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XELB
XCEL BRANDS, INC.
false
Smaller Reporting Company
S-1
2012-03-31
0001083220
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="TEXT-INDENT: -28pt; MARGIN: 0pt 0px 0pt 47pt; FONT: 10pt Times New Roman, Times, Serif">
<b>5.</b>         <b>Stockholders’
Equity</b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i> </i></b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>2011 Equity Incentive Plan</i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company’s 2011 Equity Incentive Plan (the
“Plan”) is designed and utilized to enable the Company
to offer its employees, officers, directors, consultants and others
whose past, present and/or potential contributions to the Company
have been, are or will be important to the success of the Company,
an opportunity to acquire a proprietary interest in the Company. A
total of 2,500,000 shares of common stock are eligible for issuance
under the Plan. The Plan provides for the grant of any or all of
the following types of awards: stock options, restricted stock,
deferred stock, stock appreciation rights and other stock-based
awards. The Plan is administered by the Board, or, at the Board's
discretion, a committee of the Board. On October 17, 2011, the
Company issued to the board 250,000 options.   33.33%
vest immediately, 33.34% vest on the first anniversary of the grant
and the 33.34% vest on the second anniversary of the
grant.  On October 21, 2011 the Company issued to
employees (non-management) 17,125 stock options and 17,125
restricted stock grants. The employee stock options and restricted
stock grants vest 50% on the first anniversary of the grant and 50%
vest on the second anniversary of the grant.  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>Management Warrants</i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
As of the Acquisition Date, the Company issued to management
warrants to purchase 463,750 shares of common stock. The warrants
are exercisable in whole or in part, at an exercise price of $5.00
per share (“Exercise Price”).  The warrants
consist of (1) immediately exercisable warrants to purchase 363,750
shares of common stock, beginning on the date of issuance and
ending of the tenth anniversary of the Closing Date and (2) 100,000
shares issuable upon exercise of warrants subject to 2-year, even
vesting from the Acquisition Date and ending of the tenth
anniversary of the Acquisition Date.  Upon the expiration
of the Warrant exercise period, the Warrants will expire and become
void and worthless.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>Licensee Warrants</i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
As part of the terms and conditions of a certain license agreement
effective October 1, 2011, we issued Warrants to purchase 75,000
shares of common stock to a licensee.  The Warrants are
exercisable in whole or in part, at an exercise price of $5.50 per
share (“Exercise Price”).  The Warrants may
be exercised at any time upon the election of the holder, beginning
on January 23, 2012, the date of issuance, and ending of the fifth
anniversary of the date of issuance.   Upon the
expiration of the Warrant exercise period, the Warrants will expire
and become void and worthless.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>Stock Options</i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. The Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value
estimate.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The fair value for these options and warrants for all years was
estimated at the date of grant using a Black-Scholes option-pricing
model with the following weighted-average assumptions:</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: top">
<td style="WIDTH: 77%">Expected Volatility</td>
<td style="TEXT-ALIGN: right; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 20%">35-42</td>
<td style="WIDTH: 1%">%</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: top">
<td>Expected Dividend Yield</td>
<td style="TEXT-ALIGN: right"> </td>
<td> </td>
<td style="TEXT-ALIGN: right">0</td>
<td>%</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: top">
<td>Expected Life (Term)</td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: right" colspan="2" nowrap="nowrap">3 –
5.75 years</td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: top">
<td>Risk-Free Interest Rate</td>
<td style="TEXT-ALIGN: right"> </td>
<td> </td>
<td style="TEXT-ALIGN: right">0.42% - 0.98</td>
<td>%</td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The options that the Company granted under its plans
expire at various times, either five, seven or ten years from the
date of grant, depending on the particular grant.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i> </i></b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>Options</i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="FONT-WEIGHT: bold" nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td colspan="2" nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Weighted-Average</td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Options</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Exercise Price</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 70%">Outstanding at December 31, 2011</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">267,701</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">6.56</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Granted</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>Canceled</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Exercised</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt">Expired/Forfeited</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
(500</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">)</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
5.00</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Outstanding at March 31,
2012</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
267,201</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
6.56</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Exercisable at March 31,
2012</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
83,076</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
10.02</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Compensation expense related to stock option grants for the Current
Quarter was $10,000.  There was no compensation expense
prior to the Successor period. An additional amount of $45,000 is
expected to be expensed evenly over a period of 19-months.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>Warrants</i></b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b> </b></p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td colspan="2" nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Weighted-Average</td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Warrants</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Exercise Price</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 70%">Outstanding at December 31, 2011</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">1,219,543</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">1.95</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Granted</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">75,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">5.50</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>Canceled</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Exercised</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt">Expired/Forfeited</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Outstanding at March 31,
2012</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
1,294,543</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
2.16</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Exercisable at March 31,
2012</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
1,194,543</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
1.92</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company values warrants issued to non-employees at the
commitment date at the fair market value of the instruments issued,
a measure which is more readily available than the fair market
value of services rendered, using the Black-Scholes model. The fair
market value of the instruments issued is expensed over the vesting
period with the exception of warrants issued to the Company’s
licensee, whereby these warrants reduce license revenue recognized
by the Company related to such licensee over the initial 5-year
term of the licensee agreement. The stock based compensation
recorded for the Current Quarter is $11,000. An additional amount
of $73,000 is expected to be expensed evenly over a period of 19
months. In addition, licensing revenues were reduced by $1,000
relating to the license warrants for the Current Quarter. An
additional amount of $21,000 is expected to off-set license
revenues evenly over a period of 54-months. There was no
compensation expense or reduction of licensed revenues prior to the
Successor period.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>Restricted Stock</i></b></p>
<p style="TEXT-ALIGN: justify; BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white"> </font></p>
<p style="TEXT-ALIGN: justify; BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">Compensation cost for
restricted stock is measured as the excess, if any, of the market
price of the Company’s stock at the date the common stock is
issued over the amount the employee must pay to acquire the stock
(which is generally zero). The compensation cost, net of projected
forfeitures, is recognized over the period between the issue date
and the date any restrictions lapse, with compensation cost for
grants with a graded vesting schedule recognized on a straight-line
basis over the requisite service period for each separately vesting
portion of the award as if the award was, in substance, multiple
awards. The restrictions do not affect voting and dividend
rights.</font></p>
<p style="TEXT-ALIGN: justify; BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b> </b></p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="FONT-SIZE: 10pt"> </td>
<td style="FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: center; FONT-SIZE: 10pt" colspan="2">
Restricted</td>
<td style="FONT-SIZE: 10pt"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="FONT-SIZE: 10pt"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-SIZE: 10pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-SIZE: 10pt" colspan="2">Shares</td>
<td style="PADDING-BOTTOM: 1pt; FONT-SIZE: 10pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="FONT-SIZE: 10pt"> </td>
<td style="FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: left; FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: right; FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: left; FONT-SIZE: 10pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 84%; FONT-SIZE: 10pt">Outstanding at December 31,
2011</td>
<td style="WIDTH: 2%; FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%; FONT-SIZE: 10pt">
 </td>
<td style="TEXT-ALIGN: right; WIDTH: 12%; FONT-SIZE: 10pt">
17,125</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%; FONT-SIZE: 10pt">
 </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="FONT-SIZE: 10pt">Granted</td>
<td style="FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: left; FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: right; FONT-SIZE: 10pt">-</td>
<td style="TEXT-ALIGN: left; FONT-SIZE: 10pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="FONT-SIZE: 10pt">Canceled</td>
<td style="FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: left; FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: right; FONT-SIZE: 10pt">-</td>
<td style="TEXT-ALIGN: left; FONT-SIZE: 10pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="FONT-SIZE: 10pt">Vested</td>
<td style="FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: left; FONT-SIZE: 10pt"> </td>
<td style="TEXT-ALIGN: right; FONT-SIZE: 10pt">-</td>
<td style="TEXT-ALIGN: left; FONT-SIZE: 10pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt; FONT-SIZE: 10pt">
Expired/Forfeited</td>
<td style="PADDING-BOTTOM: 1pt; FONT-SIZE: 10pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left; FONT-SIZE: 10pt">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right; FONT-SIZE: 10pt">
(500</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; FONT-SIZE: 10pt">
)</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt; FONT-SIZE: 10pt">Outstanding at
March 31, 2012</td>
<td style="PADDING-BOTTOM: 2.5pt; FONT-SIZE: 10pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left; FONT-SIZE: 10pt">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right; FONT-SIZE: 10pt">
16,625</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; FONT-SIZE: 10pt">
 </td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Compensation expense related to restricted stock grants for the
Current Quarter is $7,000. There was no compensation expense
prior to the Successor period. An additional amount of $44,000 is
expected to be expensed evenly over a period of 19-months.</p>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i> </i></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>Shares Available Under the Company’s 2011 Equity
Incentive Plan</i></b></p>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i> </i></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
At March 31, 2012, there were 2,216,750 common shares available for
issuance under the Company’s 2011 Equity Incentive Plan.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>Shares Reserved for Issuance</i></b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
At March 31, 2012, there were 3,778,494 common shares reserved for
issuance pursuant to warrants, stock options and availability for
issuance under the Company’s 2011 Equity Incentive Plan. See
Note 7 Subsequent Events.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i> </i></b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>Dividends</i></b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company has not paid any dividends to date.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b>4.  Debt</b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company’s net carrying amount of debt is comprised
of the following:</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 90%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">March 31,<br />
2012</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">December 31,<br />
2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 70%">Term Note</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">12,402,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">12,344,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Seller Note</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">5,896,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">5,765,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Installment debt obligation</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,148,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,158,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Contingent obligation – due to
seller</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">17,765,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">17,765,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Other
liabilities</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
27,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
26,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-LEFT: 0.25in">Total</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">37,238,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">37,058,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Current
portion</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
427,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
44,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt">Total long term
liabilities</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
36,811,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
37,014,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i><u>Term Loan</u></i></b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On September 29, 2011, IM Brands, a wholly-owned subsidiary of the
Company, entered into a five year senior secured facility (the
“Loan”) with Midmarket Capital Partners, LLC
(“MidMarket”) and Noteholders in the aggregate
principal amount of $13,500,000. The Loan is secured by all of
the assets of IM Brands, LLC and the Company’s membership
interests in IM Brands, LLC.  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The principal amount of the Loan is payable quarterly as
follows:  0% until January 5, 2013, 2.5% on January 5,
2013 through October 5, 2013; 3.75% on January 5, 2014 through
October 5, 2014; 6.25% on January 5, 2015 through October 5, 2015;
12.5% on January 5, 2016 through the maturity date, which is the
date that is 5 years after the closing date.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Annual principal obligations are as follows:</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Year Ending December 31,</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 77%">2013</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 20%">1,350,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2014</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">2,025,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2015</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">3,375,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">2016</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
6,750,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt">Total</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
13,500,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The interest rate on the loan is a fixed rate of 8.5%, payable in
cash.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Optional Prepayment</i>.  IM Brands may prepay the
Loan in whole or in part in increments of $500,000, provided that
IM Brands pay the following premiums in connection with the
prepayment:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 60%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: justify" nowrap="nowrap">Period</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Applicable Premium</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 85%">First year following the
