Inc., Bausch & Lomb, Ciba Vision Corporation, a division of Novartis AG, and Cooper Vision, Inc. a unit of Cooper Vision Companies, Inc.  Our ability to compete successfully is dependent in part on eye care professionals’ perceptions of product quality, product development, technical innovation, and price.  

We have a supply agreement with one supplier for the manufacture of our molded C-Vue multifocal lens, which accounted for approximately 53% of our fiscal 2011 sales.  The agreement is renewable from year to year and is terminable pursuant to customary termination clauses. Although to date the supplier has met our requirements, there can be no assurances that it will continue to do so.

2011 Fiscal Year Highlights

·

Earnings per share increased 46% to $0.63 from $0.43 in 2010.

·

Paid an annual dividend of $0.315 per share, a dividend yield of 10.8% based on the year-end closing price of $2.91. In August 2011, we declared our 20^th consecutive quarterly dividend, at an annual rate of $0.18 per share, a dividend yield of 6.2% based on the year-end closing price.  

·

In January 2011, we launched our new C-VUE Advanced^® HydraVUE™ line of silicone hydrogel custom contact lenses for monthly replacement.

·

In March 2011, we amended our term loan facility to improve our cash flow, by reducing our minimum monthly principal payments, and redefining certain financial covenants and restrictions on dividend payments.

·

In April 2011, we entered into a seven-year capital equipment credit facility for up to $500,000, for the purchase of manufacturing equipment for additional production capacity and efficiencies.

·

In May 2011 we joined the VisionWeb network of suppliers. This strategic partnership with the premier provider of technology services to the optical industry gives our customers the ability to browse, place and track their C-Vue disposable contact lens orders, online through the VisionWeb portal.

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Results of Operations

The following table sets forth, for the fiscal years ended June 30, 2011, 2010 and 2009, certain data derived from our Consolidated Statements of Income and certain of such data expressed as a percentage of total revenues:

The following table sets forth, for the fiscal years ended June 30, 2011, 2010 and 2009, certain data derived from our Consolidated Statements of Income certain of such data expressed as a percentage of sales:

Fiscal 2011 Compared to Fiscal 2010

During the fiscal year ended June 30, 2011 (the “Current Year”), we earned income before tax of $2,237,979 compared to income before tax of $2,513,897 in the fiscal year ended June 30, 2010 (the “2010 Year”).  The decrease in income before tax during the Current Year of $275,918 was due to (i) a decrease in royalty income received from Bausch & Lomb of  $274,621 to $2,702,324 in the Current Year as compared to $2,976,945 in the 2010 Year, (ii) an increase in gross margin of $71,322 primarily from a one-time price correction, offset by lower sales and gross profit (iii) excluding cost of sales, a decrease in expenses of  $52,873 (as described below) and (iv) an increase in other items primarily interest expense, and other income of $125,492. After recording income tax expense of $746,205, we had net income of $1,491,774, or $0.63 per diluted share for the Current Year.  In comparison, in the 2010 Year we had net income of $1,548,397 or $0.43 per diluted share after recording income tax expense of $965,500. The improvement in income per diluted share primarily reflects the repurchase of our former majority shareholder’s shares in January 2010, and the consequent decrease in the number of our diluted shares outstanding.  

Sales during the Current Year were $6,077,032, a decrease of $140,213 (2.3%), from sales of $6,217,245 during the 2010 Year.  The disposable lens category decreased 6.9%, as sales of our best selling lens, the C-Vue disposable multifocal, were affected by economic conditions in the U.S. as well as increased competition from competitors’ new product offerings and rebate programs. Our custom soft lens category increased 20.2%. The launch last year of the new C-Vue Advanced Toric Multifocal with free trial lenses went slower than expected, but we are now seeing sales improvement in this category from the continued conversion of the free trial lenses into revenue generating boxes of monthly replacement lenses and from the launch in January 2011of our new C-VUE Advanced^® HydraVUE™ line of silicone hydrogel custom contact lenses for monthly replacement. Our gas permeable lens category decreased by 8.3%, due to the continued overall decline in gas permeable fits in the contact lens industry. The replacement and other lens category decreased by 7.2% due to economic conditions and the expected decline in product lines that are nearing the end of their life cycle.

Gross margin increased 2.1% to 44.1% in the Current Year compared to 42.0% in the 2010 Year, due primarily to a one-time price correction covering mostly current and some prior year purchases from one of our vendors. This was partially offset by lower sales, sales mix changes from higher margin products and the maturation of the C-Vue Advanced Toric Multifocal free trial program launched at the end of the first quarter last year. Gross margin without the one-time price correction would have been approximately 40%.

Our operating expenses (excluding cost of sales) decreased during the Current Year by $52,873 as compared to the 2010 Year, due primarily to decreases in administrative expenses and research and development.  Administrative expenses decreased by $56,471 primarily due to the non-recurrence of one-time 2010 Year expenses of approximately $71,000 associated with our annual meeting and migration from Canada to Delaware and approximately $39,000 of stock compensation expenses compared to approximately $20,000 in annual meeting expenses in the Current Year. In addition, the Current Year includes approximately $20,000 of additional professional fees for filing and income tax related expenses. Sales and marketing expenses increased

16

$6,898 primarily due to higher travel expenses offset partially by lower advertising spending. Research and development expenses decreased $3,300during the Current Year compared to the 2010 Year.

In the Current Year and the 2010 Year we recorded net income tax expense of $746,205 and $965,500, respectively. We record income tax at the statutory rates, and previously only paid alternative minimum tax of approximately 2% due to the utilization of tax loss carry-forwards. During the second quarter of the 2010 Year, utilization of tax loss carry-forwards were exhausted, and income taxes payable have been recorded since then. The effective tax rate for the Current Year was 33.3% compared to 38.4% in the 2010 Year.

