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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.   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 allocations 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”.   Use of Estimates   The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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.   Fair Value of Financial Instruments   For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, the carrying amounts approximate fair value due to the short-term maturities of these instruments.  The carrying value of the debt approximates fair value because the fixed interest rate approximates market rate.    Accounts Receivable   Accounts receivable represent amounts that are due to the Company by its licensees and other operating account debtors in the normal course of business. As of September 30, 2012 the Company has $3,342,000 of accounts receivables, net of allowance for doubtful accounts of $17,000, which is deemed sufficient by Management. The accounts receivable balance includes $333,000 of earned revenues that have been accrued but not billed as of September 30, 2012.   Trademarks, Goodwill and Other Intangible Assets   The Company follows Financial Accounting Standards Board Accounting Codification (“ASC Topic 350”) Intangibles, Goodwill, and Other. Under this standard, goodwill and indefinite lived assets are not amortized. The Company’s definite lived intangible assets are amortized over their estimated useful lives.   Under this standard, the Company annually has the option to first assess qualitatively whether it is more likely than not that there is an impairment. The Company completed its annual qualitative assessment of goodwill at December 31, 2011 and determined that no impairment charges were required.   Contingent Obligations   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 nine months ended September 30, 2012.   Income Taxes   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 the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.   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.   The Company has no unrecognized tax benefits as of September 30, 2012 and December 31, 2011. The Company’s U.S. Federal and state and local income tax returns are closed prior to fiscal year 2008 and management continually evaluates expiring statues of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.   If applicable, the Company would recognize interest and penalties associated with tax matters as part of the income tax provision, and include accrued interest and penalties with accrued expenses in the condensed consolidated balance sheets.   Revenue Recognition   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 reasonably 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 and service fees based on services provided. Revenues from royalties are recognized when earned, which include 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 licensees’ or partners’ sales.   Design and service fees are recorded and recognized in accordance with the terms and conditions of each service 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 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 otherwise earned.   Stock-Based Compensation   The Company accounts for stock-based compensation in accordance with ASC Topic 718 by recognizing the fair value of stock-based compensation in the condensed consolidated statements of operations.  The fair value of the Company’s stock option awards are estimated using the 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 the Company’s stock grant awards is valued at the current value of the stock at the time of the grant. The fair value of stock-based awards is amortized over the vesting period of each respective award.  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. Stock-based compensation expense is recognized as a component of Design and Marketing Expenses and General and Administrative in the Condensed Consolidated Statements of Operations.   Restricted Stock   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.   Earnings per Share   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. Shares that may be issued for contingent obligations are excluded until all necessary conditions and other criteria are met.   As of September 30, 2012, of the total potentially dilutive shares related to stock options and warrants, 921,001 were anti-dilutive and not included in the computation of diluted shares outstanding. For the three months and nine months ended September 30, 2012, basic and diluted weighted average shares are the same. There are no comparative results for the prior year quarter.   Segment Reporting   The Company operates in one segment.   Recently Issued Accounting Standards   In July 2012, the FASB issued ASU 2012-02, “Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses, and distribution rights. The standard applies to all public, private, and not-for-profit organizations. The amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU No. 2012-02 is not expected to have a material impact on the Company’s results of operations or the Company’s consolidated financial position.   Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.

3. Trademarks, Goodwill and Other Intangibles   Trademarks, goodwill and other intangibles, net consist of the following:   <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="10" nowrap="nowrap">September 30, 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;" colspan="10" 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"> </td> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td style="text-align: center;" colspan="10" nowrap="nowrap">(Unaudited)</td> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td colspan="10" 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">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 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> <td nowrap="nowrap"> </td> <td 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">Net</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">Net</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">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> </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 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 colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; 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;">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> </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;">12,835,000</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;">12,835,000</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">12,835,000</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;">12,835,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; 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;">531,000</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;">1,469,000</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> <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;">1,865,000</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: 23%;"> </td> <td style="padding-bottom: 2.5pt; width: 1%;"> </td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> <td style="text-align: right; padding-bottom: 2.5pt; width: 8%;"> </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%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">59,335,000</td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> <td style="padding-bottom: 2.5pt; width: 1%;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left; width: 1%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">531,000</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%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">58,804,000</td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> <td style="padding-bottom: 2.5pt; width: 1%;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left; width: 1%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">59,335,000</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%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">135,000</td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> <td style="padding-bottom: 2.5pt; width: 1%;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left; width: 1%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">59,200,000</td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> </tr> </table>   Amortization expense for intangible assets for the Current Quarter and the Current Nine Months was $132,000 and $396,000, respectively. 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 condensed consolidated statements 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 condensed consolidated statements of operations at the time of determining such impairment.    In connection with the Isaac Mizrahi Business acquisition, the condensed consolidated balance sheet as of December 31, 2011 has been recast to include retrospective purchase accounting adjustments. The purchase accounting adjustments pertain to measurement period adjustments based on the final computation of the tax basis of the assets acquired in the Isaac Mizrahi Business acquisition, as well as a change in the allocation of revenues among state and local tax jurisdictions.   The effect on the condensed consolidated balance sheets at December 31, 2011, as a result of the recast, is an increase to goodwill of $1,739,000 to $12.8 million and an increase to the deferred tax liability, related to the acquired intangibles of $1,739,000. There is no effect on the condensed consolidated statements of cash flows or the condensed consolidated statements of operations for the Current Quarter, the Current Nine Months or the period September 29, 2011 to December 31, 2011.