Closing</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">3</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">%</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Second year following the Closing</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">2</td>
<td style="TEXT-ALIGN: left">%</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Third year following the Closing</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1</td>
<td style="TEXT-ALIGN: left">%</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Fourth year following the Closing</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">0</td>
<td style="TEXT-ALIGN: left">%</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Mandatory Prepayments.  </i> IM Brands is required to
prepay the Loan under the following conditions:  (1) if
certain indebtedness is incurred by the Company; (2) if IM Brands
undertakes certain asset sales or sales of capital stock, with
limited exceptions; or (3) if there is a payment of the benefits of
a life insurance policy for
Isaac Mizrahi held by the Company.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Excess Cash Flow Sweep.  </i> In addition to the
Mandatory Prepayments described above, if for any fiscal year
ending on or subsequent to December 31, 2012, there is excess cash
flow (as defined in the Loan agreements) for such year, then on the
payment date following the end of such year, IM Brands is required
to make a principal payment on the Loan equal to the lesser of (i)
50% of the excess cash flow or (ii) the positive result of the
unencumbered cash and cash equivalents of the Company minus the
greater of (x) the Excess Liquidity required to be maintained by IM
Brands and (y) $3,000,000. For the period ended March 31, 2012,
there was no Excess Cash Flow Sweep payment due.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Lender Warrants.</i> At the closing of the Loan, the Company
issued to the Noteholders seven year warrants (the “Lender
Warrants”) to purchase 364,428 shares of the Common Stock,
representing 5% of the Common Stock outstanding as of the Closing
Date on a fully diluted basis.  The warrants have an
exercise price of $0.01 and contain a cashless exercise
provision.  The Company granted to the holders of the
Lender Warrants piggy-back registration rights with respect to the
shares of Common Stock issuable upon exercise of the Lender
Warrants.  The carrying value of the Term Loan has been
reduced by the market value of the warrants, equal to $3.33 per
share.  The Company used the black scholes method to
determine valuation.  The amount of the original loan
discount is $1,214,000, resulting in an initial net loan balance of
$12,286,000.  The Term Loan balance as of March 31, 2012 is
$12,402,000.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Financial Covenants</i>.  So long as the Loan remains
unpaid or unsatisfied, IM Brands shall not, and shall not permit
any of its subsidiaries to, directly or indirectly:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 19pt"></td>
<td style="WIDTH: 19pt">1.</td>
<td style="TEXT-ALIGN: justify"><u>Minimum Liquidity</u>
..  Permit Excess Liquidity to be less than the amount set
forth below during each applicable period set forth below:</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid" nowrap="nowrap">
Fiscal Quarter</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: justify" colspan="2" nowrap="nowrap">Excess Liquidity</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 82%">September 29, 2011 through December 31,
2011</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">1,500,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>January 1, 2012 through March 31, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">1,750,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>April 1, 2012 through June 30, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">2,250,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>July 1, 2012 through September 30, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">2,750,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>October 1, 2012 through June 30, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">3,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>July 1, 2013 through September 30, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">3,250,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>October 1, 2013 through March 31, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">3,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>April 1, 2014 through June 30, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">3,750,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>July 1, 2014 and thereafter</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 19pt"></td>
<td style="WIDTH: 19pt">2.</td>
<td style="TEXT-ALIGN: justify"><u>Capital Expenditures</u>
..  Permit the aggregate amount of Capital Expenditures to
exceed $400,000 (whether or not financed) per year.</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: -19pt; MARGIN: 0pt 0px 0pt 38pt; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 19pt"></td>
<td style="WIDTH: 19pt">3.</td>
<td style="TEXT-ALIGN: justify"><u>Consolidated Fixed Charge
Coverage Ratio</u> .  Permit the Consolidated Fixed
Charge Coverage Ratio as of the end of each of the fiscal quarters
ending on the dates (or for the periods) set forth for the period
of four fiscal quarters ending on such dates (or for the periods)
below to be less than the ratio set forth below opposite such
period:</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; WIDTH: 82%" nowrap="nowrap">
Trailing Four Fiscal Quarters Ending</td>
<td style="PADDING-BOTTOM: 1pt; WIDTH: 1%" nowrap="nowrap">
 </td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; WIDTH: 1%" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; WIDTH: 15%">
<p style="TEXT-ALIGN: left; MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt">
Minimum Fixed Charge<br />
Coverage Ratio</p>
</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; WIDTH: 1%" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">September 30, 2012 and December 31,
2012</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">1.90 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">March 31, 2013 and June 30,
2013</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">1.60 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">September 30, 2013, December 31,
2013, March 31, 2014, June 30, 2014 and September 30, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">1.50 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">December 31, 2014 and March 31,
2015</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">1.30 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">June 30, 2015 and thereafter</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">1.15 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 19pt"></td>
<td style="WIDTH: 19pt">4.</td>
<td style="TEXT-ALIGN: justify"><u>Consolidated Total Leverage
Ratio</u> .  Permit the Consolidated Total Leverage Ratio
as of the end of each of the fiscal quarters ending on the dates
(or for the periods) set forth for the period of four fiscal
quarters ending on such dates (or for  the periods) below
to be greater than the ratio set forth below opposite such
period:</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; WIDTH: 82%">
Trailing Four Fiscal Quarters Ending</td>
<td style="PADDING-BOTTOM: 1pt; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; WIDTH: 1%">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right; WIDTH: 15%">
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Maximum</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Consolidated</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Leverage Ratio</p>
</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; WIDTH: 1%">
 </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">September 30, 2012 and December 31,
2012</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">3.50 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">March 31, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">3.30 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">June 30, 2013 and September 30,
2013</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">3.00 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">December 31, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">2.75 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">March 31, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">2.25 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">June 30, 2014 and thereafter</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: left">2.00 to 1.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 19pt"></td>
<td style="WIDTH: 19pt">5.</td>
<td style="TEXT-ALIGN: justify"><u>Minimum Consolidated EBITDA</u>
..  Permit Consolidated EBITDA as of the end of each of
the fiscal quarters ending on the dates set forth for the period of
four fiscal quarters ending on such dates below to be less than the
amount set forth opposite such quarter in the table below;
<u>provided</u> that for the fiscal quarters ended on December 31,
2011, March 31, 2012 and June 30, 2012, such periods shall be one
fiscal quarter, two fiscal quarters and three fiscal quarters,
respectively:</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 60%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: justify" nowrap="nowrap">Fiscal Quarter</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: justify" colspan="2" nowrap="nowrap">Consolidated EBITDA</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify; WIDTH: 82%">December 31, 2011</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">250,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">March 31, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">1,250,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">June 30, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">2,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">September 30, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">December 31, 2012 and March 31,
2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,250,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">June 30, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">September 30, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,750,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">December 31, 2013 and
thereafter</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">5,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 19pt"></td>
<td style="WIDTH: 19pt">6.</td>
<td style="TEXT-ALIGN: justify"><u>Dividend Restrictions</u>
..  Permit any cash dividends or any other equity
distributions.</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: -19pt; MARGIN: 0pt 0px 0pt 38pt; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 19pt"></td>
<td style="WIDTH: 19pt">7.</td>
<td style="TEXT-ALIGN: justify"><u>Restricted Cash Payments</u>
..  Permit any cash payments for the Seller Note or any
contingent earn-out obligations.</td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">As of
March 31, 2012, the Company and IM Brands, LLC were in full
compliance with all of the covenants under the Loan.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i><u>Seller Note</u></i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Pursuant to the Purchase Agreement, at the closing, the Company
delivered to IM Ready a promissory note (the “Seller
Note”) in the principal amount of $7,377,000.  The
stated interest rate of the Seller Note is
0.25%.  Management has determined that this rate is below
the Company’s expected borrowing rate, which is
9.25%.  Therefore, the Company has discounted the Seller
Note by $1,740,000 using a 9.0%, imputed annual interest rate,
resulting in a current value of $5,637,000.  In addition,
the Company pre-paid $123,000 of interest on the Seller Note on the
Closing Date.  The Seller Note balance at March 31, 2012
is $5,896,000.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Seller Note initially matures three years from the Closing Date
(the “Maturity Date”) subject to extension as described
below (the date to which the maturity date of the Seller Note is
extended is referred to as the “Subsequent Maturity
Date”).  We have the right to pay the Seller Note
at the Maturity Date in cash or, subject to the following
conditions, in shares of Common Stock.  If we elect to
repay the outstanding principal amount of the Seller Note on the
Maturity Date by issuing shares of Common Stock, the number of
shares issuable will be obtained by dividing the principal amount
of the Seller Note then outstanding by the greater of (i) the fair
market value of the Common Stock on the Maturity Date and (ii)
$4.50 subject to certain adjustments; provided, however, that if
the fair market value of the Common Stock is less than $4.50 as
adjusted, IM Ready will have the option to extend the maturity of
the Seller Note to the Subsequent Maturity Date. If the maturity
date of the Seller Note is so extended, IM Ready will have the
option to convert the Seller Note into Common Shares based on the
greater of (i) the fair market value of the Common Stock on the
Subsequent Maturity Date and (ii) $4.50, subject to certain
adjustments. If the maturity date of the Seller Note is
extended, we will also have the option to repay the outstanding
principal amount of the Seller Note on the Subsequent Maturity Date
in cash or by issuing the number of shares of Common Stock obtained
by dividing the principal amount of the Note outstanding on the
Subsequent Maturity Date by the fair market value of the Common
Stock on the Maturity Date.  In addition, at any time the
Seller Note is outstanding, we have the right to convert the Note,
in whole or in part, into the number of shares of Common Stock
obtained by dividing the principal amount to be converted by the
fair market value of the Common Stock at the time of the
conversion, so long as the fair market value of our Common Stock is
at least $4.50. </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i><u>Long Term Installment Obligations</u></i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Prior to the Acquisition Date, Earthbound had certain rights and
provided certain services to IM Ready related to the
Isaac Mizrahi
Business. Effective as of the Acquisition Date, IM Ready and
Earthbound entered into the Services Agreement pursuant to which
Earthbound provided transitional services to IM Ready prior to the
closing of the Merger and for which Earthbound received from IM
Ready $600,000 in cash on the Closing Date and IM Ready agreed to
pay to Earthbound an additional payment of $1,500,000 (the
“Future Payment”), with such amount payable over the
next five years. The Company assumed the obligations related to the
Future Payment from IM Ready upon its acquisition of the Isaac
Mizrahi Business. The five-year obligation is non-interest
bearing and the Company has discounted the amount of the
installment obligation by a 9.25% imputed annual interest rate,
resulting in an initial value of $1,132,000. The balance of the
Installment Obligation at March 31, 2012 is $1,148,000.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Payments are due quarterly beginning March 2012.  Annual
remaining payments are as follows:</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 60%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Year Ending December 31,</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 72%">2012</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 25%">113,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2013</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">325,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2014</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">325,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2015</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">350,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">2016</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
350,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt">Total</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
1,463,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b> </b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i><u>Capitalized Lease Obligations</u></i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company assumed the obligations from the Seller under an
equipment lease through February 2013.  The net
discounted payments of the lease obligations are in excess of 90%
of the fair market value (FMV) of the equipment.  The
Company has capitalized the discounted lease payments by its
imputed interest rate of 9.25%. The capital lease obligation
balance at March 31, 2012 is $16,000.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 19pt"></td>
<td style="WIDTH: 28pt"><b>7.</b></td>
<td><b>Subsequent Events</b></td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On April 17, 2012, the Compensation Committee of
Xcel Brands, Inc.
(the “Company”), granted to the following executive
officers and directors (the “Executive Grantees”) of
the Company the number of shares of restricted Common Stock of the
Company (the “Restricted Stock”) set forth opposite
each person’s name:</p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif; MARGIN-LEFT: 45pt" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold" nowrap="nowrap">Name</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold" colspan="2" nowrap="nowrap">Number of Shares of Restricted
Stock</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 67%">Robert W.
D’Loren</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 30%">700,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">James F. Haran</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">150,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">
Seth Burroughs</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">100,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">
Marisa Gardini</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">75,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Joseph Falco</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">75,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The vesting date of the Restricted Stock granted to Mr.
D’Loren, Mr. Haran, Mr. Burroughs and Ms. Gardini is November
15, 2012, provided, however, that each such Executive Grantee may
extend the vesting date by six-month increments in his or her sole
discretion. The vesting date of the Restricted Stock granted to Mr.