Fiscal 2010 Compared to Fiscal 2009

Sales during the 2010 Year were $6,217,245, a decrease of $506,936 (7.5%), from sales of $6,724,181 during the fiscal year ended June 30, 2009 (the “2009 Year”).  The disposable lens category decreased 1.3%, as sales of our best selling lens, the C-Vue disposable multifocal, was adversely affected by current economic conditions in the U.S. as well as new product offerings and rebate programs of our competitors, primarily in the third quarter. Our custom soft lens category decreased 8.6%, reflecting a decrease in the sales of our traditional toric multifocal lenses, but primarily due to the launch of our C-Vue Advanced Toric Multifocal lens.  This new product offering features the provision of free trial lenses to practitioners which delays revenue recognition until the contact lens fit is finalized for a patient and lenses are ordered. This conversion has been slower then expected, but we see sales improvement in this category as more practitioners convert trial fits to lens sales. Our gas permeable lens category decreased by 7.1%, despite additional sales from our acquisition in December 2008 of the Aero Contact Lens brands. Our gas permeable segment sales change for the Current Year excluding the Aero Contact Lens sales was down approximately 12% compared to the 2009 Year, due to a continued overall decline in gas permeable fits in the contact lens industry. The replacement and other lens category decreased by 30.3% due to current economic conditions and the expected decline in product lines that are nearing the end of their life cycle.  This is also reflected fewer low vision product line sales to our exclusive distributor which accounted for approximately 5% of the decrease.  

Gross margin decreased to 42% in the 2010 Year compared to 46.1% in the 2009 Year due primarily to lower sales and sales mix changes in higher margin products and the new C-VUE Advanced Toric Multifocal free trial program launched during the first quarter of the 2010 Year.

Our operating expenses (excluding cost of sales) decreased during the 2010 Year by $21,377, as compared to the 2009 Year, due to decreases in research and development and sales and marketing expenses offset in part by an increase in administrative expenses.  Research and development expenses decreased $4,662 due primarily to lower charges for consulting services, and sales and marketing expenses decreased $58,732 primarily due to lower advertising spending and lower sales commissions due to decreased sales.  Administrative expenses increased $42,017 due primarily to one-time expenses associated with the Company’s migration from Canada to Delaware of approximately $71,000 in the third quarter and to stock compensation expenses of approximately $39,000, offset by lower supplies spending and lower payroll and related expenses during the 2010 Year.

During the 2010 Year, we earned income before tax of $2,513,897 compared to income before tax of $3,001,179 in the 2009 Year.  The decrease of $487,282 was primarily due to a decrease in gross profit of $493,005, offset in part by (i) an increase in royalty income under the license agreement with Bausch & Lomb of $102,917 to $2,976,945 in the 2010 Year as compared to $2,874,028 in the 2009 Year and (ii) a decrease in expenses of $21,377 as described above, and an increase in other items including interest expense and other income of $118,572. After recording income tax expense of $965,500, we had net income of $1,548,397, or $0.43 per diluted share for the 2010 Year.  In comparison, in the 2009 Year we had net income of $1,870,127 or $0.41 per diluted share after recording income tax expense of $1,131,052.

In the 2010 Year and the 2009 Year we recorded net income tax expense of $965,500 and $1,131,052, respectively. The income tax expense is the result of a reduction in the deferred income tax asset due to offsetting the 2010 Year’s taxable income with the recognition of income tax loss carryforwards. During the second quarter of the 2010 Year, utilization of tax loss carry-forwards were exhausted, and income taxes payable have been recorded since then. The effective tax rate for the 2010 Year was 38.4% compared to 37.7% in the 2009 Year.

Liquidity and Capital Resources

17

Cash and cash equivalents were $601,360 at June 30, 2011, compared to $1,080,540 at June 30, 2010.  Short-term investment objectives are to minimize risk, maintain liquidity and maximize yields.  To attain these objectives, investment limits are placed on the amount, type and issuer.  Investments are principally in bank money market funds.

Cash provided by operations and financing activities has primarily funded our requirements. As of June 30, 2011, the Company had working capital of $1,415,268, representing an increase of $15,454 from our working capital at June 30, 2010. The increase in working capital was principally due to a reduction in the current term loan payable in accordance with the March 31, 2011 term loan amendment, offset by a decrease in cash.

During the Current Year, we generated $1,506,743 positive cash from operations, representing a decrease of $1,129,232 from the $2,635,975 generated during the 2010 Year.  Total capital additions were $437,585 and cash used for these additions was $157,587 during the Current Year primarily for manufacturing equipment and leasehold improvements at the headquarters office, an increase of $406,005 from the 2010 Year.  

We estimate that capital expenditures for property, plant and equipment and other assets will approximate $300,000 in fiscal year 2012.

The following is a summary of the change in our cash and cash equivalents:

Operating Activities

Current Year net cash provided by operating activities decreased $1,129,232 to $1,506,743 compared to $2,635,975 in the 2010 Year.  The decrease is primarily attributable to changes in working capital items and a decrease in earnings and deferred tax expense.  For the Current Year, we used $364,111 in cash flow for working capital items, primarily due to increases in royalty and other receivables. In the 2010 Year, working capital provided by operating activities decreased $565,048 to $2,635,975 compared to $3,201,023 in the 2009 Year.  For the 2010 Year we generated $347,498 in cash flow from working capital improvements, primarily through inventory and receivables management.  These working capital improvements were partially offset by the lower net earnings and deferred tax expense. 

Cash provided by operations is the principal source of funds for expansion, acquisitions, capital expenditures, income taxes and dividends to stockholders.  In the fourth quarter of the Current Year, we also reduced our term loan principal payments from $100,000 to $54,762 and supplemented our cash through borrowings under a new capital equipment facility. Cash income taxes paid during the Current Year were $672,502 compared to $429,100 in the 2010 Year, due primarily to the exhaustion of the utilization of tax loss carry-forwards in the 2010 Year.

Investing Activities

In the 2009 Year we invested our excess cash in 9-month risk free certificates of deposit. Excluding the effect of the redemption of these certificates of deposit of $500,000 in the 2010 Year, net cash used in investing activities in the Current Year increased $126,007 to $157,587, compared to $31,580 in the 2010 Year. Net cash used in the Current Year for the purchase of these capital additions, was primarily for manufacturing equipment and leasehold improvements at our headquarters office. In the 2010 Year, excluding the redemption of the certificates of deposit, net cash used in investing activities decreased $84,761 to $31,580 compared to $116,341 in the 2009 Year. Such net cash used in the 2010 Year for the purchase of property, plant and equipment of $31,580 was primarily for machinery, office equipment and improvements to the headquarters office.