4.  Significant Contracts   QVC Agreement   In connection with the Company’s agreement with QVC, Inc. (“QVC”), QVC is required to pay fees based primarily on a percentage of its 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 for the Current Quarter and for the three months ended September 30, 2011 (the “Prior Year Quarter”), respectively, representing 50% and 55% of the Company’s total revenues, respectively. The Prior Year Quarter includes, on an aggregate basis, results of the Predecessor for the period July 1, 2011 through September 28, 2011 (the “Predecessor Prior Year Quarter”) and results of the Successor for the period September 29, 2011 through September 30, 2011 (the “Successor Prior Year Period”). Royalties for the Predecessor Prior Year Quarter and the Successor Prior Year Period were $1,614,000 and $36,000, respectively. Royalties from QVC totaled $5,700,000 and $4,950,000 for the Current Nine Months and for the nine months ended September 30, 2011 (the “Prior Year Nine Months”), respectively, representing 59% and 56% of the Company’s total revenues, respectively. The Prior Year Nine Months includes, on an aggregate basis, results of the Predecessor from the period January 1, 2011 through September 28, 2011 (the “Predecessor Prior Year Nine Months”) and results of the Successor for the period September 29, 2011 through September 30, 2011 (the “Successor Prior Year Period”). Royalties for the Predecessor Prior Year Nine Months and the Successor Prior Year Period were $4,914,000 and $36,000, respectively. As of September 30, 2012 and December 31, 2011, the Company had a receivable from QVC for each year in the amount of $1,900,000, representing 57% and 87% of the Company’s receivables, respectively.   LC Agreement   In connection with the Company’s agreement with Liz Claiborne, Inc. (“LC”) (the “LCNY 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. Revenues from the LCNY Agreement totaled $458,000 and $313,000 for the Current Quarter and the Prior Year Quarter, respectively, representing 12% and 11% of the Company’s total revenues, respectively. Revenues for the Predecessor Prior Year Quarter and the Successor Prior Year Period were $307,000 and $6,000, respectively. Revenues from LCNY totaled $1,208,000 and $713,000 for the Current Nine Months and for the Prior Year Nine Months, respectively, representing 13% and 8% of the Company’s total revenues, respectively. Revenues for the Predecessor Prior Year Nine Months and the Successor Prior Year Period were $707,000 and $6,000, respectively. As of September 30, 2012 and December 31, 2011, the Company had a receivable from LCNY in the amount of $961,000 and $377,000, representing 29% and 17% of the Company’s receivables, respectively.   LC/QVC Design fees   In connection with the Company’s design agreement with QVC for the term of the LCNY Agreement (the “Design Agreement”), QVC is required to pay certain design fees to the Company related to the Liz Claiborne New York brand. Revenues from the Design Agreement totaled $275,000 and $275,000 for the Current Quarter and for the Prior Year Quarter, respectively, representing 7% and 9% of the Company’s total revenues, respectively. Revenues from the Design Agreement for the Predecessor Prior Year Quarter and the Successor Prior Year Period were $269,000 and $6,000, respectively. Revenues from the Design Agreement totaled $825,000 for each of the Current Nine Months and for the Prior Year Nine Months, representing 9% and 9% of the Company’s total revenues, respectively. Revenues for the Predecessor Prior Year Nine Months and the Successor Prior Year Period were $818,000 and $6,000, respectively.