Falco is May 15, 2014, provided, however, that Mr. Falco may extend
the vesting date by six-month increments in his sole
discretion.</p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Also, on April 17, 2012, the Compensation Committee granted 50,000
shares of Restricted Stock and options to purchase an aggregate of
75,000 shares of Common Stock (the “Options”) to four
non-executive employees (the “Non-Executive Grantees”)
of the Company. The exercise price per share of the Options is
$3.00 per share, and 50% of the Options will vest on each of the
first and second anniversaries of the grant date.</p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In addition, on May 1, 2012 Management granted options to purchase
an aggregate of 31,500 shares of Common Stock (the “Employee
Options”) to twenty-two non-executive employees (the
“Employee Grantees”) of the Company. The exercise price
per share of the Options is $3.00 per share and 50% of the Options
will vest on each of the first and second anniversaries of the
grant date.</p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-INDENT: 45pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The grants by the Company of Restricted Stock, Options and Employee
Options were made pursuant to the Company’s 2011 Equity
Incentive Plan (the “Plan”) and as such, no
consideration was paid therefor by either, the Executive Grantees,
the Non-Executive Grantees or Employee Grantees. Each grant of
Restricted Stock, Options and Employee Options was made pursuant to
a Restricted Stock Award Agreement or an Option Agreement,
respectively, in each case entered into by and between the Company
and the respective grantee. A summary of the material terms of the
Plan is incorporated here by reference to the Company’s
Annual Report on Form 10-K, filed with the Securities &
Exchange Commission on March 30, 2012.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 0.25in"></td>
<td style="WIDTH: 0.25in"><b>2.</b></td>
<td><b>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</b></td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Principles of Consolidation</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The consolidated financial statements include the accounts of
Xcel
Brands, Inc. and its wholly owned subsidiaries. All material
inter-company accounts and transactions have been eliminated in
consolidation.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Presentation of Predecessor Financial Statements</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The financial statements covered by the Predecessor have been
prepared for the purpose of complying with the rules and
regulations of the U.S. Securities and Exchange Commission. The
Isaac Mizrahi Business was not a separate legal entity, thus the
financial statements are not necessarily indicative of the results
of operations that would have occurred if the
Isaac Mizrahi
Business had been operated as a separate legal entity.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
All of the allocations and estimates in the accompanying
Predecessor financial statements are based on assumptions that IM
Ready and Xcel management (collectively “management”)
believe are reasonable, and reasonably approximate the historical
costs that the
Isaac Mizrahi Business would have incurred as a
separate entity. However, these allocations and estimates are not
necessarily indicative of the costs and expenses that would have
resulted if the
Isaac Mizrahi Business had been operated as a
separate entity. The allocation of expenses were made to comply
with the guidance provided by Staff Accounting Bulletin Topic 1B1,
“Allocation of Expenses and Related Disclosure in Financial
Statements of Subsidiaries, Divisions or Lesser Business Components
of another Entity”.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"><u>Use
of Estimates</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the year. Actual results
could be affected by those estimates.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Fair Value of Financial Instruments</u></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The carrying amounts of the Company’s assets and liabilities
approximate their fair value presented in the accompanying
Consolidated Balance Sheets, due to their short
maturities. </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Trademarks, Goodwill and Other Intangible Assets</u></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Goodwill represents the excess of cost over the fair value of net
assets of businesses acquired. The Company accounts for goodwill
under the guidance of the Accounting Standards Codification
(“ASC”) Topic 350 – “Intangibles: Goodwill
and Other”. Goodwill and other intangible assets acquired in
a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for
impairment, at least annually, in accordance with this guidance.
This guidance also requires that intangible assets with estimable
useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for
impairment.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In accordance with the guidance of ASC Topic 350, long-lived
assets, such as property and equipment and purchased intangible
assets subject to amortization are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge
is recognized in the amount by which the carrying amount of the
asset exceeds the fair value of the asset.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Contingent Obligations</u></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Management will analyze and quantify the expected earn-out payments
over the applicable pay-out period.  Management will assess no
less frequently than each reporting period the status of contingent
obligations and any expected changes in the fair market value of
such contingent obligations.  Any change in the expected
obligation will result in an expense or income recognized in the
period in which it is determined fair market value of the carrying
value has changed. There was no change in the contingent obligation
for the three months ended March 31, 2012.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Income Taxes</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Income tax expense consists of the tax payable for the period and
the change during the period in deferred tax assets and
liabilities. Deferred income taxes are determined based on the
difference between the financial reporting and tax bases of assets
and liabilities using enacted rates in effect during the year in
which <font style="BACKGROUND-COLOR: white; COLOR: black">the
differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized.</font></p>
<p style="TEXT-ALIGN: justify; BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white; COLOR: black"> </font></p>
<p style="TEXT-ALIGN: justify; BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">ASC Topic 740 clarifies the
accounting for uncertainty in income taxes recognized in an
enterprise's financial statements. Tax positions shall initially be
recognized in the financial statements when it is more likely than
not that the position will be sustained upon examination by the tax
authorities. Such tax positions shall initially and subsequently be
measured as the largest amount of tax benefit that has a
probability of fifty percent (50%) or greater of being realized
upon ultimate settlement with the tax authority, assuming full
knowledge of the position and all relevant facts.</font></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Significant Contracts</u></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>QVC Agreement</i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In connection with the Company’s agreement with QVC, Inc.
(“QVC”) QVC is required to pay royalties based
primarily on a percentage of QVC's net sales of
Isaac Mizrahi
branded merchandise. QVC royalty revenue represents a significant
portion of the Company’s total revenues. Royalties from QVC
totaled $1,900,000 and $1,650,000 <font style="COLOR: black">for
the Current Quarter and the Prior year Quarter, respectively,
representing 65% and 63% of the Company’s total revenues,
respectively.</font> As of March 31, 2012, the Company had a
receivable from QVC in the amount of $1,900,000, representing 78%
of the Company’s receivables. As of March 31, 2011, the
Predecessor had a receivable from QVC in the amount of $1,650,000
representing 90% of the Predecessor’s receivables.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>LC Agreement</i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In connection with the Company’s agreement with Liz
Claiborne, Inc. (“LC”) (the LC Agreement”) LC is
required to pay the Company royalties based primarily on a
percentage of royalties LC receives from QVC under a separate
license agreement between LC and QVC (the “LC
Agreement”). Revenues from the LC Agreement totaled $375,000
and $200,000 <font style="COLOR: black">for the Current Quarter and
the Prior Year Quarter, respectively, representing 13% and 7% of
the Company’s total revenues.</font> As of March 31, 2012,
the Company had a receivable from LC in the amount of $569,000,
representing 22% of the Company’s receivables. As of March
31, 2011, the Predecessor had a receivable from LC in the amount of
$183,000 representing 10% of the Predecessor’s
receivables.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b><i>LC/QVC Design fees</i></b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In connection with the Company’s design agreement with QVC
for the term of the LCNY Agreement (the “Design
Agreement”), QVC is required to provide certain design fees
of the Company related to the Liz Claiborne
New York
brand.  Revenues from the Design Agreement totaled
approximately $275,000 and $275,000 <font style="COLOR: black">for
the Current Quarter and the Prior Year Quarter, respectively,
representing 9% and 9% of the Company’s total
revenues.</font></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Revenue Recognition</u></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company recognizes revenue when persuasive evidence of a sale
arrangement exists, delivery has occurred and services have been
rendered, the sales price is fixed and determinable, and
collectability is reasonable assured. The Company has two primary
types of revenues: (i) royalties based on the sale of products by
its licensees or other contractual partners, and (ii) design
service fees based on services provided. Revenues from royalties
are recognized when earned, which includes guaranteed minimum
royalties, if any, and additional revenues based on a percentage of
defined sales by our licensees or other contractual partners for
each period. Royalties exceeding the guaranteed minimum amounts are
recognized as income during the period that corresponds to the
licensee’s or partner’s sales.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Design service fees are recorded and recognized in accordance with
the terms and conditions of each design fee contract, including the
Company meeting its obligations and providing the relevant services
under each contract.  Generally, we record on a straight line
basis each base fee as stated in each design fee service agreement
for the covered period and, if applicable, we recognize
additional payments received that relate to a future period as
deferred revenue, until service is provided or revenue is othewise
earned.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Stock Based Compensation</u></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company accounts for stock-based compensation in accordance
with ASC Topic 718 by recognizing the fair value of stock-based
compensation in the consolidated statement of
operations.  The fair value of the Company’s stock
option awards are estimated using a Black-Scholes option valuation
model. This model requires the input of highly subjective
assumptions and elections including expected stock price volatility
and the estimated life of each award. In addition, the calculation
of compensation costs requires that the Company estimate the number
of awards that will be forfeited during the vesting period. The
fair value of stock-based awards is amortized over the vesting
period of the awards.  For stock-based awards that vest
based on performance conditions (e.g. achievement of certain
milestones), expense is recognized when it is probable that the
condition will be met.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Earnings per Share</u></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Basic earnings per share includes no dilution and is computed by
dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the
period. Diluted earnings per share reflect, in periods in which
they have a dilutive effect, the effect of restricted stock-based
awards and common shares issuable upon exercise of stock
options and warrants. The difference between basic and diluted
weighted-average common shares results from the assumption that all
dilutive stock options outstanding were exercised and all
convertible notes have been converted into common stock.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
As of March 31, 2012, of the total potentially dilutive shares
related to restricted stock-based awards, stock options and
warrants, 741,251 were anti-dilutive and not included in the
computation of diluted shares outstanding. There are no comparative
results for the prior year quarter.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
A reconciliation of weighted average shares used in calculating
basic and diluted earnings per share follows:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">For the Three<br />
Months Ended<br />
March 31, 2012</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 77%">Basic</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 20%">5,810,180</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Effect of
warrants and options</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
745,993</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Diluted</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
6,556,173</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Recently Issued Accounting Standards</u></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Management does not believe that any recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would
have a material effect on the Company’s consolidated
financial statements.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"><b>3.
Trademarks, Goodwill and Other Intangibles</b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Trademarks, goodwill and other intangibles, net consist of the
following:</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
 </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="6" nowrap="nowrap">March 31, 2012</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="6" nowrap="nowrap">December 31, 2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Estimated</td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Gross</td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
 </td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Gross</td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
 </td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Lives in</td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Carrying</td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Accumulated</td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Carrying</td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Accumulated</td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Years</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Amount</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Amortization</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Amount</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Amortization</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Indefinite life trademarks</td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2">Indefinite</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">44,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">44,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Goodwill</td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2">Indefinite</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">11,096,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">11,096,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Licensing
agreements</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="TEXT-ALIGN: center; PADDING-BOTTOM: 1pt" colspan="2">
4</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
2,000,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
267,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
2,000,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
135,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt; WIDTH: 40%"> </td>
<td style="PADDING-BOTTOM: 2.5pt; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: center; PADDING-BOTTOM: 2.5pt; WIDTH: 1%">
 </td>
<td style="TEXT-ALIGN: center; PADDING-BOTTOM: 2.5pt; WIDTH: 9%">
 </td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; WIDTH: 1%">
 </td>
<td style="PADDING-BOTTOM: 2.5pt; WIDTH: 1%"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left; WIDTH: 1%">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right; WIDTH: 9%">
57,596,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; WIDTH: 1%">
 </td>
<td style="PADDING-BOTTOM: 2.5pt; WIDTH: 1%"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left; WIDTH: 1%">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right; WIDTH: 9%">
267,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; WIDTH: 1%">
 </td>
<td style="PADDING-BOTTOM: 2.5pt; WIDTH: 1%"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left; WIDTH: 1%">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right; WIDTH: 9%">
57,596,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; WIDTH: 1%">
 </td>
<td style="PADDING-BOTTOM: 2.5pt; WIDTH: 1%"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left; WIDTH: 1%">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right; WIDTH: 9%">
135,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; WIDTH: 1%">
 </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Amortization expense for intangible assets for the Current Quarter
was $132,000. The trademarks of
Isaac Mizrahi and related goodwill
have been determined to have an indefinite useful life and
accordingly, consistent with ASC Topic 350, no amortization has
been recorded in the Company's unaudited consolidated statement of
operations. Instead, each of these intangible assets are tested for
impairment, at least annually, on an individual basis as separate
single units of accounting, with any related impairment charge
recorded to the statement of operations at the time of determining
such impairment.  Similarly, consistent with ASC 360, there
was no impairment of the indefinite-lived trademarks.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 0.25in"></td>
<td style="WIDTH: 0.25in"><b>1.</b></td>
<td style="TEXT-ALIGN: justify"><b>NATURE OF OPERATIONS,
BACKGROUND, BASIS OF PRESENTATION AND REVERSE ACQUISITION</b></td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management of
Xcel Brands,
Inc., (Xcel, the "Company", “we”, “us”, or
“our”), all adjustments (consisting primarily of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended
March 31, 2012 (“Current Quarter”) are not necessarily
indicative of the results that may be expected for a full fiscal
year.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On September 29, 2011 (the “Acquisition Date”), the
Company acquired from IM Ready-Made, LLC certain assets and assumed
certain obligations (the “
Isaac Mizrahi Isaac Mizrahi
Business’) whereby the Isaac Mizrahi Business was deemed to
be the Predecessor of the Company for financial statement
presentation purposes. Accordingly, the accompanying financial
statements designate periods preceding the Acquisition Date as
relating to the Predecessor and all references to periods on and
after September 29, 2011 shall be referred to as Successor.</p>
<p style="TEXT-ALIGN: justify; BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white"> </font></p>
<p style="TEXT-ALIGN: justify; BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">For further information,
refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2011 (“2011”).</font></p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 19pt"></td>
<td style="WIDTH: 28pt"><b>6.</b></td>
<td><b>Related Party Transactions</b></td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"><b>Todd
Slater</b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">On
August 12, 2011, Old XCel entered into a one year agreement which
was amended on October 4, 2011, with Todd Slater, who was appointed
as a director of the Company commencing on October 17, 2011, for
services related to the Company’s licensing strategy and
introduction of potential licensees. During the term of the
agreement or during the year following the expiration of the term
of the agreement, if the Company enters into a license or