Financing Activities

18

Current Year net cash used in financing activities decreased $1,372,525 to $1,828,336 compared to $3,200,861 in the 2010 Year. Financing activities during the Current Year consisted primarily of repayments under our term loan facility of $1,064,286 compared to $500,000 in the 2010 Year and payments of $746,346 for dividends to our shareholders compared to $1,245,612 of dividends paid in the 2010 Year. The decrease in dividend payments of $499,266 was due to the decrease in our  shares outstanding after our stock repurchase in January 2010 (see below) and a 50% dividend reduction in the second half of the Current Year, as called for in the March 2011 amendment of the terms of our term loan facility described below.

In April, 2011, we borrowed $279,998 under a new seven-year $500,000 capital equipment credit facility, for the purchase of manufacturing equipment.

In March, 2011, we entered into an amendment of our term loan facility, which improved our cash flow by reducing our minimum monthly principal payment from $100,000 to $54,762, and our quarterly dividend payment from $0.09 to $0.045 per common share.

In August 2010, we entered into an interest rate swap agreement which effectively converted our floating interest rate debt under the term loan of LIBOR plus 3.75% with a minimum interest rate of 4.75%, to a fixed rate of 5.16% which is currently 5.66% after the recent term loan facility amendment (See Note 6, Line of Credit and Term Note, to our Consolidated Financial Statements included in this Annual Report).

2010 Year net cash used in financing activities increased $197,389 to $3,200,861, compared to $3,003,472 in the 2009 Year. The increase was primarily from our repurchase of common stock  from Uniinvest using  $7,402,948 offset by the related financing and financing costs of $5,932,174 (see below) which was also offset by term loan repayments of $500,000 and lower common stock cash dividends paid of $1,245,612 due to fewer shares outstanding after the stock repurchase. Net cash used in financing activities in the prior year used cash of $3,003,472 for the payment of dividends.

In August 2008, we obtained a new line of credit from a commercial lender for $1,500,000 with interest rate terms of LIBOR plus 1.5 percent. This line of credit was collateralized by all assets of Unilens Corp. USA, excluding our agreement with Bausch & Lomb.  Under this credit agreement, we were required to meet specified financial covenants. On November 1, 2009 this line of credit expired and was replaced with a $1.5 million line of credit provided by Regions Bank.

In January 2010, we repurchased 2,188,861 shares of our common stock, representing approximately 48% of our outstanding shares from our then largest shareholder, Uniinvest, for an aggregate purchase price of $6,894,912 or $3.15 per share. We funded the transaction primarily through a $6.9 million 5-year term loan facility and a $1.5 million line of credit provided to the Company’s wholly owned subsidiary Unilens Corp., USA, by Regions Bank. The loan facility and line of credit bear a floating interest rate consisting of a premium over LIBOR with a minimum interest rate of 4.75%, and is secured by certain assets of our subsidiaries.  

At the end of the Current Year we had a stockholders’ deficit of $1,635,954, representing a decrease of $716,221 compared to $ 2,352,175 at the end of the 2010 Year.  The decrease in stockholders’ deficit was primarily due to lower income before income taxes of $2,237,979 (primarily from royalty income) offset by, lower income taxes of $746,205, and smaller cash dividend payments totaling $746,346.

During the Current Year we paid a total of $746,346 in regular quarterly common stock dividends.  The Company funded the 2010 share repurchase with a draw of $6 million against the term loan facility which, as of the end of the Current Year, had been paid down to $4.4 million.

Off Balance Sheet Arrangements and Other

19

None.

Contractual Obligations

The following table contains a summary of our obligations and commitments to make future payments under contracts, including debt, lease and purchase agreements as of June 30, 2011.  Amounts set forth below are expressed in U.S. dollars.

Critical Accounting Policies & Estimates

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and apply judgment. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our consolidated financial statements. While we believe the historical experience, current trends and other factors considered, support the preparation of our consolidated financial statements in conformity with generally accepted accounting principles, actual results could differ from our estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2 to our consolidated financial statements. We believe the following accounting policies include a higher degree of judgment and/or complexity and, thus, are considered to be critical accounting policies.

Inventory

Our inventories are carried at the lower of cost or market.  Cost is determined on a first-in, first-out basis. Inventory is stated at average cost, which is determined by applying the current average cost to the ending inventory.  In addition, we reduce the value of our ending inventory for estimated inventory obsolescence. A continuous cycle count process is the primary procedure used to validate the inventory balances on hand to ensure that the amounts reflected in the accompanying consolidated financial statements are properly stated.

The accounting for inventory contains uncertainty since we must use judgment to estimate inventory obsolescence. When estimating these losses, we consider a number of factors, which include, but are not limited to, historical usage, shelf life remaining and manufactured date of current physical inventory.

Our total reserve for estimated inventory obsolescence covered by this critical accounting policy was $17,381 as of June 30, 2011. Although we believe we have sufficient current and historical information available to us to record reasonable estimates for estimated inventory obsolescence, it is possible that actual results could differ.

We have not made any material changes in the accounting methodology used to establish our inventory obsolescence and loss reserves during the past three years. Although we believe that the estimates discussed above are reasonable and the related calculations conform to generally accepted accounting principles, actual results could differ from our estimates, and such differences could be material.

Allowance for Doubtful Accounts and Returns

We record an allowance for doubtful accounts to allow for any amounts that may not be recoverable. This is based on an analysis of our prior collection experience, customer credit worthiness, and current economic trends.  Also included with this allowance is an amount for product returns. This is based on an analysis of our history of credit memos issued. Our total allowance for doubtful accounts and product returns covered by this critical accounting policy was $129,644 as of June 30, 2011. Although we believe we have sufficient current and historical information available to us to record reasonable estimates for allowance for doubtful accounts and product returns, it is possible that actual results could differ.

We have not made any material changes to the method of estimating our allowance for doubtful accounts and product returns during the last three years.  Based on current knowledge, we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to determine the allowance.

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ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

(a)            Quantitative Information About Market Risk

Our operations generally do not employ financial instruments or derivatives, which are market sensitive, and accordingly, we are not exposed to the financial market risks related to such instruments.