5.  Long-Term Debt   The Company’s net carrying amount of long-term debt is comprised of the following:   <table align="center" style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">September 30,</td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">December 31,</td> <td> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2012</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">2011</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">(Unaudited)</td> <td> </td> <td> </td> <td style="text-align: right;" colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 74%;">Term Loan</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">12,520,000</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">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;">6,166,000</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: #ccffcc; 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;">1,163,000</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; padding-bottom: 1pt;">Contingent obligation – due to Seller</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;">17,766,000</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;">17,765,000</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-indent: 0px; padding-left: 0.12in;">Total</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">37,615,000</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">37,032,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">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;">1,374,000</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: #ccffcc; 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;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">36,241,000</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">36,988,000</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>   Term Loan   On September 29, 2011, IM Brands, LLC (“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 $13,500,000. The Loan is secured by all of the assets of IM Brands and the Company’s membership interests in IM Brands.     The principal amount of the Loan is payable quarterly as follows:  0% until January 5, 2013, 2.5% on January 5, 2013 through October 5, 2013; 3.75% on January 5, 2014 through October 5, 2014; 6.25% on January 5, 2015 through October 5, 2015; 12.5% on January 5, 2016 through the maturity date, which is the date that is 5 years after the closing date.   Annual scheduled principal obligations are as follows:   <table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; text-align: left; text-decoration: none;">Years Ending December 31,</td> <td style="padding-bottom: 1pt;"> </td> <td style="text-align: left; padding-bottom: 1pt;"> </td> <td style="text-align: right; padding-bottom: 1pt;"> </td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">2012</td> <td> </td> <td style="text-align: left;">$</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: 87%;">2013</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">1,350,000</td> <td style="text-align: left; width: 1%;"> </td> </tr> <tr style="background-color: #ccffcc; 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: #ccffcc; 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>    The preceding table does not include Excess Cash Flow Sweep payments (detailed below). The interest rate on the loan is a fixed rate of 8.5%, payable in cash.   Optional Prepayment .  IM Brands may prepay the Loan in whole or in part in increments of $500,000, provided that IM Brands pays the following premiums in connection with the prepayment:   <table style="width: 85%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="text-align: justify;">Period</td> <td> </td> <td style="text-align: center;" colspan="2">Applicable Premium</td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 87%;">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: 10%;">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: #ccffcc; 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>   Mandatory Prepayments.   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.   Excess Cash Flow Sweep.   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 Agreement) 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, (as defined in the Loan Agreement) required to be maintained by IM Brands and (y) $3,000,000. For the period ended September 30, 2012, there was no Excess Cash Flow Sweep payment due, however the condensed consolidated balance sheet includes $200,000 in current liabilities as current portion of long term debt payable in April 2013.   Lender Warrants. 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 fair 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 original loan discount is being amortized over the five-year term of the loan. The Company recognized $59,000 and $176,000 of amortized interest expense included in the Unaudited Condensed Consolidated Statements of Operations for the Current Quarter ended and the Current Nine Months ended, respectively.  The Term Loan balance as of September 30, 2012 is $12,520,000.   Financial Covenants.  Provided that as the Loan remains unpaid or unsatisfied, IM Brands shall not, and shall not permit any of its subsidiaries to, directly or indirectly:   <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;">I</td> <td>Minimum Liquidity.  Permit Excess Liquidity (as defined in the Loan Agreement) to be less than the amount set forth below during each applicable period set forth below:</td> </tr> </table>   <table align="center" style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="border-bottom: black 1pt solid;">Fiscal Quarter</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: right;" colspan="2">Excess Liquidity</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 87%;">September 29, 2011 through December 31, 2011</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">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: #ccffcc; 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: #ccffcc; 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: #ccffcc; 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: #ccffcc; 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>   <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;">II</td> <td>Capital Expenditures.  Permit the aggregate amount of Capital Expenditures to exceed $400,000 (whether or not financed) per year.</td> </tr> </table>   <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;">III</td> <td>Consolidated Fixed Charge Coverage Ratio.  Permit the Consolidated Fixed Charge Coverage Ratio (as defined in the Loan Agreement) 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>   <table align="center" style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="background-color: white; vertical-align: bottom;"> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap">Minimum Fixed Charge</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; width: 87%;" nowrap="nowrap">Trailing Four Fiscal Quarters Ending</td> <td style="padding-bottom: 1pt; width: 1%;" nowrap="nowrap"> </td> <td style="border-bottom: black 1pt solid; width: 12%;" nowrap="nowrap">Coverage Ratio</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify;">September 30, 2012 and December 31, 2012</td> <td> </td> <td>1.90 to 1.00</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>1.60 to 1.00</td> </tr> <tr style="background-color: #ccffcc; 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>1.50 to 1.00</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>1.30 to 1.00</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify;">June 30, 2015 and thereafter</td> <td> </td> <td>1.15 to 1.00</td> </tr> </table>   <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;">IV</td> <td>Consolidated Total Leverage Ratio.  Permit the Consolidated Total Leverage Ratio (as defined in the Loan Agreement) 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>   <table align="center" style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="background-color: white; vertical-align: bottom;"> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap">Maximum</td> <td style="text-align: left;" nowrap="nowrap"> </td> </tr> <tr style="vertical-align: bottom;"> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap">Consolidated</td> <td style="text-align: left;" nowrap="nowrap"> </td> </tr> <tr style="vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; text-align: left; width: 82%;">Trailing Four Fiscal Quarters Ending</td> <td style="padding-bottom: 1pt; width: 1%;" nowrap="nowrap"> </td> <td style="border-bottom: black 1pt solid; text-align: left; width: 1%;" nowrap="nowrap"> </td> <td style="border-bottom: black 1pt solid; text-align: left; width: 15%;" nowrap="nowrap">Leverage Ratio</td> <td style="text-align: left; padding-bottom: 1pt; width: 1%;" nowrap="nowrap"> </td> </tr> <tr style="background-color: #ccffcc; 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: right;">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: right;">3.30 to 1.00</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; 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: right;">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: right;">2.75 to 1.00</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify;">March 31, 2014</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">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: right;">2.00 to 1.00</td> <td style="text-align: left;"> </td> </tr> </table>   <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;">V</td> <td>Minimum Consolidated EBITDA.  Permit Consolidated EBITDA (as defined in the Loan Agreement) 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; provided 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>   <table align="center" style="width: 75%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; text-align: justify;">Fiscal Quarter</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid;" colspan="2">Consolidated EBITDA</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify; width: 87%;">December 31, 2011</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">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: #ccffcc; 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: #ccffcc; 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: #ccffcc; 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>   <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;">VI</td> <td>Dividend Restrictions.  Permit any cash dividends or any other equity distributions.</td> </tr> </table>   <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;">VII</td> <td>Restricted Cash Payments.  Permit any cash payments for the Seller Note or any contingent earn-out obligations.</td> </tr> </table>   As of September 30, 2012, the Company and IM Brands were in full compliance with all of the covenants under the Loan.   Seller Note   Pursuant to the Purchase Agreement, at the closing, the Company delivered to IM Ready an unsecured 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 an initial value of $5,637,000.  In addition, the Company pre-paid $123,000 of interest on the Seller Note on the Closing Date.  The Company recognized $137,000 and $401,000 of amortized interest expense included in the Unaudited Condensed Consolidated Statements of Operations for the Current Quarter and the Current Nine Months, respectively. The Seller Note balance at September 30, 2012 is $6,166,000.   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 value of the Common Stock on the Maturity Date and (ii) $4.50 subject to certain adjustments; provided, however, that if the fair 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, September 29, 2016. 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 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 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 value of the Common Stock at the time of the conversion, so long as the fair value of our Common Stock is at least $4.50.    Long Term Installment Obligations   Prior to the Acquisition Date, Earthbound, LLC (“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 Acquisition Date and for which Earthbound received from IM Ready $600,000 in cash on the Acquisition 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 unsecured 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 fair value of $1,132,000. The Company recognized $26,000 and $80,000 of amortized interest expense included in the Unaudited Condensed Consolidated Statements of Operations for the Current Quarter and the Current Nine Months, respectively. The balance of the Installment Obligation at September 30, 2012 is $1,163,000.   Payments commenced March 2012.  Annual gross remaining payments are as follows:   <table align="center" style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; text-align: left;">Year Ending December 31,</td> <td style="padding-bottom: 1pt;"> </td> <td style="text-align: center; padding-bottom: 1pt;" colspan="2"> </td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 82%;">2012</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 15%;">75,000</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: #ccffcc; 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: #ccffcc; 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;">1,425,000</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>   Contingent obligation – due to Seller   There was no change in the contingent obligation for the nine months ended September 30, 2012.