distribution agreement with a licensee introduced by Mr. Slater,
Mr. Slater will receive a commission equal to fifteen percent (15%)
of all net royalties received by the Company during the first term
of such agreement, payable within thirty days of receipt of the net
royalties.  Mr. Slater earned $8,283 in fees for the
Current Quarter.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b>Licensing Agent Agreement</b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">On
August 2, 2011, Old XCel entered into a licensing agent agreement
with Adam Dweck (“AD”) who is an Executive Vice
President of Earthbound pursuant to which AD is entitled to a five
percent (5%) commission on any royalties we receive under any new
license agreements that he procures for us during the initial term
of such license agreements. We are obligated to grant to AD 5-year
warrants to purchase 12,500 shares of common stock at an exercise
price of $5.00 per share, subject to the AD generating $0.5 million
of accumulated royalties and an additional 5-year warrants to
purchase 12,500 shares of common stock at an exercise price of
$5.00 per share, subject to the AD generating $1.0 million of
accumulated royalties. Additionally, AD shall be entitled to
receive 5-year warrants to purchase 25,000 shares of common stock
priced at the fair market value at the time of issuance, subject to
AD generating $2.0 million of accumulated royalties. AD is the son
of
Jack Dweck, who is a 10% shareholder of the Company and has been
granted observer rights related to the Company’s meetings of
its board of directors. AD earned $2,555 in fees for the Current
Quarter. Through March 31, 2012, AD has not earned any
warrants.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b>Jones
Texas, LLC</b></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">Ed
Jones, a principal shareholder and chief executive officer of Jones
Texas, LLC was appointed to the Company’s board of directors
following the Merger, which appointment became effective on October
17, 2011. Jones
Texas, LLC procured a license for the Company which
the Company agreed to remit 15% of the license revenues for the
initial term of the license. Jones
Texas, LLC earned $750 in fees
for the Current Quarter.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"><b>IM
Ready-Made, LLC</b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">The
Company and IM Ready-Made, LLC had transactions between each other
relating to the transitions of the Isaac Mizrahi Business from IM
ready to the Company. In addition, IM Ready received payments in
the 4<sup>th</sup> quarter 2011 and 1<sup>st</sup> quarter 2012
that related to periods after the Predecessor period. As of March
31, 2012 IM Ready owes the Company approximately $157,000 which is
recorded in the ‘other current assets’ in the condensed
balance sheet. IM Ready has agreed to reimburse the Company in full
by October 1, 2012, including paying interest to the Company
beginning April 1, 2012 at a rate equal to the Seller Note interest
rate of 0.26%.</p>
</div>
-2000
73000
-44000
233000
2880000
2192000
4000
289000
34000
131000
257000
-99000
145000
28000
0.02
1033000
-56000
11000
-32000
-22000
-175000
162000
-543000
2903000
28000
209000
2000
58000
44000
0.03
209000
2914000
688000
-17000
228000
5810180
11000
286000
922000
6556173
-17000
31000
73000
175000
23000
316000
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
6.  Stockholders’ Equity</p>
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
The Merger</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On September 29, 2011, NetFabrics entered into an Agreement of
Merger and Plan of Reorganization (the “Merger
Agreement”) pursuant to which a subsidiary of NetFabrics was
merged with and into XCel, with XCel surviving as a wholly-owned
subsidiary of the Company (the “Merger”). Pursuant to
the Merger, the Company exchanged all of its outstanding common
stock for shares of NetFabrics and issued an aggregate 944,668
shares of Common Stock for each share of the common stock
outstanding at the effective time of the Merger.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Also in connection with the Merger and related transactions, as
more fully described herein, the Company issued (i) 2,759,000
shares of Common Stock to IM Ready, and 944,688 shares of Common
Stock to Earthbound, both in satisfaction of Old XCel’s
obligations under an asset purchase agreement with IM Ready and
(ii) 47,132 shares of Common Stock to Mr. Stephen J. Cole-Hatchard
or his designees, a then-current director of the Company for
his continued service as a director of the Company until new
directors were appointed to the board of directors of the Company,
which appointments were effective on October 17, 2011 and at which
point Mr. Cole-Hatchard resigned from the Company’s board of
directors.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On September 28, 2011, NetFabrics filed an amendment to its
certificate of incorporation and affected a 1 for 520.5479607
reverse stock split such that holders of its Common Stock prior to
the Merger held a total of 186,811 shares of Common Stock and
options and warrants to purchase 1,064 shares of Common Stock
immediately prior to the Merger.  After giving effect to
the Merger, the Offering, the Loan and the transactions related
thereto (all as defined and described herein), there were 5,743,319
shares of common stock issued and outstanding as of the Closing
Date.  All numbers of shares of Common Stock referenced
herein are on a post-split basis.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Additionally, 20,000 of the shares of Common Stock held by Beaufort
Ventures, PLC, a principal stockholder of the Company prior to the
Merger, are being held in escrow until such time as final
determination is made by the Internal Revenue Service of certain
Company tax liabilities.  As additional consideration for
the Merger, Old XCel paid $125,000 at the Closing to the
then-current counsel of NetFabrics in order to extinguish certain
remaining liabilities of the Company immediately preceding the
Merger.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Private Placement</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Simultaneously with the closing of the Merger, and pursuant to a
Subscription Agreement (the “Subscription Agreement”)
between the Company and certain accredited investors (the
“Investors”) named in the Subscription Agreement, we
completed an offering (the “Offering”), raising
proceeds of $4,305,000, through the sale of 8.61 units (each, a
“Unit,” and collectively, the “Units”),
each Unit consisting of One Hundred Thousand (100,000) shares of
Common Stock and a Warrant to purchase Fifty Thousand (50,000)
shares of Common Stock, at an exercise price of $0.01 per share
(the “Warrants” and together with the Common Stock the
“Securities”) at a price of $500,000 per
Unit.  Certain executive officers and their affiliates
purchased 4.25 Units in the Offering on the same terms and
conditions as other Investors (the “Insider
Participation”).</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Warrants may be exercised at any time upon the election of the
holder, beginning on the date of issuance and ending on September
29, 2016. If, one (1) year from the date of issuance there is no
effective registration statement registering the shares of Common
Stock underlying the Warrants, the Warrants will be exercisable on
a cashless basis. The exercise price and number of shares of Common
Stock to be received upon the exercise of Warrants are subject to
adjustment upon the occurrence of certain events, such as stock
splits, stock dividends or our recapitalization.  In the
event of our liquidation, dissolution or winding up, the holders of
Warrants will not be entitled to participate in the distribution of
our assets.  Holders of Warrants do not have voting,
pre-emptive, subscription or other rights of stockholders in
respect of the Warrants, nor shall holders thereof be entitled to
receive dividends.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
   </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In connection with the Offering, we issued to the placement agent,
for placement agent services and as nominal consideration,
five-year warrants (the “Agent Warrants”) to purchase
9,800 shares of Common Stock, exercisable at any time at a price
equal to $5.50 per share, valued at approximately $3,000.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Registration Requirements</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
We have agreed to register the shares of the Common Stock and 100%
of the Warrant Shares issued in connection with the Offering, on a
registration statement to be filed with the Commission (the
“Registration Statement”) within sixty (60) days after
the final closing of the Offering (the “Filing Date”)
and keep the Registration Statement effective until the earlier of
(i) September 29, 2012 or (ii) until all Registrable
Securities covered by such Registration Statement have been sold,
or may be sold without volume or manner-of-sale restrictions
pursuant to Rule 144, without the requirement for the Company to be
in compliance with the current public information requirement under
Rule 144.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Agent Warrants have registration rights similar to the
registration rights afforded to the Investors.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company agreed to include up to 1,200,000 of the shares of
Common Stock issuable to IM Ready on the Closing Date in the
Registration Statement.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company has granted to certain of the executive officers
pursuant to their individual employment agreements piggy-back
registration rights with respect to the shares of Common Stock
issuable upon exercise of the executive warrants.  These
individuals have, however, agreed not to include such shares in the
Registration Statement.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company granted to the holders of the Lender Warrants (as
defined herein) piggy-back registration rights with respect to the
shares of Common Stock issuable upon exercise of the Lender
Warrants and the share issuable upon exercise of the Lender
Warrants will be included in the Registration Statement.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
2011 Equity Incentive Plan</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
As of the Closing Date, the Company assumed the 2011 Equity
Incentive Plan (the “Plan”) of Old XCel as approved by
Old XCel’s board of directors and stockholders. The purpose
of the Plan is to enable the Company to offer its employees,
officers, directors, consultants and others whose past, present
and/or potential contributions to the Company have been, are or
will be important to the success of the Company, an opportunity to
acquire a proprietary interest in the Company. A total of 2,500,000
shares of common stock are eligible for issuance under the Plan.
The Plan provides for the grant of any or all of the following
types of awards: stock options, restricted stock, deferred stock,
stock appreciation rights and other stock-based awards. The Plan
will be administered by the Board, or, at the Board's discretion, a
committee of the Board. On October 17, 2011, the Company issued to
the board 250,000 options.   33.33% vest immediately,
33.34% vest on the first anniversary of the grant and the 33.34%
vest on the 2nd anniversary of the grant.  On October 21,
2011 the Company issued to employees (non-management) 17,125 stock
options and 17,125 restricted stock grants. The employee stock
options and restricted stock grants vest 50% on the first
anniversary of the grant and 50% vest on the 2nd anniversary of the
grant. </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Management Warrants</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
As of the Closing Date, the Company issued to management warrants
to purchase 463,750 shares of common stock. The warrants are
exercisable in whole or in part, at an exercise price of $5.00 per
share (“Exercise Price”).  The warrants
consist of (1) immediately exercisable warrants to purchase 363,750
shares of common stock, beginning on the date of issuance and
ending of the tenth anniversary of the Closing Date and (2) 100,000
shares issuable upon exercise of warrants subject to 2-year, even
vesting from the Closing Date and ending of the tenth anniversary
of the Closing Date.  Upon the expiration of the Warrant
exercise period, the Warrants will expire and become void and
worthless. The stock based compensation recorded for the period
September 29, 2011 to December 31, 2011 is $324,000.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
   </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Investor Warrants</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
As part of the Offering, we issued Warrants to purchase 430,500
shares of common stock to investors in the Offering.  The
Warrants are exercisable in whole or in part, at an exercise price
of $0.01 per share (“Exercise Price”).  The
Warrants may be exercised at any time upon the election of the
holder, beginning on the date of issuance and ending of the fifth
anniversary of the Closing Date.  Upon the expiration of
the Warrant exercise period, the Warrants will expire and become
void and worthless.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Stock Options</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The fair value for these options and warrants for all years was
estimated at the date of grant using a Black-Scholes option-pricing
model with the following weighted-average assumptions:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 86%">Expected Volatility</td>
<td style="WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 11%">35-42</td>
<td style="WIDTH: 1%">%</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Expected Dividend Yield</td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: right">0</td>
<td>%</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>Expected Life (Term)</td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: right" nowrap="nowrap">3 – 5.75
years</td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Risk-Free Interest Rate</td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: right">0.42% - 0.98</td>
<td>%</td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The options that the Company granted under its plans
expire at various times, either five, seven or ten years from the
date of grant, depending on the particular grant.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Options </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
 </td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Weighted-Average</td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Options</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Exercise Price</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: right" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 74%">Outstanding at September 28, 2011</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">576</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">728.77</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Granted</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">267,125</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">5.00</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>Canceled</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Exercised</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt">Expired/Forfeited</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Outstanding at December 31,
2011</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
267,701</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
6.56</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Exercisable at December 31,
2011</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
83,076</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
10.02</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Compensation expense related to stock option grants for the period
from September 29, 2011 to December 31, 2011 was
$43,000.  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Warrants</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center" nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
 </td>
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Weighted-Average</td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Warrants</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Exercise Price</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: right" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 74%">Outstanding at September 28, 2011</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">1,065</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">0.52</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Granted</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,268,478</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1.88</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>Canceled</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Exercised</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">50,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">0.01</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt">Expired/Forfeited</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Outstanding at December 31,
2011</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
1,219,543</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
1.95</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Exercisable at December 31,
2011</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
1,169,543</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
1.61</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company values other warrants issued to non-employees at the
commitment date at the fair market value of the instruments issued,
a measure which is more readily available than the fair market
value of services rendered, using the Black-Scholes model. The fair
market value of the instruments issued is expensed over the vesting
period. The stock based compensation recorded for the period
September 29, 2011 to December 31, 2011 is $324,000.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Restricted Stock</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">Compensation cost for
restricted stock is measured as the excess, if any, of the market
price of the Company’s stock at the date the common stock is
issued over the amount the employee must pay to acquire the stock
(which is generally zero). The compensation cost, net of projected
forfeitures, is recognized over the period between the issue date
and the date any restrictions lapse, with compensation cost for
grants with a graded vesting schedule recognized using the treasury
method. The restrictions do not affect voting and dividend
rights.</font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Restricted<br />
Shares</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Weighted-Average<br />
Exercise Price</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: right" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>Outstanding at September 28, 2011</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="WIDTH: 74%">Granted</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">17,125</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">3.34</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>Canceled</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Vested</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt">Expired/Forfeited</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Outstanding at December 31,
2011</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
17,125</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
3.34</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On October 21, 2011, the Company issued to employees
(non-management) 17,125 restricted stock grants. The restricted
stock granted to employees vests as follows: (i) 50% on the first
anniversary of the grant, and (ii) 50% on the 2nd anniversary of
the grant. The stock based compensation recorded for the
period September 29, 2011 to December 31, 2011 is $5,000. </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Shares Available Under the Company’s 2011 Equity Incentive
Plan</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
At December 31, 2011 there were 2,215,750 common shares available
for issuance under the Company’s 2011 Equity Incentive
Plan.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Shares Reserved for Issuance</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
At December 31, 2011 there were 3,702,994 common shares reserved
for issuance pursuant to warrants, stock options and availability
for issuance under the Company’s 2011 Equity Incentive
Plan</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Dividends</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company has not paid any dividends to date.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">7.