In August 2010, we entered into an interest rate swap agreement to manage our cash flow exposure to interest rate changes. We did not enter into this type of financial instrument for trading or speculative purposes.  The swap effectively converts the Company’s variable rate debt of LIBOR plus 3.75% to a fixed rate of 5.16% (currently 5.66%).

 (b)

Qualitative Information About Market Risk

Our financial statements are reported in U.S. Dollars, the same as the currency of our operating subsidiary, Unilens Corp. USA and it’s subsidiary Unilens Vision Sciences, Inc. On and effective April 1, 2010, we completed a change in domicile from British Columbia, Canada, to the State of Delaware.  Prior to April 1, 2010, the effects of exchange rate fluctuations related to the US dollar were limited to the assets and liabilities related to our administrative office.

ITEM 8.

                CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements of

UNILENS VISION INC.

At June 30, 2011 and 2010 and

Years ended June 30, 2011, 2010 and 2009

Report date – September 28, 2011

21

These consolidated financial statements include the accounts of Unilens Vision Inc. and its wholly-owned subsidiary, Unilens Corp. USA and its wholly-owned subsidiary, Unilens Vision Sciences Inc.

All significant inter-company accounts and transactions have been eliminated.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period.  Actual results could differ from these estimates.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation. None of the reclassifications impacted the Company’s income for the year in any period.

Currency

These financial statements are expressed in United States dollars, as the Company and all its operations are based in the United States. On and effective April 1, 2010 the Company announced the change in domicile and the continuance of its corporate existence from British Columbia, Canada to the State of Delaware. Any amounts in prior years expressed in Canadian dollars are indicated as such.

The Company’s functional currency is the United States dollar. Prior to April 1, 2010, the Company followed the remeasurement method of translation since the Canadian records were kept in Canadian dollars. This method translates foreign monetary assets and liabilities at the rate of exchange at the balance sheet date.  Foreign nonmonetary assets, liabilities, and stockholders’ equity were translated at the appropriate historical rate.  Revenues and expenses from Canadian operations, other than those related to nonmonetary assets and liabilities were translated at the weighted average exchange rate for the period.  The resulting remeasurement gain or loss is taken directly to the income statement.

Fair value of financial instruments

The Company’s financial instruments consist of cash and cash equivalents, certificates of deposit, accounts receivable, royalties and other receivables, accounts payable, notes payable and accrued liabilities.  Unless otherwise noted, it is management’s opinion that the Company is not exposed except for variable rates on notes payable to significant interest, currency or credit risks arising from these financial instruments. On August 6, 2010, the Company entered into an interest rate swap agreement to fix the rates on its term note. Under the interest rate swap agreement for the term note, we receive or make payments on a monthly basis, based on the differential between 5.66% and LIBOR plus 4.25% (Note 6). Due to their short maturities, the fair value of these financial instruments approximates their carrying values, unless otherwise noted. The carrying amount and estimated fair value of long-term notes payable was $3,894,136 and $3,894,136, respectively as of June 30, 2011. The fair value of long-term notes payable was estimated based on rates currently offered to the Company for debt with similar terms and maturities. There were no outstanding investments in derivative financial instruments as of June 30, 2011 and 2010.

27

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

Cash and cash equivalents

Cash and cash equivalents include short-term, highly liquid investments that are both readily convertible to known amounts of cash and whose original maturity is three months or less when purchased.

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. All of our non-interest bearing cash balances were fully insured at June 30, 2011 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning in 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and our non-interest bearing cash balances may again exceed federally insured limits. There was no interest bearing amounts in excess of federally insured limits at June 30, 2011.

Accounts receivable consist of amounts due from contact lens sales to customers.  The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable, which is based on an analysis of the Company’s prior collection experience, customer credit worthiness, and current economic trends.  Also included in this allowance is an amount for product returns, based on an analysis of the Company’s history of credit memos issued. Based on management’s review of accounts receivable, an allowance for doubtful accounts and product returns of $129,644 and $217,820 at June 30, 2011 and 2010, respectively, is considered adequate. Receivables are determined to be past due, based on payment terms of original invoices. The Company does not typically charge interest on past due receivables.

Property, plant and equipment are recorded at cost less accumulated depreciation.  Plant and equipment and office equipment are depreciated on a straight-line basis over the shorter of 5 years or the estimated useful life of the asset.  Leasehold improvements are depreciated over the shorter of the term of the lease or the estimated useful life of the asset.  Expenditures for certain maintenance and repairs are charged to expense as incurred, and renewals and betterments are capitalized.  Gains and losses on disposals are credited or charged to operations. For US income tax purposes, the Company uses accelerated methods of depreciation for all assets.

Long-lived assets that are subject to depreciation and amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable.  During the years ended June 30, 2011 and 2010, the Company determined that its property, plant and equipment were not impaired.

Revenue recognition and discounts

The Company recognizes revenue on sales of optical products upon shipment, when title passes, and ultimate collection is reasonably assured.  At the same time, the Company charges operations for the estimated cost of future returns based on historical experience for the respective product types.  The Company offers discounts on its products.  The costs of these discounts are recognized at the date at which the related sales revenue is recognized and are recorded as a reduction of sales revenue.

The Company offers our customers advanced sales commitments on certain of our optical products. The Company invoices the customer when the sale commitment is made and defers the revenue until the optical product is shipped.

28

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

Royalty income

The Company recognizes royalty income at the end of each quarter based on the net sales of licensed products sold during the quarter, which is provided by the licensee, times the royalty rate.

Shipping and handling

The Company records amounts billed to customers for shipping and handling costs as sales revenue.  Costs incurred by the Company for shipping and handling are included in cost of sales.

Advertising costs

The Company expenses advertising costs when incurred. Advertising expense was $247,740, $252,606 and $268,853 for the years ended June 30, 2011, 2010 and 2009, respectively; there were no advertising costs that met the criteria for capitalization.

Research and development costs

Research and development costs are expensed as incurred. The amounts charged to operations during the years ended June 30, 2011, 2010 and 2009 were $75,934, $79,234 and $83,897, respectively.

Income per common share

Basic income per common share is calculated by dividing the income for the year by the weighted-average number of common shares outstanding during the year.

Diluted income per common share is calculated using the treasury stock method.  Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of diluted income per share assumes that the proceeds to be received on the exercise of dilutive stock options and warrants are used to repurchase common shares at the average market price during the year.