6.           Stockholders’ Equity   2011 Equity Incentive Plan   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, 33.33% 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.  Of these awards, 750 options and 750 restricted stock grants were forfeited, and reverted to, and are eligible for re-grant under the Plan.   On April 17, 2012, the Company issued to management an aggregate of 1,100,000 restricted stock grants. The vesting date of 1,025,000 shares of restricted stock is November 15, 2012, provided, however, that each such grantee may extend the vesting date by six-month increments in his or her sole discretion. The vesting date of 37,500 shares of restricted stock is May 15, 2013, provided however, the executive may extend the vesting date by six-month increments in his sole discretion. The vesting date of 37,500 shares of restricted stock is May 15, 2014, provided however, the executive may extend the vesting date by six-month increments in his sole discretion.   Also, on April 17, 2012, the Company granted 50,000 shares of restricted stock to a non-executive employee. The vesting date of the 50,000 shares of restricted stock is November 15, 2012, provided however, the employee may extend the vesting date by nine-month increments in her sole discretion.   On May 1, 2012, the Company granted options to purchase an aggregate of 105,500 shares of Common Stock (the “Options”) to non-executive employees 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.   On June 1, 2012, the Company issued to non-management directors 138,335 restricted stock grants. The vesting date of 138,335 shares of restricted stock is December 1, 2012, provided, however, that each such grantee may extend the vesting date by six-month increments in his sole discretion.   On June 1, 2012, the Company issued to management 242,775 restricted stock grants. The vesting date of 242,775 shares of restricted stock is December 1, 2012, provided, however, that each such grantee may extend the vesting date by six-month increments in his sole discretion.   Also, on June 1, 2012, the Company granted 13,833 shares of restricted stock to a non-executive employee. The vesting date of the 13,833 shares of restricted stock is December 1, 2012, provided however, the employee may extend the vesting date by six-month increments in her sole discretion.   None of the above vesting dates subject to an extension provision have been extended by any of the recipients.    Licensee Warrants   As part of the terms and conditions of a certain license agreement effective October 1, 2011, the Company issued warrants to purchase 75,000 shares of common stock to a licensee having a fair value of $23,000.  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 on 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.   Stock Options   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.   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:   <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Expected Volatility</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">35-42</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; width: 77%;">Expected Dividend Yield</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 20%;">0</td> <td style="text-align: left; width: 1%;">%</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Expected Life (Term)</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3 – 5.75 years</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Risk-Free Interest Rate</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">0.42% - 0.98</td> <td style="text-align: left;">%</td> </tr> </table>   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.   Options <table style="width: 98%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="font-weight: bold;"> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">Weighted-Average</td> <td> </td> </tr> <tr style="vertical-align: bottom;"> <td> </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: center;" colspan="2"> </td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 66%;">Outstanding at January 1, 2012</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">267,125</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: 18%;">5.00</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;">105,500</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3.00</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; 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: #ccffcc; 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;">(750</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 September 30, 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;">371,875</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;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">4.43</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Exercisable at September 30, 2012</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;"> </td> <td style="border-bottom: black 2.5pt double; text-align: right;">82,500</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">5.00</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Shares expected to vest after September 30, 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;">289,375</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;">4.27</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>   The preceding table does not include options to purchase 576 shares of Common Stock for $728 per share issued under the Company’s former equity plan. The Company does not expect to issue any equity awards under this plan.   Compensation expense related to stock option grants in connection with the licensing agreement for the Current Quarter and the Current Nine Months was $23,000 and $51,000, respectively.  There was no compensation expense prior to the Successor period. An additional amount of $124,000 is expected to be expensed over a period of 19-months.   Warrants   <table style="width: 98%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">Weighted-Average</td> <td> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Warrants</td> <td style="padding-bottom: 1pt;"> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Exercise Price</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 66%;">Outstanding at January 1, 2012</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">1,219,543</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 18%;">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: #ccffcc; 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;">(162,500</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: #ccffcc; 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 September 30, 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;">1,132,043</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;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">2.47</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Exercisable at September 30, 2012</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;"> </td> <td style="border-bottom: black 2.5pt double; text-align: right;">1,082,043</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">2.35</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Shares expected to vest after September 30, 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;">50,000</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;">5.00</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>   The Company values warrants issued to non-employees at the commitment date at the fair value of the instruments issued, a measure which is more readily available than the fair value of services rendered, using the Black-Scholes model. The fair value of the instruments issued is expensed over the contractual 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 and the Current Nine Months is $11,000 and $33,000, respectively. An additional amount of $44,000 is expected to be expensed evenly over a period of 12 months. In addition, licensing revenues were reduced for the Current Quarter and the Current Nine Months by $1,000 and $3,000, respectively. An additional amount of $19,000 is expected to off-set license revenues evenly over a period of 48-months. There was no compensation expense or reduction of licensed revenues prior to the Successor period.   The Company issued warrants to purchase 430,500 shares of common stock to investors as part of an equity offering in a private placement on September 29, 2011 (see the Company’s 8-K/A filed with the Securities and Exchange Commission on January 12, 2012 for details). Each warrant provides the holder with the right to purchase one share of common stock for $.01 per share. During the nine months ended September 30, 2012, 162,500 shares were exercised. As of September 30, 2012 there were warrants to purchase 218,000 shares of common stock outstanding, which expire on September 29, 2016.   Restricted Stock   Compensation cost for restricted stock is measured as the excess, if any, of the market price of the Company’s stock at the date the common stock is issued over the amount the employee must pay to acquire the stock (which is generally zero). The compensation cost, net of projected forfeitures, is recognized over the period between the issue date and the date any restrictions lapse, with compensation cost for grants with a vesting schedule recognized on a straight-line basis over the requisite service period. The restrictions do not affect voting and dividend rights.   <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Restricted Shares</td> <td style="padding-bottom: 1pt;"> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Weighted-Average Grant Date - Fair Value</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 64%;">Outstanding at January 1, 2012</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 15%;">17,125</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 15%;">3.34</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;">1,544,943</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;">$</td> <td style="text-align: right;">3.00</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>Canceled</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Vested</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 1pt;">Expired/Forfeited</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;"> </td> <td style="border-bottom: black 1pt solid; text-align: right;">(750</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;">$</td> <td style="border-bottom: black 1pt solid; text-align: right;">3.34</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 September 30, 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;">1,561,318</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;">3.00</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>   Compensation expense related to restricted stock grants for the Current Quarter and Current Nine Months was $2,008,000 and $3,393,000, respectively. There was no compensation expense prior to the Successor period. An additional amount of $1,290,000 is recorded as unamortized restricted stock and netted against additional paid-in capital on the condensed consolidated balance sheet at September 30, 2012 of which $1,120,000 is expected to be expensed the remainder of this year and an additional amount of $170,000 is expected to be expensed by May 15, 2014.     Shares Available Under the Company’s 2011 Equity Incentive Plan   At September 30, 2012, there were 566,807 shares of common stock available for issuance under the Company’s 2011 Equity Incentive Plan (the “Plan”). See Note 9, Subsequent Events.   Shares Reserved for Issuance   At September 30, 2012, there were 2,071,301 shares of common stock reserved for issuance under the Plan and outstanding warrants and stock options not covered under the Plan.   Dividends   The Company has not paid any dividends to date.