Commitments and Contingencies</p>
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
Leases</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
We lease our current facility under an operating lease expiring on
February 28, 2016. The future minimum non-cancelable lease payments
are as follows:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Lease<br />
Payments</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 87%">Year ending December 31, 2012</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">532,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Year ending December 31, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">555,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>Year ending December 31, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">584,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Year ending December 31, 2015</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">601,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt">Year ending December 31, 2016</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
102,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 8.65pt">
Total future minimum lease payments</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
2,374,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The lease requires the Company to pay additional rents by virtue of
increases in the base taxes and other costs on the property.
Additional rents have not been material. Total rent expense was
$145,000 for the period September 29, 2011 to December 31, 2011
(the Successor period). Rent expense for the period January 1, 2011
to September 28, 2011 and the year ended December 31, 2010 (the
Predecessor periods) is $436,000 and $525,000, respectively.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company has contracts with certain executives and key
employees. The future minimum payments under these contracts
are:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Employment<br />
Contract<br />
Payments</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 87%">Year ending December 31, 2012</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">2,156,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Year ending December 31, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">2,505,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt">Year ending December 31, 2014</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
2,008,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 8.65pt">
Total future minimum lease payments</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
6,669,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
5.  Debt</p>
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company’s net carrying amount of debt is comprised
of the following:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Successor</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Predecessor</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">December 31,<br />
2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">December 31,<br />
2010</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 70%">Term Note</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">12,344,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">-</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Seller Note</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">5,765,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Installment debt obligation</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,158,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Contingent obligation – due to
seller</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">17,765,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Other long term
liabilities, less current portion</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
26,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-LEFT: 0.12in">Total</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">37,058,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Current
portion</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
44,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt">Total long term
liabilities</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
37,014,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
<b><u>Term Loan</u></b></p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On September 29, 2011, IM Brands, a wholly-owned subsidiary of the
Company, entered into a five year senior secured facility (the
“Loan”) with Midmarket Capital Partners, LLC
(“MidMarket”) and Noteholders in the aggregate
principal amount of $13,500,000. The Loan is secured by all of
the assets of IM Brands, LLC and the Company’s membership
interests in IM Brands, LLC.  The Company paid a closing
fee of $405,000 to MidMarket, which was equal to three percent (3%)
of the committed amount.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The principal amount of the Loan is payable quarterly as
follows:  0% until January 5, 2013, 2.5% on January 5,
2013 through October 5, 2013; 3.75% on January 5, 2014 through
October 5, 2014; 6.25% on January 5, 2015 through October 5, 2015;
12.5% on January 5, 2016 through the maturity date, which is the
date that is 5 years after the closing date.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Annual principal obligations are as follows:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center">
Year Ending December 31</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="TEXT-ALIGN: center; PADDING-BOTTOM: 1pt" colspan="2">
,</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 82%">2013</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">1,350,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2014</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">2,025,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2015</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">3,375,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">2016</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
6,750,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Total</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
13,500,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
   </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The interest rate on the loan is a fixed rate of 8.5%, payable in
cash.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Optional Prepayment</i>.  IM Brands may prepay the
Loan in whole or in part in increments of $500,000, provided that
IM Brands pay the following premiums in connection with the
prepayment:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 50%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid" nowrap="nowrap">
Period</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Applicable Premium</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 82%">First year following the
Closing</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">3</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">%</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Second year following the Closing</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">2</td>
<td style="TEXT-ALIGN: left">%</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Third year following the Closing</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1</td>
<td style="TEXT-ALIGN: left">%</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Fourth year following the Closing</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">0</td>
<td style="TEXT-ALIGN: left">%</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Mandatory Prepayments.  </i> IM Brands is required to
prepay the Loan under the following conditions:  (1) if
certain indebtedness is incurred by the Company; (2) if IM Brands
undertakes certain asset sales or sales of capital stock, with
limited exceptions; or (3) if there is a payment of the benefits of
a life insurance policy for Isaac Mizrahi held by the Company.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Excess Cash Flow Sweep.  </i> In addition to the
Mandatory Prepayments described above, if for any fiscal year
ending on or subsequent to December 31, 2012, there is excess cash
flow (as defined in the Loan agreements) for such year, then on the
payment date following the end of such year, IM Brands is required
to make a principal payment on the Loan equal to the lesser of (i)
50% of the excess cash flow or (ii) the positive result of the
unencumbered cash and cash equivalents of the Company minus the
greater of (x) the Excess Liquidity required to be maintained by IM
Brands and (y) $3,000,000. For the period ended December 31, 2011,
there was no Excess Cash Flow Sweep payment due.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Lender Warrants.</i> At the closing of the Loan, the Company
issued to the Noteholders seven year warrants (the “Lender
Warrants”) to purchase 364,428 shares of the Common Stock,
representing 5% of the Common Stock outstanding as of the Closing
Date on a fully diluted basis.  The warrants have an
exercise price of $0.01 and contain a cashless exercise
provision.  The Company granted to the holders of the
Lender Warrants piggy-back registration rights with respect to the
shares of Common Stock issuable upon exercise of the Lender
Warrants.  The carrying value of the Term Loan has been
reduced by the market value of the warrants, equal to $3.33 per
share.  The Company used the Black-Scholes method to
determine valuation.  The amount of the original loan
discount is $1,214,000, resulting in an initial net loan balance of
$12,286,000.  The Term Loan balance as of December 31, 2011 is
$12,344,000.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<i>Financial Covenants</i>.  So long as the Loan remains
unpaid or unsatisfied, IM Brands shall not, and shall not permit
any of its subsidiaries to, directly or indirectly:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 24px"> </td>
<td style="WIDTH: 24px">1.</td>
<td><u>Minimum Liquidity</u> .  Permit Excess Liquidity
to be less than the amount set forth below during each applicable
period set forth below:</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid">Fiscal Quarter</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Excess Liquidity</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 82%">September 29, 2011 through December 31,
2011</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">1,500,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>January 1, 2012 through March 31, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">1,750,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>April 1, 2012 through June 30, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">2,250,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>July 1, 2012 through September 30, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">2,750,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>October 1, 2012 through June 30, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">3,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>July 1, 2013 through September 30, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">3,250,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>October 1, 2013 through March 31, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">3,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>April 1, 2014 through June 30, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">3,750,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>July 1, 2014 and thereafter</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 24px"> </td>
<td style="WIDTH: 24px">2.</td>
<td><u>Capital Expenditures</u> .  Permit the aggregate
amount of Capital Expenditures to exceed $400,000 (whether or not
financed) per year.</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 24px"> </td>
<td style="WIDTH: 24px">3.</td>
<td><u>Consolidated Fixed Charge Coverage Ratio</u>
..  Permit the Consolidated Fixed Charge Coverage Ratio as
of the end of each of the fiscal quarters ending on the dates (or
for the periods) set forth for the period of four fiscal quarters
ending on such dates (or for the periods) below to be less than the
ratio set forth below opposite such period:</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif; MARGIN-LEFT: 0.15in" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; WIDTH: 69%">
Trailing Four Fiscal Quarters Ending</td>
<td style="WIDTH: 2%" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; PADDING-BOTTOM: 1pt; WIDTH: 29%" nowrap="nowrap">
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Minimum Fixed Charge</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Coverage Ratio</p>
</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">September 30, 2012 and December 31,
2012</td>
<td> </td>
<td style="TEXT-ALIGN: justify">1.90 to 1.00</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">March 31, 2013 and June 30,
2013</td>
<td> </td>
<td style="TEXT-ALIGN: justify">1.60 to 1.00</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">September 30, 2013, December 31,
2013, March 31, 2014, June 30, 2014 and September 30, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: justify">1.50 to 1.00</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">December 31, 2014 and March 31,
2015</td>
<td> </td>
<td style="TEXT-ALIGN: justify">1.30 to 1.00</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">June 30, 2015 and thereafter</td>
<td> </td>
<td style="TEXT-ALIGN: justify">1.15 to 1.00</td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 24px"> </td>
<td style="WIDTH: 24px">4.</td>
<td><u>Consolidated Total Leverage Ratio</u> .  Permit
the Consolidated Total Leverage Ratio as of the end of each of the
fiscal quarters ending on the dates (or for the periods) set forth
for the period of four fiscal quarters ending on such dates (or
for  the periods) below to be greater than the ratio set
forth below opposite such period:</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif; MARGIN-LEFT: 0.15in" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; WIDTH: 69%">
Trailing Four Fiscal Quarters Ending</td>
<td style="WIDTH: 2%" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; WIDTH: 29%" nowrap="nowrap">
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Maximum</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Consolidated</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Leverage Ratio</p>
</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">September 30, 2012 and December 31,
2012</td>
<td> </td>
<td style="TEXT-ALIGN: justify">3.50 to 1.00</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">March 31, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: justify">3.30 to 1.00</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">June 30, 2013 and September 30,
2013</td>
<td> </td>
<td style="TEXT-ALIGN: justify">3.00 to 1.00</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">December 31, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: justify">2.75 to 1.00</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">March 31, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: justify">2.25 to 1.00</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: top">
<td style="TEXT-ALIGN: justify">June 30, 2014 and thereafter</td>
<td> </td>
<td style="TEXT-ALIGN: justify">2.00 to 1.00</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 24px"> </td>
<td style="WIDTH: 24px">5.</td>
<td><u>Minimum Consolidated EBITDA</u> .  Permit
Consolidated EBITDA as of the end of each of the fiscal quarters
ending on the dates set forth for the period of four fiscal
quarters ending on such dates below to be less than the amount set
forth opposite such quarter in the table below; <u>provided</u>
that for the fiscal quarters ended on December 31, 2011, March 31,
2012 and June 30, 2012, such periods shall be one fiscal quarter,
two fiscal quarters and three fiscal quarters, respectively:</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid">Fiscal Quarter</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Consolidated EBITDA</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify; WIDTH: 82%">December 31, 2011</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">250,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">March 31, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">1,250,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">June 30, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">2,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">September 30, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">December 31, 2012 and March 31,
2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,250,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">June 30, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">September 30, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">4,750,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: justify">December 31, 2013 and
thereafter</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">5,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 24px"> </td>
<td style="WIDTH: 24px">6.</td>
<td><u>Dividend Restrictions</u> .  Permit any cash
dividends or any other equity distributions.</td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 24px"> </td>
<td style="WIDTH: 24px">7.</td>
<td><u>Restricted Cash Payments</u> .  Permit any cash
payments for the Seller Note or any contingent earn-out
obligations.</td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">As of
December 31, 2011, the Company and IM Brands, LLC were in full
compliance with all of the covenants under the Loan.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
<u>Seller Note</u></p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Pursuant to the Purchase Agreement, at the closing, the Company
delivered to IM Ready a promissory note (the “Seller
Note”) in the principal amount of $7,377,000.  The
stated interest rate of the Seller Note is
0.25%.  Management has determined that this rate is below
the Company’s expected borrowing rate, which is
9.25%.  Therefore, the Company has discounted the Seller
Note by $1,740,000 using a 9.0%, imputed annual interest rate,
resulting in a current value of $5,637,000.  In addition,
the Company pre-paid $123,000 of interest on the Seller Note on the
Closing Date.  The Seller Note balance at December 31,
2011 is $5,765,000.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Seller Note initially matures three years from the Closing Date
(the “Maturity Date”) subject to extension as described
below (the date to which the maturity date of the Seller Note is
extended is referred to as the “Subsequent Maturity
Date”).  We have the right to pay the Seller Note
at the Maturity Date in cash or, subject to the following
conditions, in shares of Common Stock.  If we elect to
repay the outstanding principal amount of the Seller Note on the
Maturity Date by issuing shares of Common Stock, the number of
shares issuable will be obtained by dividing the principal amount
of the Seller Note then outstanding by the greater of (i) the fair
market value of the Common Stock on the Maturity Date and (ii)
$4.50 subject to certain adjustments; provided, however, that if
the fair market value of the Common Stock is less than $4.50 as
adjusted, IM Ready will have the option to extend the maturity of
the Seller Note to the Subsequent Maturity Date. If the maturity
date of the Seller Note is so extended, IM Ready will have the
option to convert the Seller Note into Common Shares based on the
greater of (i) the fair market value of the Common Stock on the
Subsequent Maturity Date and (ii) $4.50, subject to certain
adjustments. If the maturity date of the Seller Note is
extended, we will also have the option to repay the outstanding
principal amount of the Seller Note on the Subsequent Maturity Date
in cash or by issuing the number of shares of Common Stock obtained
by dividing the principal amount of the Note outstanding on the
Subsequent Maturity Date by the fair market value of the Common
Stock on the Maturity Date.  In addition, at any time the
Seller Note is outstanding, we have the right to convert the Note,
in whole or in part, into the number of shares of Common Stock
obtained by dividing the principal amount to be converted by the
fair market value of the Common Stock at the time of the
conversion, so long as the fair market value of our Common Stock is
at least $4.50. </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
<u>Long Term Installment Obligations</u></p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
As described in Note 3 herein, prior to the Merger and related
transactions, Earthbound had certain rights and provided certain
services to IM Ready related to the Isaac Mizrahi Business.