Stock-based compensation and stock options

Stock-based payments are recorded using the fair value method of accounting for stock options.  Under this method, in addition to reflecting compensation expense for new share-based awards, expense is also recognized to reflect the remaining vesting period of awards that had been included in pro-forma disclosures in prior periods. There was $790 and $39,114 of stock compensation expense attributable to stock options charged against income for the years ended June 30, 2011 and 2010. There was no compensation expense attributable to stock options charged against income for the year ended June 30, 2009 since no options were granted during that year, and all options outstanding at the beginning of the year was fully vested.

Income taxes

Taxes on income are provided in accordance with US GAAP. Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been reflected in the consolidated financial statements. Deferred tax assets and liabilities are determined based on the differences between the book values and the tax basis of particular assets and liabilities, in addition to the tax effects of net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized as income or expense in the period that included the enactment date. A valuation allowance is provided to offset the net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Accounting for uncertainty in income taxes is determined based on US GAAP, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. US GAAP also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. As of June 30, 2011, the Company had no uncertain tax positions that require disclosure or accrual. The tax returns for the 2006 through 2011 tax years are still open for examination by the Internal Revenue Service.

Recent accounting pronouncements adopted

In June 2011, the FASB issued ASC Update No. 2011-05, “Comprehensive Income” (Topic 220) Presentation of Comprehensive Income (Update No. 2011-05). This update gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update is effective for public companies fiscal years and interim periods beginning after December 15, 2011 and should be applied retrospectively. The Company does not expect the adoption of ASC Update No. 2011-05 will have a material impact on its financial position or results of operations.

Other recent pronouncements issued by the FASB, the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

3.

INVENTORIES

All inventories are pledged as collateral on loans (Note 6)

4.

PROPERTY, PLANT AND EQUIPMENT

Depreciation expense of property, plant and equipment was $136,690, $161,849 and $179,310 during 2011, 2010 and 2009, respectively.  All property, plant and equipment are pledged as collateral on loans (Note 6).

30

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

5.

ROYALTY AGREEMENT

On October 26, 2001, Bausch & Lomb licensed the exclusive worldwide rights to the Company’s multi-focal soft contact lens design.  Under the terms of the agreement, Bausch & Lomb manufactures, and markets a cast-molded multi-focal soft contact lens using the Company’s technology.  For this, Bausch & Lomb will pay the Company a royalty ranging from two to five percent of the product’s worldwide net sales for as long as they manufacture and sell products utilizing the technology.  During the years ended June 30, 2011, 2010 and 2009, the Company recorded $2,702,324, $2,976,945 and $2,874,028, respectively, in Bausch & Lomb royalty revenues. The principal United States patent related to this license is pledged as collateral on loans (Note 6).

6.           LINE OF CREDIT AND TERM NOTE

On November 9, 2009, the Company closed on a $6,900,000 5-year term loan facility and a new $1,500,000 line of credit with Regions Bank. The term loan facility, which had a six-month advance period, was entered into to fund the Stock Purchase Agreement (See Note 8) and the new line of credit replaced the previous line of credit.

On March 31, 2011, the Company entered into an amendment to the term loan facility, which reduced the minimum monthly principal payment from $100,000 to $54,762, plus accrued interest and retained the January 2015 expiration date, at which time a final balloon payment will be due. In addition, quarterly principal payments (not to exceed the original $100,000 monthly amortization in the aggregate) are payable to the extent the cash flow is in excess of certain specified amounts. The amendment, also redefined certain financial covenants and restrictions on the amount of cash dividend payments. The term loan bears interest at a floating rate of 30-day LIBOR plus 4.25% or 3.75% depending on whether the Company’s fixed charge coverage ratio is less than 1.75-to-1 or equal to or greater than 1.75-to-1, with a minimum interest rate of 4.75%.

The line of credit bears interest at a floating rate of 30-day LIBOR plus 3.25% or 3.75% depending on whether the ratio of the Company’s funded debt to its EBITDA is less than 1-to-1 or equal to or greater than 1-to-1, with a minimum interest rate of 4.75%. The maximum borrowings at any time, may not exceed the lesser of (i) $1,500,000 or (ii) a sum equal to 80% of Qualified Accounts Receivables plus 50% of Qualified Inventory. The line of credit expired in November 2010, and was extended to November 2011, using one of the two one-year term extension options. The Company expects to extend the line of credit again in November 2012.

On April 15, 2011, the Company entered into a seven-year capital equipment credit facility for up to $500,000. The capital equipment credit facility bears interest at a floating rate of 30-day LIBOR plus 3.85%. The Company will pay interest only for the initial 6 months from closing, then principal plus accrued interest on a 78 month amortization schedule. This capital equipment financing was put in place for the purchase of manufacturing equipment for additional production capacity and efficiencies. On April 19, 2011 the Company funded the purchase of the manufacturing equipment with a draw of $279,998 under the equipment credit facility.

The required principal payments under term loan and capital equipment credit facilities over the next five years and thereafter are as follows:

31

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

The term loan and the line of credit are secured by a security interest in favor of Regions Bank in our inventory, accounts receivable, general intangibles, cash and principal United States patent. Under the term loan facility, the line of credit and the capital equipment facility, the Company is required to meet customary covenants regarding, among other things, the maintenance of specified cash flow leverage and fixed charge coverage ratios and the requirement of lender consent for significant transactions such as mergers, acquisitions, dispositions and other financings.

The Company was in compliance with all financial covenants and had outstanding balances on the term loan and the capital equipment facility of $4,435,714, and $279,998, respectively and no outstanding balance on the line of credit at June 30, 2011.

On August 6, 2010, the Company entered into an interest rate swap agreement facilitated by Regions Bank to manage cash flow exposure to interest rate changes with a notional amount of $5,300,000 which is scheduled to mature in January 2015. The Company does not enter into this type of financial instrument for trading or speculative purposes. The swap effectively converts the variable rate debt under the term loan as amended on March 31, 2011 of LIBOR plus 4.25% (previously 3.75%) with a minimum interest rate of 4.75%, to a fixed rate of 5.66% (previously 5.16%), without exchanging the notional principal amount. This agreement was designed as a cash flow hedge and is reflected at fair value in the condensed consolidated balance sheet as a component of total liabilities, and the related gains or losses are deferred in stockholders’ equity as a component of accumulated other comprehensive income or loss.