5810444

7517137

23000

-3000 -3000 85000 85000

4635000

1000

4634000

17125

50000

105500

1544943

-1291000 -1291000

1000

162500

-2000 -2000 -750

Principles of Consolidation   The condensed 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.

Presentation of Predecessor Financial Statements   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.   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 allocations 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”.

Use of Estimates   The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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.

Fair Value of Financial Instruments   For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, the carrying amounts approximate fair value due to the short-term maturities of these instruments.  The carrying value of the debt approximates fair value because the fixed interest rate approximates market rate.

Accounts Receivable   Accounts receivable represent amounts that are due to the Company by its licensees and other operating account debtors in the normal course of business. As of September 30, 2012 the Company has $3,342,000 of accounts receivables, net of allowance for doubtful accounts of $17,000, which is deemed sufficient by Management. The accounts receivable balance includes $333,000 of earned revenues that have been accrued but not billed as of September 30, 2012.

Trademarks, Goodwill and Other Intangible Assets   The Company follows Financial Accounting Standards Board Accounting Codification (“ASC Topic 350”) Intangibles, Goodwill, and Other. Under this standard, goodwill and indefinite lived assets are not amortized. The Company’s definite lived intangible assets are amortized over their estimated useful lives.   Under this standard, the Company annually has the option to first assess qualitatively whether it is more likely than not that there is an impairment. The Company completed its annual qualitative assessment of goodwill at December 31, 2011 and determined that no impairment charges were required.