Effective as of the Closing Date, IM Ready and Earthbound entered
into the Services Agreement pursuant to which Earthbound provided
transitional services to IM Ready prior to the closing of the
Merger and for which Earthbound received from IM Ready $600,000 in
cash on the Closing Date and IM Ready agreed to pay to Earthbound
an additional payment of $1,500,000 (the “Future
Payment”), with such amount payable over the next five years.
The Company assumed the obligations related to the Future Payment
from IM Ready upon its acquisition of the Isaac Mizrahi
Business. The five-year obligation is non-interest bearing and
the Company has discounted the amount of the installment obligation
by a 9.25% imputed annual interest rate, resulting in an initial
value of $1,132,000. The balance of the Installment Obligation at
December 31, 2011 is $1,158,000.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Payments are due quarterly beginning March 2012.  Annual
payments are as follows:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
</p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">
Year Ending December 31,</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 82%">2012</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">150,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2013</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">325,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2014</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">325,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">2015</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">350,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">2016</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
350,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt">Total</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
1,500,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
</p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
<u>Capitalized Lease Obligations</u></p>
<p style="MARGIN: 0pt 0px; FONT: italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company assumed the obligations from the Seller under an
equipment lease through February 2013.  The net
discounted payments of the lease obligations are in excess of 90%
of the fair market value (FMV) of the equipment.  The
Company has capitalized the discounted lease payments by its
imputed interest rate of 9.25%. The capital lease obligation
balance at December 31, 2011 is $20,000.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
10. Subsequent Events</p>
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
None.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Principles of Consolidation</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The consolidated financial statements include the accounts of
Xcel
Brands, Inc. and its wholly owned subsidiaries. The consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America and in accordance with the SEC’s accounting rules
under Regulation S-X. All material inter-company accounts and
transactions have been eliminated in consolidation.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Presentation of Predecessor Financial Statements</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The financial statements covered by the Predecessor have been
prepared for the purpose of complying with the rules and
regulations of the U.S. Securities and Exchange Commission. The
Isaac Mizrahi Business ("Licensing Business") is not a separate
legal entity, thus the financial statements are not necessarily
indicative of the results of operations that would have occurred if
the Licensing Business had been operated as a separate legal
entity. IM Ready’s net investment in the Licensing Business
(“Parent’s Equity in Unit”) is shown in lieu of
stockholders’ equity in the financial statements.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
All of the allocations and estimates in the accompanying
Predecessor financial statements are based on assumptions that IM
Ready and Xcel management (collectively “management”)
believe are reasonable, and reasonably approximate the historical
costs that the Licensing Business would have incurred as a separate
entity. However, these allocations and estimates are not
necessarily indicative of the costs and expenses that would have
resulted if the Licensing Business had been operated as a separate
entity. The allocation of expenses were made to comply with the
guidance provided by Staff Accounting Bulletin Topic 1B1,
“Allocation of Expenses and Related Disclosure in Financial
Statements of Subsidiaries, Divisions or Lesser Business Components
of another Entity”.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"><u>Use
of Estimates</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the year. Actual results
could be affected by those estimates.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"><u>Cash
and cash equivalents</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company considers all highly-liquid investments with original
maturities of three months or less to be cash equivalents.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"><u>Fair
Value of Financial Instruments</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The carrying amounts of the Company’s assets and liabilities
approximate their fair value presented in the accompanying
Consolidated Balance Sheets, due to their short maturities.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Property and Equipment</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Furniture and equipment are recorded at cost and depreciated using
the straight-line method over their estimated useful lives,
generally three (3) to seven (7) years. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the
terms of the leases. Betterments and improvements are capitalized,
while repairs and maintenance are expensed as incurred.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Trademarks, Goodwill and Other Intangible Assets</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Goodwill represents the excess of cost over the fair value of net
assets of businesses acquired. The Company accounts for goodwill
under the guidance of the Accounting Standards Codification
(“ASC”) Topic 350 – “Intangibles: Goodwill
and Other”. Goodwill and other intangible assets acquired in
a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for
impairment, at least annually, in accordance with this guidance.
This guidance also requires that intangible assets with estimable
useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for
impairment.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In accordance with the guidance of ASC Topic 350, long-lived
assets, such as property and equipment and purchased intangible
assets subject to amortization are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Deferred Finance Costs</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Costs incurred in connection with debt offerings are deferred and
amortized as interest expense over the term of the related debt
using the effective interest method. The amortization expense is
included in interest expense in the consolidated statements of
operations.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Contingent Obligations</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Management will analyze and quantify the expected earn-out payments
over the applicable pay-out period.  Management will assess no
less frequently than each reporting period the status of contingent
obligations. Any change in the expected obligation will result
in an expense or income recognized in the period in which it is
determined fair market value of the carrying value has changed.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Income Taxes</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities. Deferred
income taxes are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using
enacted rates in effect during the year in which <font style="BACKGROUND-COLOR: white; COLOR: black">the differences are
expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to
be realized.</font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white"> </font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">ASC Topic 740 clarifies the
accounting for uncertainty in income taxes recognized in an
enterprise's financial statements. Tax positions shall initially be
recognized in the financial statements when it is more likely than
not that the position will be sustained upon examination by the tax
authorities. Such tax positions shall initially and subsequently be
measured as the largest amount of tax benefit that has a
probability of fifty percent (50%) or greater of being realized
upon ultimate settlement with the tax authority, assuming full
knowledge of the position and all relevant facts.</font></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Revenue recognition</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company recognizes revenue when persuasive evidence of a sale
arrangement exists, delivery has occurred and services have been
rendered, the sales price is fixed and determinable, and
collectability is reasonable assured. The Company has two types of
revenues: (i) royalties based on the sale of products by its
licensees or other contractual partners, and (ii) design service
fees based on services provided. Revenues from royalties are
recognized when earned, which includes guaranteed minimum
royalties, if any, and additional revenues based on a percentage of
defined sales by our licensees or other contractual partners for
each period. Royalties exceeding the guaranteed minimum amounts are
recognized as income during the period that corresponds to the
licensee’s or partner’s sales.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Design service fees are recorded and recognized in accordance with
the terms and conditions of each design fee contract, including the
Company meeting its obligations and providing the relevant services
under each contract.  Generally, we record on a straight line
basis each base fee as stated in each design fee service agreement
for the covered period and, if applicable, we recognize
additional payments received that is related to a future period as
deferred revenue, until service is provided or revenue is
earned.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Concentrations of Credit Risk</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Financial instruments which potentially subject us to
concentrations of credit risk consist principally of cash and cash
equivalents, and accounts receivable. We limit our credit risk with
respect to cash by maintaining cash balances with quality financial
institutions. At December 31, 2011, our cash and cash equivalents
exceeded FDIC limits. Concentrations of credit risk with respect to
accounts receivable are minimal due to the limited amount of
outstanding receivables and due to the nature of our royalty
revenues. Generally, we do not require collateral or other security
to support accounts receivables.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Significant Contracts</u></p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
QVC Agreement</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In connection with the acquisition of the Isaac Mizrahi Business,
the Company acquired a direct-to-retail license agreement with QVC
that was entered into in January 2009 and amended and restated on
September 29, 2011 in connection with the acquisition (as amended,
the “QVC Agreement”). Pursuant to the QVC Agreement,
the Company designs, and QVC sources and sells, various products
under the “IsaacMizrahiLIVE” brand.  The
IsaacMizrahiLIVE licensing program launched on QVC in 2010, and
includes the sale of products across various categories including
apparel, footwear, handbags, accessories, kitchen, soft home, and
food through QVC’s television media and related Internet
sites primarily in the United States. The initial term of the QVC
Agreement continues through September 30, 2015, and renews
automatically for successive one-year periods unless terminated by
either party. Under the QVC Agreement, QVC has agreed to pay
royalties based primarily on a percentage of QVC's net sales of
Isaac Mizrahi branded merchandise. Royalty revenues from QVC
totaled approximately $1,936,000 <font style="COLOR: black">for the
period from September 29, 2011 to December 31, 2011 (the Successor
period), representing 67% of the Company’s total
revenues.</font> Royalty revenues from QVC totaled<font style="COLOR: black">approximately $5,436,000 and $4,492,000 for the
period from January 1, 2011 to September 28, 2011, and the year
ending December 31, 2010, respectively (the Predecessor periods) ,
which represents</font> 62% and 46% of total revenues for the Isaac
Mizrahi Business, respectively. As of December 31, 2011, the
Company had a receivable from QVC in the amount of $1,900,000,
representing 87% of the Company’s receivables. As of
September 28, 2011 and December 31, 2010, the Predecessor had a
receivable from QVC in the amount of $1,650,000 and $1,650,000
representing 85% and 93% of the Predecessor’s receivables,
respectively.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
LCNY Agreement</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In connection with the acquisition of the Isaac Mizrahi Business,
the Company assumed and entered into an amended and restated
agreement (the “LCNY Agreement”) with Liz Claiborne,
Inc. (“LC”) dated September 29,
2011.  Pursuant to the LCNY Agreement, the Company
provides design services to LC for the “Liz Claiborne
New
York” brand, which is sold exclusively through QVC. The
initial term of the LCNY Agreement continues through July 31, 2013.
Under the LC Agreement, LC has agreed to pay the Company royalties
based primarily on a percentage of royalties LC receives from QVC
under a separate license agreement between LC and QVC. Revenues
under the LCNY Agreement totaled approximately $383,000
<font style="COLOR: black">for the period from September 29, 2011
to December 31, 2011, representing 13% of the Company’s total
revenues.</font> Revenues from the LCNY Agreement (and a previous
design agreement with LC) totaled <font style="COLOR: black">approximately $2,455,000 and $2,723,000 for the
periods from January 1, 2011 to September 28, 2011, and the year
ending December 31, 2010, respectively, representing</font> 28% and
28% of total revenues for the Isaac Mizrahi Business, respectively.