If in the future the interest rate swap agreement is determined to be ineffective or is terminated before the contractual termination date, or if it becomes probable that the hedged variable cash flows associated with the variable rate borrowing would stop, the Company would be required to reclassify into earnings all or a portion of the unrealized losses on cash flow hedges included in accumulated other comprehensive income (loss).

7.

OPERATING LEASES

The Company leases through Unilens Corp. USA, a combined office and manufacturing facility in Largo, Florida and a sales office in Clearwater, Florida.

During the fourth quarter of fiscal year 2008, the Company negotiated a new Largo lease agreement. Effective July 1, 2008 the five-year lease agreement, called for approximate monthly rental payments of $16,276, and provided for escalation of rental payments in years four and five. The lease term is through June 30, 2013 with a five-year option. If there is a change of control of the Company after June 30, 2010, the lease can be terminated by the Company with four and one half months written notice, and under certain conditions maybe subject to three months liquidating damages.

32

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

The Clearwater lease agreement expired on May 31, 2009, and the Company continued the lease on a month-to-month basis until the lease was renegotiated and amended in July 2009. The amended lease term is through July 31, 2012, and calls for approximate monthly rental payments of $2,343, with an escalation of rental payments based on increases in the landlord’s operating expenses, utility costs and real estate taxes.

The Company from time to time also rents certain office equipment under operating leases with lease terms of less than one year.

Rent expense under all operating leases was approximately $228,000, $229,000 and $240,000 for the years ended June 30, 2011, 2010 and 2009, respectively.

Minimum future lease payments under operating leases, which have an initial or remaining non-cancelable lease term in excess of one year, over the next five years and thereafter are approximately as follows:

8.

CAPITAL STOCK AND SUBSEQUENT EVENTS

On January 1, 2010 the Company issued 7,500 common shares on exercise of employee stock options at an exercise price of $2.07 per share raising gross proceeds of $15,525.

33

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

On August 1, 2006 the Board of Directors declared the Company’s first special cash dividend of $0.25 per share. The Company also stated its plan to begin paying a regular quarterly dividend. Beginning on November 1, 2006 the Board of Directors declared its initial quarterly cash dividend of $0.075 per share. The table below shows all Company dividends paid per share from inception for each fiscal year.

On August 1, 2011 the Board of Directors declared the fiscal year 2012 first quarter cash dividend of $0.045 per share, payable August 26, 2011 to shareholders of record on August 12, 2011.

The amount of future dividends will depend on earnings, cash flow, and all other aspects of our business as determined and declared by the Board of Directors, as well as dividend payment restrictions under our term loan facility, which became effective in the last quarter of fiscal 2011 as a result of the changes to our credit facility discussed above.

Stock option plan and stock options

The Company has adopted a stock option plan (the “Stock Option Plan”).  The purpose of the Stock Option Plan is to advance the interests of the Company by providing directors, officers, employees and consultants with a financial incentive for the continued improvement in the performance of the Company and encouragement for them to remain with the Company.  The term of any option granted under the Stock Option Plan may not exceed 10 years.  The exercise price of each option must equal or exceed the market price of the Company’s stock as calculated on the date of grant. The maximum number of common shares of the Company reserved for issuance under the Stock Option Plan cannot exceed ten percent of the Company’s issued and outstanding common shares.  Options, in general, vest immediately except for options granted to consultants performing investor relations activities, vest at a minimum over a period of 12 months, 25% at the end of each three-month period.  No more than 5% of the issued and outstanding capital of the Company may be granted to any one individual in any twelve-month period and no more than 2% of the issued and outstanding capital of the Company may be granted to any one consultant in any twelve-month period.

At the annual general meeting held on March 25, 2010, the shareholders approved the Unilens’ Incentive Stock Option Plan. The initial maximum number of shares available for option grants under the adopted Stock Option Plan is 236,935.

The following table describes the number and the exercise price of options that have been granted, exercised, or cancelled under the Incentive Stock Option Plan-2006 and the current Incentive Stock Option Plan during the years ended June 30, 2011 and 2010:

34

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

(1)

The intrinsic value of a stock option is the amount by which the market value (closing price at June 30, 2011, 2010 and June 30, 2009 - $2.95, $4.20 and $3.00) exceeds the exercise price. The aggregate intrinsic value at June 30, 2011 and 2010 is $0.00 since the closing price is less then the exercise price on June 30, 2011 and 2010.

As of June 30, 2011 the Company has 160,000 options outstanding, which expire March 1, 2020, and an additional 76,935 options available for future grants under the existing Incentive Stock Option Plan.

Cash proceeds, tax benefits and intrinsic value related to options exercised during the three years ended June 30, 2011, 2010 and 2009 are provided in the following table:

The Company uses the Black-Scholes pricing model to estimate the fair value of stock-based awards. The expected volatilities are based on the historical volatility of the Company’s stock price. Historical data is used to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is based on historical exercise patterns of employees and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U S Treasury yield curve in effect at the time of the grant. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on historical experience of forfeitures, the Company estimated forfeitures at zero percent for the period ended June 30, 2010.

35

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

The weighted average assumptions outlined in the table below were utilized in the calculation of compensation expense from option grants in the year ended June 30, 2010. No options were granted during years 2011 and 2009.

9.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

During the year ended June 30, 2011 we had capital equipment non-cash investing and financing activity of $279,998. During the years ended June 30, 2010 and 2009 there were no significant non-cash investing or financing activities.

10.

CONCENTRATIONS

Credit risk

Financial instruments, which potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables.  The Company places its temporary cash investments with a high credit quality financial institution.  Concentrations of credit risk with respect to uncollateralized trade receivables are limited due to the Company’s large number of customers and their geographic dispersion.  The Company uses an allowance for doubtful accounts on an item-by-item basis to cover any collectability issues.  As a consequence, concentrations of credit risk, which could subject the Company to a loss are limited and are consistent with management’s expectations as reflected in the consolidated financial statements.