Contingent Obligations   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 nine months ended September 30, 2012.

Income Taxes   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 the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.   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.   The Company has no unrecognized tax benefits as of September 30, 2012 and December 31, 2011. The Company’s U.S. Federal and state and local income tax returns are closed prior to fiscal year 2008 and management continually evaluates expiring statues of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.   If applicable, the Company would recognize interest and penalties associated with tax matters as part of the income tax provision, and include accrued interest and penalties with accrued expenses in the condensed consolidated balance sheets.

Revenue Recognition   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 reasonably 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 and service fees based on services provided. Revenues from royalties are recognized when earned, which include 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 licensees’ or partners’ sales.   Design and service fees are recorded and recognized in accordance with the terms and conditions of each service 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 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 otherwise earned.

Stock-Based Compensation   The Company accounts for stock-based compensation in accordance with ASC Topic 718 by recognizing the fair value of stock-based compensation in the condensed consolidated statements of operations.  The fair value of the Company’s stock option awards are estimated using the 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 the Company’s stock grant awards is valued at the current value of the stock at the time of the grant. The fair value of stock-based awards is amortized over the vesting period of each respective award.  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. Stock-based compensation expense is recognized as a component of Design and Marketing Expenses and General and Administrative in the Condensed Consolidated Statements of Operations.

Restricted Stock   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.

Earnings per Share   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. Shares that may be issued for contingent obligations are excluded until all necessary conditions and other criteria are met.   As of September 30, 2012, of the total potentially dilutive shares related to stock options and warrants, 921,001 were anti-dilutive and not included in the computation of diluted shares outstanding. For the three months and nine months ended September 30, 2012, basic and diluted weighted average shares are the same. There are no comparative results for the prior year quarter.

Segment Reporting   The Company operates in one segment.

Recently Issued Accounting Standards   In July 2012, the FASB issued ASU 2012-02, “Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses, and distribution rights. The standard applies to all public, private, and not-for-profit organizations. The amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU No. 2012-02 is not expected to have a material impact on the Company’s results of operations or the Company’s consolidated financial position.   Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.

Trademarks, goodwill and other intangibles, net consist of the following:   <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="10" nowrap="nowrap">September 30, 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;" colspan="10" 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"> </td> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td style="text-align: center;" colspan="10" nowrap="nowrap">(Unaudited)</td> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td colspan="10" 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">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 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> <td nowrap="nowrap"> </td> <td 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">Net</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">Net</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">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> </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 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 colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; 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;">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> </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;">12,835,000</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;">12,835,000</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">12,835,000</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;">12,835,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; 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;">531,000</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;">1,469,000</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> <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;">1,865,000</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: 23%;"> </td> <td style="padding-bottom: 2.5pt; width: 1%;"> </td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> <td style="text-align: right; padding-bottom: 2.5pt; width: 8%;"> </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%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">59,335,000</td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> <td style="padding-bottom: 2.5pt; width: 1%;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left; width: 1%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">531,000</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%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">58,804,000</td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> <td style="padding-bottom: 2.5pt; width: 1%;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left; width: 1%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">59,335,000</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%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">135,000</td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> <td style="padding-bottom: 2.5pt; width: 1%;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left; width: 1%;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; width: 8%;">59,200,000</td> <td style="text-align: left; padding-bottom: 2.5pt; width: 1%;"> </td> </tr> </table>

The Company’s net carrying amount of long-term debt is comprised of the following:   <table align="center" style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">September 30,</td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">December 31,</td> <td> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2012</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">2011</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">(Unaudited)</td> <td> </td> <td> </td> <td style="text-align: right;" colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 74%;">Term Loan</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">12,520,000</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">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;">6,166,000</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: #ccffcc; 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;">1,163,000</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; padding-bottom: 1pt;">Contingent obligation – due to Seller</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;">17,766,000</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;">17,765,000</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-indent: 0px; padding-left: 0.12in;">Total</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">37,615,000</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">37,032,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">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;">1,374,000</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: #ccffcc; 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;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">36,241,000</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">36,988,000</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>