The revenues during the Predecessor period includes amortized
revenue of $1,748,000 and $2,347,000 for the periods from January
1, 2011 to September 28, 2011 and the year ended December 31, 2010,
respectively that relates to a one-time fee of $9,000,000 that the
Predecessor received from LC in 2009, which was recorded as a
deferred royalty payment (other liabilities) on the balance sheet
in the financial statements of the Predecessor. This amount
was being amortized by the Predecessor on a straight line basis
over the life of the LCNY Agreement. Following its acquisition of
the Isaac Mizrahi Business, the Company is not receiving the
benefits of the one-time payment and has not recorded any deferred
royalty payment as a result of the one-time payment.</p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: bold italic 10pt Times New Roman, Times, Serif">
LC/QVC Design fees</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In connection with the Transactions, the Company also assumed an
agreement with QVC whereby the Company will receive an annual
design fee from QVC for the term of the LCNY Agreement (the
“Design Agreement”), which fee is intended to cover
certain design expenses of the Company related to the Liz Claiborne
New York brand.  Revenues from the Design Agreement
totaled approximately $282,000<font style="COLOR: black">for the
period from September 29, 2011 to December 31, 2011, or 10% of the
Company’s total revenues.</font> Revenues from the Design
Agreement totaled <font style="COLOR: black">approximately $818,000
and $1,100,000 for the periods from January 1, 2011 to September
28, 2011 and the year ended December 31, 2010, respectively,
representing</font> 9% and 11% of total revenues for the Isaac
Mizrahi Business, respectively.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Stock Based Compensation</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company accounts for stock-based compensation in accordance
with ASC Topic 718 by recognizing the fair value of stock-based
compensation in the consolidated statement of
operations.  The fair value of the Company’s stock
option awards are estimated using a Black-Scholes option valuation
model. This model requires the input of highly subjective
assumptions and elections including expected stock price volatility
and the estimated life of each award. In addition, the calculation
of compensation costs requires that the Company estimate the number
of awards that will be forfeited during the vesting period. The
fair value of stock-based awards is amortized over the vesting
period of the awards.  For stock-based awards that vest
based on performance conditions (e.g. achievement of certain
milestones), expense is recognized when it is probable that the
condition will be met.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Restricted Stock</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Compensation cost for restricted stock is measured using the market
price of the Company’s common stock at the date the common
stock is granted. The compensation cost is recognized over the
period between the issue date and the date any restrictions
lapse.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Earnings per Share</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Basic earnings per share excludes dilution and is computed by
dividing net income (or loss) available to common stockholders by
the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflect, in periods in which
they have a dilutive effect, the effect of common shares issuable
upon the exercise of stock options and warrants. The difference
between basic and diluted weighted-average common shares results
from the assumption that all dilutive stock options, warrants and
restricted stock outstanding were exercised into common stock.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
As of December 31, 2011, 267,701 shares issuable upon exercise of
options and 473,550 shares issuable upon exercise of warrants were
excluded from the calculation of earnings per share because they
were anti-dilutive.</p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<u>Recently Issued Accounting Standards</u></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Management does not believe that any recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would
have a material effect on the Company’s consolidated
financial statements.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
11. Unaudited Quarterly Results</p>
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">Unaudited interim
consolidated financial information 2011 and 2010 is summarized as
follows:</font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 90%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="10">Predecessor</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="6">Successor</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
Year Ended December 31, 2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">First<br />
Quarter</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Second<br />
Quarter</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Period July 1,<br />
2011 to Sept.<br />
28, 2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Period Sept.<br />
29, 2011 to<br />
Sept. 30, 2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Fourth<br />
Quarter</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 35%">Net licensing & design
revenues</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">2,895,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">2,894,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">2,940,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">47,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">2,599,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Operating income (loss)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,358,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,480,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,510,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(803,000</td>
<td style="TEXT-ALIGN: left">)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">290,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Net Income (loss)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,304,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,421,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,448,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(804,000</td>
<td style="TEXT-ALIGN: left">)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(65,000</td>
<td style="TEXT-ALIGN: left">)</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Basic and dilutive earnings per share
(1)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(0.14</td>
<td style="TEXT-ALIGN: left">)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(0.01</td>
<td style="TEXT-ALIGN: left">)</td>
</tr>
</table>
<p style="BACKGROUND-COLOR: white; TEXT-INDENT: -0.25in; MARGIN: 0pt 0px 0pt 0.5in; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="BACKGROUND-COLOR: white; WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 24px"> </td>
<td style="WIDTH: 24px">(1)</td>
<td>Quarterly earnings per share amounts may not add to full year
amounts due to rounding</td>
</tr>
</table>
<p style="BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 95%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="14">Predecessor</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
The Year Ended December 31, 2010</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">First<br />
Quarter</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Second<br />
Quarter</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Third<br />
Quarter</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Fourth<br />
Quarter</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 48%">Licensing and other
revenue</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">2,102,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">1,420,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">3,207,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">3,067,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Operating income</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,054,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">263,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,855,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,674,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Net income</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,012,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">252,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,776,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,584,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">4.
Trademarks, Goodwill and Other Intangibles</p>
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Trademarks, goodwill and other intangibles, net consist of the
following:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="6">(Successor)</td>
<td style="PADDING-BOTTOM: 1pt; BORDER-RIGHT: black 1pt solid">
 </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="6">(Predecessor)</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="6">December 31, 2011</td>
<td style="PADDING-BOTTOM: 1pt; BORDER-RIGHT: black 1pt solid">
 </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="6">December 31, 2010</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td> </td>
<td style="TEXT-ALIGN: center">Estimated</td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2">Gross</td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td style="BORDER-RIGHT: black 1pt solid"> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2">Gross</td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td> </td>
<td style="TEXT-ALIGN: center">Lives in</td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2">Carrying</td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2">Accumulated</td>
<td style="BORDER-RIGHT: black 1pt solid"> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2">Carrying</td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2">Accumulated</td>
<td> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center">
Years</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Amount</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Amortization</td>
<td style="PADDING-BOTTOM: 1pt; BORDER-RIGHT: black 1pt solid">
 </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Amount</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">Amortization</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td> </td>
<td style="TEXT-ALIGN: center"> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td style="BORDER-RIGHT: black 1pt solid"> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 35%">Indefinite life trademarks
and copyrights</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: center; WIDTH: 12%">Indefinite</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">44,500,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">-</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%; BORDER-RIGHT: black 1pt solid">
 </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">-</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">-</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Goodwill</td>
<td> </td>
<td style="TEXT-ALIGN: center">Indefinite</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">11,096,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left; BORDER-RIGHT: black 1pt solid">
 </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Licensing
agreements</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="TEXT-ALIGN: center; PADDING-BOTTOM: 1pt">4</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
2,000,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
135,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; BORDER-RIGHT: black 1pt solid">
 </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="TEXT-ALIGN: center; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
57,596,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
135,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; BORDER-RIGHT: black 1pt solid">
 </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The following table presents amortization expense for Licensing
Agreements over the remaining useful life:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 90%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" nowrap="nowrap">Year Ending</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2" nowrap="nowrap">Carrying<br />
Value</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2" nowrap="nowrap">Amortization<br />
Expense</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="WIDTH: 70%">December 31, 2011</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">1,865,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">135,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>December 31, 2012</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,336,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">529,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>December 31, 2013</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">807,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">529,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>December 31, 2014</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">278,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">529,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>December 31, 2015</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">278,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On September 29, 2011, the Company completed a transaction in which
it acquired substantially all of the licensing rights to the Isaac
Mizrahi brands and trademarks from IM Ready-Made,
LLC.  See Note 3, “Acquisition of the Isaac Mizrahi
Business” for further details of this transaction.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Amortization expense for intangible assets for the period from
September 29, 2011 to December 31, 2011 is $135,000. Amortization
expense for the Predecessor Periods is nil. The trademarks of Isaac
Mizrahi have been determined to have an indefinite useful life and
accordingly, consistent with ASC Topic 350, no amortization has
been recorded in the Company's consolidated statement of
operations.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">1.
NATURE OF OPERATIONS, BACKGROUND, BASIS OF PRESENTATION AND REVERSE
ACQUISITION</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Xcel Brands, Inc. ("XCel", “we”, “our” or
the "Company") engages in the design, licensing, and marketing of
the Isaac Mizrahi brand with a focus on a variety of product
categories featuring the IM Trademarks.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On September 29, 2011, NetFabric Holdings, Inc. (NetFabrics), a
public “Shell Company”, entered into an Agreement of
Merger and Plan of Reorganization (the “Merger
Agreement”) pursuant to which a subsidiary of NetFabrics was
merged with and into XCel, with XCel surviving as a wholly-owned
subsidiary of the Company (the “Merger”). This resulted
in the owners of XCel (the "accounting acquirer") having actual or
effective operating control of the Company after the transaction,
with the shareholders of NetFabrics (the "legal acquirer")
continuing only as passive investors. No goodwill was recognized
since Net Fabrics was a Shell Company.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Also on September 29, 2011, the Company acquired the Isaac Mizrahi
Business (the “Transaction”) (see Note 3). The
Transaction was accounted for as a business combination, whereby
the purchase price paid to effect the Transaction was allocated to
record acquired assets and assumed liabilities at their fair value
as of the acquisition date.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
As XCel had limited operations prior to the Transaction, the Isaac
Mizrahi Business was deemed to be the Predecessor of the Company
for financial statement presentation purposes. Accordingly, the
accompanying financial statements designate periods preceding the
Transaction as relating to the Predecessor and all references to
periods after September 29, 2011 (Transaction date) shall be
referred to as Successor.</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">8.
Income taxes</p>
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">The Company accounts for
income taxes in accordance with ASC Topic 740. Under ASC Topic 740,
deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets
and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. A valuation allowance is established when necessary to
reduce deferred tax assets to the amount expected to be realized.
In determining the need for a valuation allowance, management
reviews both positive and negative evidence pursuant to the
requirements of ASC Topic 740, including current and historical
results of operations, future income projections and the overall
prospects of the Company's business. See below in this Note 8 for
information relating to the Predecessor.</font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">Due to operating losses
incurred, the Successor has no current income tax provision for the
period from September 29, 2011 to December 31, 2011 The Predecessor
entity, as further discussed below, was subject to State and local
unincorporated business income taxes. The income tax provision
(benefit) consists of the following:</font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center; FONT-STYLE: italic"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Successor</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="6"><b>Predecesso</b>r</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Period<br />
September 29,<br />
2011 to<br />
December 31,<br />
2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Period<br />
January 1, 2011 to<br />
September 28,<br />
2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Year Ended<br />
December 31,<br />
2010</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="FONT-WEIGHT: bold; TEXT-DECORATION: underline">
Current:</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td>Federal</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; WIDTH: 55%">State
and local</td>
<td style="PADDING-BOTTOM: 1pt; WIDTH: 1%"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left; WIDTH: 1%">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right; WIDTH: 12%">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; WIDTH: 1%">
 </td>
<td style="PADDING-BOTTOM: 1pt; WIDTH: 1%"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left; WIDTH: 1%">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right; WIDTH: 12%">
175,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; WIDTH: 1%">
 </td>
<td style="PADDING-BOTTOM: 1pt; WIDTH: 1%"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left; WIDTH: 1%">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right; WIDTH: 12%">
222,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt; WIDTH: 1%">
 </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Total
current</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
175,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
222,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="FONT-WEIGHT: bold; TEXT-DECORATION: underline">
Deferred:</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>Federal</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(178,000</td>
<td style="TEXT-ALIGN: left">)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">State and
local</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
(12,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">)</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Total
deferred</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
(190,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
-</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt">Total provision
(benefit)</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
(190,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt">)</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
175,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
222,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white"> </font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">The reconciliation of income
tax computed at the Federal and state statutory rate to loss before
taxes are as follows:</font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Successor</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="6"><b>Predecesso</b>r</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Period September<br />
29, 2011 to<br />
December 31,<br />
2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Period January<br />
1, 2011 to<br />
September 28,<br />
2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">Year Ended<br />
December 31,<br />
2010</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 61%">Federal statutory income
tax rate</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">(34.0</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">)%</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">-</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">-</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">State and local, net of federal
tax</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(2.5</td>
<td style="TEXT-ALIGN: left">)%</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">4.0</td>
<td style="TEXT-ALIGN: left">%</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">4.0</td>
<td style="TEXT-ALIGN: left">%</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Non deductible stock compensation</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">14.9</td>
<td style="TEXT-ALIGN: left">%</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">-</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Miscellaneous
difference</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
3.7</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">%</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
 </td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
0.5</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">%</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
(17.9</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">)%</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
4.0</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">%</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
4.5</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">%</td>
</tr>
</table>
<p style="BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white"> </font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">The significant components of
net deferred tax assets of the Company consist of the
following:</font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 <font style="BACKGROUND-COLOR: white"> </font></p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: center"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Successor</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold" nowrap="nowrap">Deferred tax assets</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2" nowrap="nowrap">December 31,<br />
2011</td>
<td style="PADDING-BOTTOM: 1pt" nowrap="nowrap"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 87%">Federal state and local
net operating loss carryforwards</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 10%">310,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Stock based compensation</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">135,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Accrued
compensation and other</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
18,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Total deferred
tax assets</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
463,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; FONT-WEIGHT: bold; TEXT-DECORATION: underline">
Deferred tax liability</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Property and equipment</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">13,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Basis difference arising from
discounted note payable</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">590,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Basis difference
arising from intangible assets of acquisition</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
9,691,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Total deferred
tax liabilities</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
10,294,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Net deferred tax
liabilities</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">$</td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
9,831,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
</table>
<p style="BACKGROUND-COLOR: white; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white"> </font></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<font style="BACKGROUND-COLOR: white">The Successor has available
at December 31, 2011 approximately $310,000 of unused net operating
loss carryforwards that may be applied against future taxable
income, which begin to expire in 2031. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating loss carry
forwards may be impaired or limited in certain circumstances.
Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but
are not limited to a cumulative ownership change of more than 50%,
as defined, over a three year period.</font> The amount of such
limitation, if any, has not been determined.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
   </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
IM Ready-Made, LLC is a limited liability company, and treated as a
partnership for income tax reporting purposes.  The
Internal Revenue Code (“IRC”) provides that any income
or loss is passed through to the members for federal and state
income tax purposes.  Accordingly, neither IM Ready-Made,
LLC nor its unincorporated Licensing Business division (the
Predecessor) has provided for federal or state income
taxes.  IM Ready-Made, LLC is subject to
New York City
unincorporated business taxes.  The Predecessor has
provided for these taxes with an effective tax rate of
approximately 4%</p>
</div>
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="MARGIN: 0pt 0px; FONT: bold 10pt Times New Roman, Times, Serif">3.
Acquisition of the Isaac Mizrahi Business</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
On May 19, 2011,
Xcel Brands, Inc. entered into an asset purchase
agreement, as amended (the “Purchase Agreement”), with
IM Ready-Made, LLC (“IM Ready”), Isaac Mizrahi and
Marisa Gardini, pursuant to which the Buyers acquired certain
assets of IM Ready, including (i) the “Isaac Mizrahi”
brands (including the trademarks and brands “Isaac Mizrahi
New York”, “Isaac Mizrahi”,
“IsaacMizrahiLIVE” and “M”) (collectively,
the “IM Trademarks”), (ii) the license agreements
between IM Ready and certain third parties related to the IM
Trademarks including the QVC Agreement (together with the IM
Trademarks, the “Isaac Mizrahi Business”), (iii) design
agreements with Liz Claiborne (the LCNY Agreement) and QVC (the
Design Agreement) to design the “Liz Claiborne
New
York” brand for sale exclusively at QVC, (iv) computers,
design software, and assumption of the operating lease and the
related leasehold improvements related to the licensing and design
of the IM Trademarks and the design of the Liz Claiborne
New York
brand and (v) proprietary designs and design process, trade dress,
trade names, personal names, images and likenesses, product
configuration, corporate names, logos, insignias and slogans and
Internet domain names, Internet websites, and URL’s Internet
and phone applications and systems.  The parties
consummated the asset purchase contemplated by the Purchase
Agreement on September 29, 2011.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Pursuant to an agreement between IM Ready and Earthbound, LLC
(“Earthbound”), a design and licensing company (the
“Earthbound Agreement”), Earthbound had certain rights
related to the IM Trademarks and provided certain design services
for IM Ready.  In connection with the consummation of the
acquisition by the Company of the Isaac Mizrahi Business, XCel and
Earthbound entered into a contribution agreement (the
“Contribution Agreement”) pursuant to which, on the
Closing Date, Earthbound contributed to the Company (i) the
Earthbound Agreement and (ii) certain assets relating to the
operation of the Isaac Mizrahi Business in exchange for 944,688
shares of Common Stock and also purchased one (1) Unit in the
Offering (as defined in Note 6 below).  The closing of
the acquisition of the Isaac Mizrahi Business and Earthbound Assets
occurred in conjunction with the consummation of the Merger, after
which the Company terminated the Earthbound Agreement. Earthbound
contributed to the Company, the Earthbound Agreement and certain
assets in exchange for 944,688 shares of the Company’s Common
Stock valued at $3,155,000 based on the Effective Share Purchase
Price.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Pursuant to the Purchase Agreement, at the closing, the Buyers
delivered (i) to IM Ready (a) $9,674,000 in cash, (b) a promissory
note (the “Seller Note”) in the principal amount of
$7,377,000 and (c) 2,759,000 shares of common stock of the Company
(the “IM Ready Stock Consideration”), and (ii) to an
escrow agent $500,000 that the escrow agent agreed pay to IM Ready
upon resolution of certain obligations of IM Ready and Mizrahi
(together, the “Closing Consideration”).  The
Company also pre-paid $123,000 of interest on the Note on the
Closing Date and agreed to include up to 1,200,000 of the shares of
the IM Ready Stock Consideration in the registration statement
which the Company has agreed to file to register for resale of the
Shares and Warrant Shares of the Investors (the “Registration
Statement”).  The Company does not have a penalty
provision relating to the registration of these shares.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
XCel was deemed to be the accounting acquirer of the Isaac Mizrahi
Business based on various qualitative and quantitative factors
including<font style="COLOR: black">:</font></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 36pt"></td>
<td style="WIDTH: 18.05pt">a.</td>
<td style="TEXT-ALIGN: justify">Management of XCel accounts for
substantially all of the management of the combined entities. The
CEO, CFO, COO and Secretary all continue in the combined
entity.</td>
</tr>
</table>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 36pt"></td>
<td style="WIDTH: 18.05pt">b.</td>
<td style="TEXT-ALIGN: justify">Seven members compose the board of
directors. All members were selected by XCel, including one
director who was a principal of IM Ready and director who was a
principal of Earthbound.</td>
</tr>
</table>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 36pt"></td>
<td style="WIDTH: 18.05pt">c.</td>
<td style="TEXT-ALIGN: justify">IM Ready granted a proxy to the
Company’s board of directors to vote its stock in accordance
with the recommendation of the board of directors and Robert
D’Loren, who was Chairman of the board of directors of XCel
and has been designated by the Company’s board of directors
to exercise such proxy.</td>
</tr>
</table>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 36pt"></td>
<td style="WIDTH: 18.05pt">d.</td>
<td style="TEXT-ALIGN: justify">XCel management as a group makes up
the largest minority voting group. There is no majority
stockholder.</td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The Company accounts for purchase of the Isaac Mizrahi Business
using the acquisition method of accounting.  In accordance
with ASC 805, <i>Business Combinations</i>, the total purchase
consideration is allocated to certain net tangible and identifiable
intangible assets acquired, and liabilities assumed, based on their
estimated fair values as of September 29, 2011.</p>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
The purchase price for the acquisition is being allocated as
follows:</p>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Components of purchase price:</p>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif; MARGIN-LEFT: 1.3in" cellspacing="0" cellpadding="0">
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 82%">Cash paid at closing</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">9,674,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Cash deposited with escrow agent</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td>3,703,688 shares of common stock of the Company valued at $3.34
per share</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">12,370,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Seller Note</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">7,377,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Seller Note discount (See Note 5,
Debt)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(1,740,000</td>
<td style="TEXT-ALIGN: left">)</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Contingent obligations – Due to
Seller</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">17,766,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Long term installment obligation
(Earthbound) (See Note 5, Debt)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,132,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Seller Licensee
obligation assumed and paid at closing</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
1,500,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 9pt; FONT-WEIGHT: bold">Total
purchase price</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
48,579,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Preliminary allocation of purchase price:</p>
<p style="TEXT-ALIGN: justify; TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 70%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif; MARGIN-LEFT: 1.3in" cellspacing="0" cellpadding="0">
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 82%">Trademark and other
related intangible assets</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">57,596,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Property, furniture and equipment</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">1,233,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Deferred tax
liability</td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right">
(10,250,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">)</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 9pt; FONT-WEIGHT: bold">
Total assets acquired</td>
<td style="PADDING-BOTTOM: 2.5pt"> </td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left">
$</td>
<td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right">
48,579,000</td>
<td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
Intangible assets were valued using an independent valuation firm.
The trademarks we acquired are considered to have an indefinite
life and are not subject to amortization. Value allocated to
contracts is amortized on a straight line basis over the estimated
remaining life of the contracts.</p>
<p style="MARGIN: 0px">  </p>
<p style="MARGIN: 0px"></p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
In addition to the Closing Consideration and the escrowed funds, IM
Ready will be eligible to earn additional shares of Common Stock
with a value of up to $7,500,000 (the “Earn-Out Value”)
each year for four consecutive years after the Closing Date, with
the number of shares to be issued based upon the greater of (i)
$4.50 and (ii) average stock price for the last twenty days in such
period and with such earn-out payment contingent upon the Isaac
Mizrahi Business achieving the “Net Royalty Income”
targets set forth below during those years.  The Earn-Out
Value is payable solely in stock.  In accordance with ASC
Topic 480 "Distinguishing Liabilities from Equity", the earn-out
obligation is treated as a liability in the accompanying
consolidated balance sheet because of the variable number of shares
payable under the agreement. Under the Purchase Agreement,
“Net Royalty Income” means booked revenue for the Isaac
Mizrahi Business, less the sum of advertising royalties,
commissions paid to third parties, payments under royalty sharing
or participation agreements, and international withholding (solely
to the extent the Buyers are unable to claim a federal tax credit
with respect to such international withholding) and other transfer
taxes, in each case to the extent related to such booked revenue,
calculated in accordance with generally accepted accounting
principles in the United States of America (“U.S.
GAAP”); provided, however, that, (i) Net Royalty Income shall
not include any deferred revenues recognized during the period for
which Net Royalty Income is being calculated for which the Buyers
have not received the related payment, and (ii) in the event of the
termination of a license agreement with respect to the Isaac
Mizrahi Business, the calculation of Net Royalty Income shall not
include any revenue accelerated as a result of termination for
which termination the Buyers have not received the related payment.
The earn-out value was valued at $15,000,000 at the acquisition
date of the Isaac Mizrahi Business (the “Earn-Out
Obligation”). This amount was based on projected royalties
during the Royalty Target Periods and the aggregate amount of
earn-out consideration due for each Royalty Target Period. Any
change in the expected obligation will result in an expense or
income in the period in which it is determined fair market value of
the carrying value has changed.  The Royalty Targets and
percentage of the potential earn-out value are as follows:</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 90%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold" nowrap="nowrap">ROYALTY TARGET PERIODS</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2" nowrap="nowrap"><b>ROYALTY<br />
TARGET</b></td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2" nowrap="nowrap"><b>EARN-OUT<br />
  VALUE</b></td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 68%">First Royalty Target
Period</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">16,000,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">$</td>
<td style="TEXT-ALIGN: right; WIDTH: 12%">7,500,000</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Second Royalty Target Period</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">20,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">7,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Third Royalty Target Period</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">22,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">7,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">Fourth Royalty Target Period</td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">24,000,000</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left">$</td>
<td style="TEXT-ALIGN: right">7,500,000</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">IM
Ready will receive a percentage of the Earn-Out Value based upon
the percentage of the actual net royalty income of the Isaac
Mizrahi Business to the royalty target as set forth below.</p>
<p style="TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<table style="WIDTH: 80%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0" align="center">
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold" nowrap="nowrap"><b>APPLICABLE<br />
PERCENTAGE</b></td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2" nowrap="nowrap"><b>% OF EARN-OUT<br />
VALUE EARNED</b></td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold" nowrap="nowrap">
 </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; WIDTH: 82%">Less than 76%</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 15%">0</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%">%</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">76% up to 80%</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">40</td>
<td style="TEXT-ALIGN: left">%</td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">80% up to 90%</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">70</td>
<td style="TEXT-ALIGN: left">%</td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left">90% u