A significant portion of the Company’s net income is derived from the Company’s exclusive license of one of its patented multifocal designs to Bausch & Lomb.  The Company collects royalties based on Bausch & Lomb’s worldwide net sales of products utilizing the Company’s technology.  There can be no assurances that Bausch & Lomb will continue to sell products in the future utilizing the Company’s technology.

Volume of business risk

The Company has a supply agreement with one supplier for the manufacture of its molded C-Vue multifocal lens, which accounts for approximately 53%, 59% and 57% of the Company’s annual sales during years 2011, 2010 and 2009 respectively.  The agreement is renewable from year to year and is terminable pursuant to customary termination clauses. The Company has concentrations in the volume of purchases it conducts with this supplier. For the year ended June 30, 2011, purchases from this supplier accounted for approximately 23% of the total cost of goods sold by the Company (2010-20%, 2009-25%).  At June 30, 2011, the Company owed this supplier approximately $179,000 (2010- $110,000). There is no assurance that an alternate supplier can successfully manufacture these lenses to the Company’s specifications, on acceptable terms, or within the constraints of the exclusive license agreement with Bausch & Lomb.

36

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

11.

REVENUE INFORMATION

All of our assets and operations are located in the United States in one business segment. Our revenues are derived from royalty income received from our exclusive agreement with Bausch & Lomb for the use of our patented multifocal designs and technology, and from sales from our specialty optical lens business, which manufactures and distributes optical products that use our proprietary design and manufacturing technology. Sales from our specialty optical lens business come from the following lens categories, for the years ended June 30:

12.

INCOME TAXES

A reconciliation of income taxes at the Federal statutory rate to the Company’s effective rate for the years ended June 30, 2011, 2010 and 2009 is as follows:

Income tax expense for the years ended June 30, 2011, 2010 and 2009 consists of the following:

The components giving rise to the deferred tax assets for the years ended June 30, 2011 and 2010 is as follows:

37

UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2011

Subsequent to June 30, 2011, the Company was notified by the State of Florida that it will be examining the Company’s income tax returns for the fiscal years ended 2010, 2009, and 2008.

During the year ended June 30, 2010, the Company moved out of Canada. Accordingly, the deferred tax asset from the Canadian loss carryforwards and its corresponding valuation allowance were removed.

13.

RETIREMENT PLANS

The Company maintains a 401(k) profit-sharing plan that covers substantially all of its employees.  Contributions are made at the Company’s discretion.  For the years ended June 30, 2011, 2010 and 2009, the Company contributed to the plan $84,420, $87,291, and $80,739 respectively.  The Company does not have any liabilities for the plan as of June 30, 2011.

14.

CONTINGENCY

The Company has employment agreements with two members of senior management.  These agreements contain terms for which certain benefits are payable upon termination or a change-of-control.

15.

FAIR VALUE DISCLOSURES

The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy under the guidance are described below:

38

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s interest rate swap, which is included as a component of total liabilities in the consolidated balance sheet. The fair value is based on the expected cash flows over the life of the swap from a pricing model using a specific market environment.

The following presents the balances and net changes in the accumulated other comprehensive loss related to the interest rate swap, net of income taxes.

16.

SUBSEQUENT EVENT

In September 2011, the Company entered into a severance compensation agreement with one member of senior management.  This agreement contains terms for which certain benefits are payable upon termination or a change-of-control.

39

Report of Independent Registered Public Accounting Firm on Schedule

Board of Directors and Stockholders

Unilens Vision Inc.

In connection with our audit of the consolidated financial statements of Unilens Vision Inc. referred to in our report dated September 28, 2011, we have also audited Schedule I for the year ended June 30, 2011.  In our opinion, this schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Pender Newkirk & Company LLP

Pender Newkirk & Company LLP

Certified Public Accountants

Tampa, Florida  

September 28, 2011

40

Unilens Vision Inc.

Schedule I

Valuation and Qualifying Accounts

Years Ended June 30, 2011 and 2010

41

ITEM 9.

            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.           CONTROLS AND PROCEDURES\

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(f) under the Exchange Act) as of the end of the period covered by this Annual Report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2011.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our President and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2011. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, as of June 30, 2011, management believes the Company’s internal control over financial reporting is effective.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management’s report in this annual report.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The following table sets forth information regarding our current directors and executive officers and the table is followed by brief descriptions of their business experience.  Our Board of Directors currently has five members, and is divided into three classes, Class I, Class II and Class III.  At our Annual Meeting of Stockholders in April, 2011 the stockholders elected two Class I directors for a three year term, to serve until our Annual Meeting in 2014 and one Class II director for a one year term to serve until our Annual Meeting of Stockholders in 2012.  

42

ALFRED W. VITALE

Mr. Vitale has been a Director of Unilens since December 22, 1994. He served as the President and CEO of Unilens from December 22, 1994 until August 1, 2007. Mr. Vitale also served as the President and Chief Executive Officer of Unilens Corp. USA from January 1993 through July 31, 2007.  Prior to January 1993, Mr. Vitale served as the President of Whistler Corporation, a management consulting firm.  

NICHOLAS BENNETT

Mr. Bennett has served as one of our directors since June 7, 2001.  From 1995 to March of 2003, Mr. Bennett served as a Director and Vice President of Operations for Cascadia Brands, Inc. After his retirement in March 2003, Mr. Bennett continued to consult to Cascadia Brands, Inc., until they underwent a change of ownership in September 2005.

ADRIAN LUPIEN

Mr. Lupien has been one of our directors since March 2010.  He has over 25 years of experience in the vision care industry, having held senior executive positions with Bausch & Lomb and Pilkington Barnes Hind, both global leaders among contact lens companies. He is currently retired and serves as a volunteer counselor with the Small Business Administration. From 1998 to 2004, Mr. Lupien was Vice President, Sales and Marketing of Unilens Corp. USA.

VADIM PERELMAN

Mr. Perelman was elected one of our directors at the Annual Meeting of Stockholders in April 2011. Mr. Perelman is a founder, and, since September 2009, has been the Managing Partner and Chief Investment Officer of Baker Street Capital Management LLC., the general partner of Baker Street Capital L.P., an investment fund and currently our largest shareholder.  From August 2007 to September 2009, Mr. Perelman worked at Force Capital Management where he was responsible for idea generation and investment due diligence, becoming a Senior Analyst in January 2008.  Mr. Perelman also served as Vice President of Business Development for Teknika Group from July 2005 to July 2007.