Annual scheduled principal obligations are as follows:   <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="border-bottom: black 1pt solid; text-align: left; text-decoration: none;">Years Ending December 31,</td> <td style="padding-bottom: 1pt;"> </td> <td style="text-align: left; padding-bottom: 1pt;"> </td> <td style="text-align: right; padding-bottom: 1pt;"> </td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">2012</td> <td> </td> <td style="text-align: left;">$</td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; width: 87%;">2013</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">1,350,000</td> <td style="text-align: left; width: 1%;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">2014</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">2,025,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">2015</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,375,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">2016</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;"> </td> <td style="border-bottom: black 1pt solid; text-align: right;">6,750,000</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 2.5pt;">Total</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</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> Optional Prepayment .  IM Brands may prepay the Loan in whole or in part in increments of $500,000, provided that IM Brands pays the following premiums in connection with the prepayment:   <table style="width: 85%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="text-align: justify;">Period</td> <td> </td> <td style="text-align: center;" colspan="2">Applicable Premium</td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 87%;">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: 10%;">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: #ccffcc; 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> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td>Minimum Liquidity.  Permit Excess Liquidity (as defined in the Loan Agreement) to be less than the amount set forth below during each applicable period set forth below:</td> </tr> </table>   <table align="center" style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <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: right;" colspan="2">Excess Liquidity</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 87%;">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: 10%;">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: #ccffcc; 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: #ccffcc; 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: #ccffcc; 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: #ccffcc; 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> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td>Consolidated Fixed Charge Coverage Ratio.  Permit the Consolidated Fixed Charge Coverage Ratio (as defined in the Loan Agreement) 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>   <table align="center" style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="background-color: white; vertical-align: bottom;"> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap">Minimum Fixed Charge</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; width: 87%;" nowrap="nowrap">Trailing Four Fiscal Quarters Ending</td> <td style="padding-bottom: 1pt; width: 1%;" nowrap="nowrap"> </td> <td style="border-bottom: black 1pt solid; width: 12%;" nowrap="nowrap">Coverage Ratio</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify;">September 30, 2012 and December 31, 2012</td> <td> </td> <td>1.90 to 1.00</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>1.60 to 1.00</td> </tr> <tr style="background-color: #ccffcc; 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>1.50 to 1.00</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>1.30 to 1.00</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify;">June 30, 2015 and thereafter</td> <td> </td> <td>1.15 to 1.00</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td>Consolidated Total Leverage Ratio.  Permit the Consolidated Total Leverage Ratio (as defined in the Loan Agreement) 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>   <table align="center" style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="background-color: white; vertical-align: bottom;"> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap">Maximum</td> <td style="text-align: left;" nowrap="nowrap"> </td> </tr> <tr style="vertical-align: bottom;"> <td nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap">Consolidated</td> <td style="text-align: left;" nowrap="nowrap"> </td> </tr> <tr style="vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; text-align: left; width: 82%;">Trailing Four Fiscal Quarters Ending</td> <td style="padding-bottom: 1pt; width: 1%;" nowrap="nowrap"> </td> <td style="border-bottom: black 1pt solid; text-align: left; width: 1%;" nowrap="nowrap"> </td> <td style="border-bottom: black 1pt solid; text-align: left; width: 15%;" nowrap="nowrap">Leverage Ratio</td> <td style="text-align: left; padding-bottom: 1pt; width: 1%;" nowrap="nowrap"> </td> </tr> <tr style="background-color: #ccffcc; 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: right;">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: right;">3.30 to 1.00</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; 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: right;">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: right;">2.75 to 1.00</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify;">March 31, 2014</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">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: right;">2.00 to 1.00</td> <td style="text-align: left;"> </td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td>Minimum Consolidated EBITDA.  Permit Consolidated EBITDA (as defined in the Loan Agreement) 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; provided 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>   <table align="center" style="width: 75%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; text-align: justify;">Fiscal Quarter</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid;" colspan="2">Consolidated EBITDA</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify; width: 87%;">December 31, 2011</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">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: #ccffcc; 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: #ccffcc; 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: #ccffcc; 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>

Payments commenced March 2012.  Annual gross remaining payments are as follows:   <table align="center" style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; text-align: left;">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: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 82%;">2012</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 15%;">75,000</td> <td style="text-align: left; width: 1%;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">325,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">2014</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">325,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">2015</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">350,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">2016</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;"> </td> <td style="border-bottom: black 1pt solid; text-align: right;">350,000</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 2.5pt;">Total</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">1,425,000</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>

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:   <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Expected Volatility</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">35-42</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; width: 77%;">Expected Dividend Yield</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 20%;">0</td> <td style="text-align: left; width: 1%;">%</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Expected Life (Term)</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3 – 5.75 years</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Risk-Free Interest Rate</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">0.42% - 0.98</td> <td style="text-align: left;">%</td> </tr> </table>

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.   Options <table style="width: 98%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="font-weight: bold;"> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">Weighted-Average</td> <td> </td> </tr> <tr style="vertical-align: bottom;"> <td> </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: center;" colspan="2"> </td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 66%;">Outstanding at January 1, 2012</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">267,125</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: 18%;">5.00</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;">105,500</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3.00</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; 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: #ccffcc; 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;">(750</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 September 30, 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;">371,875</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;">4.43</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Exercisable at September 30, 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;">82,500</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;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">5.00</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Shares expected to vest after September 30, 2012</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;"> </td> <td style="border-bottom: black 2.5pt double; text-align: right;">289,375</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">4.27</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>

The preceding table does not include options to purchase 576 shares of Common Stock for $728 per share issued under the Company’s former equity plan. The Company does not expect to issue any equity awards under this plan.   Compensation expense related to stock option grants in connection with the licensing agreement for the Current Quarter and the Current Nine Months was $23,000 and $51,000, respectively.  There was no compensation expense prior to the Successor period. An additional amount of $124,000 is expected to be expensed over a period of 19-months.   Warrants   <table style="width: 98%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">Weighted-Average</td> <td> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Warrants</td> <td style="padding-bottom: 1pt;"> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Exercise Price</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 66%;">Outstanding at January 1, 2012</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">1,219,543</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 18%;">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: #ccffcc; 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;">(162,500</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: #ccffcc; 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 September 30, 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;">1,132,043</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;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">2.47</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Exercisable at September 30, 2012</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;"> </td> <td style="border-bottom: black 2.5pt double; text-align: right;">1,082,043</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">2.35</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Shares expected to vest after September 30, 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;">50,000</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;">5.00</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>

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 vesting schedule recognized on a straight-line basis over the requisite service period. The restrictions do not affect voting and dividend rights.   <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Restricted Shares</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">Weighted-Average Grant Date - Fair Value</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 64%;">Outstanding at January 1, 2012</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 15%;">17,125</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 15%;">3.34</td> <td style="text-align: left; width: 1%;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Granted</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,544,943</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;">$</td> <td style="text-align: right;">3.00</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; 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: #ccffcc; 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;">(750</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;">$</td> <td style="border-bottom: black 1pt solid; text-align: right;">3.34</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Outstanding at September 30, 2012</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;"> </td> <td style="border-bottom: black 2.5pt double; text-align: right;">1,561,318</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">3.00</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>

The significant components of net deferred tax liability of the Company consist of the following:   <table align="center" style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="padding-bottom: 1pt; font-weight: bold;" 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">September 30, 2012</td> <td style="padding-bottom: 1pt;" nowrap="nowrap"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Deferred tax assets</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%;">Long term deferred revenue</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 20%;">134,000</td> <td style="text-align: left; width: 1%;"> </td> </tr> <tr style="background-color: #ccffcc; 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;">950,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">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;">81,000</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; 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;">1,165,000</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> </tr> <tr style="background-color: #ccffcc; 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: white; 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: #ccffcc; 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;">490,000</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">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;">11,684,000</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; 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;">12,187,000</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;">Net deferred tax liability</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;">11,022,000</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table>

921001

17000

333000

P4Y

12835000

2000000

135000

531000

135000 531000

44500000

12835000

1865000

1469000

132000

396000

1739000

1614000

307000

4914000

1650000

313000

4950000

713000

6000

36000

1900000

458000

5700000

1208000

0.55 0.11 0.56 0.08 0.50 0.12 0.59 0.13

1900000

377000

1900000

961000

0.87 0.17 0.57 0.29

12344000

12520000

1158000 1163000 17765000 17766000

13500000

36988000

36241000

1350000

2025000

3375000

6750000

0.01 0.00 0.03 0.02 2250000 3250000 4000000 1500000 2750000 3500000 1750000 3000000 3750000 1.30 to 1.00 1.15 to 1.00 1.60 to 1.00 1.90 to 1.00 1.50 to 1.00 2.75 to 1.00 3.30 to 1.00 2.25 to 1.00 3.00 to 1.00 2.00 to 1.00 3.50 to 1.00 4750000 2500000 4000000 1250000 4250000 4500000 250000 5000000

75000

325000

350000

1425000

13500000

7377000

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.

0.00 0.025 0.0375 0.0625 0.125

0.085

1132000 0.50

200000

500000

3000000 364428 0.05 0.0025 5.50 0.01 3.33

1214000

1740000

37032000

37615000

6166000

400000 0.090

0.0925

5637000 123000

(i) the fair 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 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 value of the Common Stock at the time of the conversion, so long as the fair value of our Common Stock is at least $4.50.

600000

0.3500

0.4200

0.0000

P3Y

P5Y9M

0.0042

0.0098

267125

371875

105500

-750

82500

289375

5.00

4.43

3.00

5.00

4.27

1219543

1132043

75000

-162500 0 1082043 50000

1.95

2.47

5.50

0.01 0 2.35 5.00 17125 1561318

1544943

-750

3.34 3.00 3.00 0 0 3.34

566807

2500000

33.33% vest immediately, 33.33% vest on the first anniversary of the grant and the 33.34% vest on the second anniversary of the grant. 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.

250000.00

17125

1100000

242775

13833

138335

1025000 37500 37500 50000

11000

2008000

3393000

33000

1000 3000 23000 19000 51000

2071301

5000000

2500000

75000 430500 218000

134000

950000

81000

1165000

13000

490000

11684000

12187000

277000

0.0025

0.05

3340

750

163000

8482

2250

12500 5.00 500000 12500 5.00 1000000 25000 2000000 10599 18133 0001083220us-gaap:LoansPayableMember2012-09-30 0001083220xelb:RoyaltyAgreementWithLCMemberus-gaap:PredecessorMember2011-01-012011-09-28

707000

44500000 44500000 00010832202011-01-012011-12-31 00010832202012-11-16

275000

825000

275000

825000

269000

818000

6000

0.07 0.09 0.09 0.09 0001083220us-gaap:ManagementMemberxelb:EquityIncentivePlan2011Member2012-06-012012-06-30 0001083220xelb:NonManagementDirectorsMemberxelb:EquityIncentivePlan2011Member2012-06-012012-06-30 1120000 0001083220us-gaap:WarrantMember2011-09-162011-09-30 0001083220xelb:LicenseeWarrantsMember2012-01-012012-09-30 0.01 576 23000 0.15 0.15 0001083220xelb:LenderWarrantsMember2012-09-30 0001083220xelb:LenderWarrantsMember2011-12-31

12286000

12520000

750

58804000

59200000

59335000 59335000 1290000 44000 0001083220us-gaap:RestrictedStockMemberxelb:RemainderOfThisYearMember2012-01-012012-09-30 0001083220us-gaap:RestrictedStockMemberxelb:May152014Member2012-01-012012-09-30 170000 124000