MICHAEL J. PECORA

Mr. Pecora has served as our President and Chief Executive Officer since August 1, 2007 and has been a director since December 1, 2008. He served as Vice President of Unilens Corp. USA from July 2005 to August 1, 2007. Mr. Pecora served as Chief Financial Officer of Unilens Vision Inc. and Unilens Corp. USA from August 3, 1994 to August 1, 2007.  Prior to 1994, Mr. Pecora was an Accounting Manager for Unisys Corporation.

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LEONARD F. BARKER

Mr. Barker was appointed our Vice President and Chief Financial Officer, Treasurer and Secretary on August 1, 2007. Mr. Barker served as Manager of Accounting for Unilens Corp. USA from August 2005 to August 1, 2007. Prior to joining Unilens Corp. USA, Mr. Barker was Manager of Financial Reporting for Eckerd Corporation and held various accounting positions over a 33-year career with the former Eckerd drug store chain.

KELLY MCKNIGHT-GOELZ

Ms. McKnight-Goelz was appointed Vice President of Sales and Marketing of Unilens Corp. USA in July 2005. Ms. McKnight-Goelz joined Unilens Corp. USA in November 2004 as Executive Director of Marketing and Sales. Prior to that, she was Vice President of Marketing and New Product Development for Renew Life Formulas, Inc (from June 2001 to October 2004). Prior to June 2001, Ms. McKnight-Goelz served as Vice President for Impact Publishing and Director of Operations for Power-Pak Communications.

None of our directors or executive officers has any family relationship with any of the others.

Involvement in Certain Legal Proceedings

None of our directors or executive officers has, during the past five years:

   ·

had any bankruptcy or insolvency petition filed by or against, or had a receiver appointed with respect to, him or her or any business of which he or she was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;

   ·

 been convicted in a criminal proceeding or been a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

   ·

 been subject to any order, judgment, or decree not subsequently reversed, suspended or vacated of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; or

   ·

 been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission, the Commodity Futures Trading Commission or any self-regulatory organization to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Compliance with Section 16(a) of the Exchange Act

We became subject to Section 16(a) of the Securities Exchange Act of 1934 when we changed our corporate domicile to the State of Delaware in April 2010.  Section 16(a) requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater-than-ten-percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of any such reports furnished to us, we believe that during the year ended June 30, 2011 all of our officers and directors timely filed their required Section 16(a) reports.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of our directors and officers, including our Chief Executive Officer, Chief Financial Officer and principal accounting officer. The Code is available on our Internet website at www.unilens.com.

Board of Directors

All of our directors were re-elected at our March 2010 Annual Meeting with staggered 3-year terms of office. Class I directors held office one year until the Annual Meeting on April 19, 2011 when they were elected to a 3-year term and will hold office until the Annual Meeting in 2014, Class II directors one of whom was newly elected at the April 2011 Annual Meeting, will hold office until the Annual Meeting in 2012 and Class III directors will hold office until the Annual Meeting in 2013. At the 2012 Annual Meeting, the stockholders will elect only the Class II directors, with the directors so elected holding office for a three-year term, and so on until all three classes have been re-elected with full three-year terms that expire in different, successive years. If the Board of Directors decides to increase the size of the Board of Directors, new directors will be assigned to classes in a manner to achieve the same number of directors in each class to the greatest extent possible.  

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Our By-Laws provide that the number of directors on our Board of Directors may range from three to nine, as determined by the Board from time to time.  Currently, the size of the Board is set at five directors and we have five directors and no vacancy.  One of our directors is our employee and the others are not.

No options were granted to our non-employee directors during the fiscal year ended June 30, 2011.

Board Meetings

During the fiscal year ended June 30, 2011, there were five meetings of the Board and each director attended at least 75% of all meetings of the Board except the newly elected director, Vadim Perelman, who attended the one meeting since his election.

Committees

Our Board of Directors has an Audit Committee and does not have either a standing compensation committee or nominating committee or a committee performing similar functions.  Our Board believes that given our relatively small size and the fact that there are currently only five members of the Board, it is appropriate for the entire Board to consider director nominees and employee compensation, although Mr. Pecora does not participate in deliberations regarding his own compensation.

The Audit Committee is elected annually at the first meeting of our Board of Directors held after our Annual Meeting of Stockholders.  During the fiscal year ended June 30, 2011, the Audit Committee met four times.  The Audit Committee reviews our annual and quarterly financial statements, oversees our annual audit process and internal accounting controls, the resolution of issues identified by our auditors and recommends to the Board of Directors the firm of independent auditors to be nominated for appointment by the shareholders at the next annual general meeting of the shareholders.  In addition, the Audit Committee meets quarterly with our external auditors.

The Audit Committee has a Charter, a copy of which is available by writing to Alfred W. Vitale, Chairman of the Audit Committee, at our address at 10431 72^nd Street North, Largo, FL 33777.

The Audit Committee currently consists of Messrs. Vitale, Bennett and Lupien, none of whom is one of our officers, control persons or employees.  While Messrs. Bennett and Lupien are independent, we do not deem Mr. Vitale, our former President and Chief Executive Officer, as currently independent for this purpose.  While we are not subject to any independence standards of a United States national securities exchange or national securities association dealer quotation system, we follow the independence standards set forth in Multilateral Instrument 52-110 Audit Committees, a Canadian pronouncement relevant to our listing on the TSX Venture Exchange.   It provides that a member of an audit committee is “independent” if he or she has no direct or indirect material relationship with us, which could, in the view of the Board of Directors, reasonably interfere with the exercise of the member’s independent judgment.  In determining whether a material relationship exists, the Board consults with our legal counsel to insure that the Board's determinations are consistent with relevant securities and other laws, rules and regulations and court decisions.

Our Board of Directors has determined that Alfred W. Vitale, because of his accounting and financial management expertise, is a “audit committee financial expert” as that term is defined under the Securities Exchange Act of 1934 and, accordingly, that at least one audit committee financial expert is serving on our audit committee.

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ITEM 11.

EXECUTIVE COMPENSATION

The compensation paid to our directors and officers during our two most recently completed fiscal years is as set out below: