SEQUENTIAL BRANDS GROUP, INC. - FORM 10-Q

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EX-10.6 - SEQUENTIAL BRANDS GROUP, INC.	exh10-6.htm
EX-10.2 - SEQUENTIAL BRANDS GROUP, INC.	exh10-2.htm
EX-10.5 - SEQUENTIAL BRANDS GROUP, INC.	exh10-5.htm
EX-10.1 - SEQUENTIAL BRANDS GROUP, INC.	exh10-1.htm
EX-10.4 - SEQUENTIAL BRANDS GROUP, INC.	exh10-4.htm
EX-10.3 - SEQUENTIAL BRANDS GROUP, INC.	exh10-3.htm
EX-31.1 - SEQUENTIAL BRANDS GROUP, INC.	exh31-1d.htm
EX-32.1 - SEQUENTIAL BRANDS GROUP, INC.	exh32-1d.htm
EX-31.2 - SEQUENTIAL BRANDS GROUP, INC.	exh31-2d.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2010

[ ]	Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________________ to ______________________.

Commission file number 0-16075

PEOPLE’S LIBERATION, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

(State or other jurisdiction of incorporation or organization)

86-0449546

(I.R.S. Employer Identification No.)

1212 S. Flower Street, 5th Floor

Los Angeles, CA 90015

(Address of principal executive offices) (Zip Code)

(213) 745-2123

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

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

Large accelerated filer o	Accelerated filer o

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

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

As of November 12, 2010, the issuer had 36,002,563 shares of common stock, par value $.001 per share, issued and outstanding.

PEOPLE’S LIBERATION, INC.

INDEX TO FORM 10-Q

		Page

PART I	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009	3

	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2010 and September 30, 2009	4

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2010 and September 30, 2009	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4T.	Controls and Procedures	39

PART II	OTHER INFORMATION	39

Item 1A.	Risk Factors	39

Item 6.	Exhibits	40

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

PEOPLE’S LIBERATION, INC.

CONSOLIDATED BALANCE SHEETS

	September 30, 2010			December 31, 2009
Assets	(Unaudited)
Current Assets:
Cash and cash equivalents	$	299,604		$	2,567,005
Restricted cash		166,176			167,000
Due from factor		321,382			-
Accounts receivable, net of allowance for doubtful accounts		295,433			94,306
Inventories		3,862,778			2,731,754
Prepaid expenses and other current assets		465,305			405,615
Total current assets		5,410,678			5,965,680

Property and equipment, net of accumulated depreciation and amortization		1,975,095			1,528,033
Trademarks, net of accumulated amortization		628,617			598,948
Intangible asset		428,572			428,572
Other assets		470,066			469,106
Total assets	$	8,913,028		$	8,990,339

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	5,187,822		$	3,206,772
Due to factor		-			2,529
Current portion of due to member		436,177			426,950
Income taxes payable		38,215			9,400
Total current liabilities		5,662,214			3,645,651

Long-Term Liabilities:
Deferred lease obligations		473,317			248,740
Due to member, net of current portion		325,000			385,140
Note payable to related parties		750,000			-
Total long-term liabilities		1,548,317			633,880
Total liabilities		7,210,531			4,279,531


Stockholders’ equity:
Common stock, $0.001 par value, 150,000,000 shares authorized; 36,002,563 shares issued and outstanding at September 30, 2010 and December 31, 2009		36,002			36,002
Additional paid-in capital		8,166,107			8,103,018
Accumulated deficit		(6,148,903	)		(4,538,516	)
Total stockholders’ equity		2,053,206			3,600,504

Noncontrolling interest		(350,709	)		1,110,304
Total equity		1,702,497			4,710,808
Total liabilities and stockholders’ equity	$	8,913,028		$	8,990,339

See Notes to Consolidated Financial Statements.

PEOPLE’S LIBERATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended September 30,						Nine months Ended September 30,
	2010			2009			2010			2009

Net revenue	$	6,543,066		$	11,005,915		$	21,754,424		$	28,485,857
Cost of goods sold		3,764,804			5,456,478			10,857,022			14,847,292
Gross profit		2,778,262			5,549,437			10,897,402			13,638,565

Selling, design and production expenses		1,680,247			2,659,481			6,382,209			7,703,663
General and administrative expenses		3,349,194			1,970,929			8,159,181			5,539,017

Total operating expenses		5,029,441			4,630,410			14,541,390			13,242,680

(Loss) income from operations		(2,251,179	)		919,027			(3,643,988	)		395,885

Interest expense, net		45,643			59,653			140,422			160,505
Other income		(750,000	)		-			(750,000	)		-
Total interest and other income		(704,357	)		59,653			(609,578	)		160,505
(Loss) income before income taxes		(1,546,822	)		859,374			(3,034,410	)		235,380

Provision for income taxes		7,000			8,190			36,990			29,980

Net (loss) income		(1,553,822	)		851,184			(3,071,400	)		205,400

Noncontrolling interest in subsidiaries’ earnings		(677,991	)		(39,198	)		(1,461,013	)		(885,026	)

Net (loss) income attributable to common stockholders	$	(875,831	)	$	890,382		$	(1,610,387	)	$	1,090,426

Basic and diluted (loss) income per common share	$	(0.02	)	$	0.02		$	(0.04	)	$	0.03

Basic weighted average common shares outstanding		36,002,563			36,002,563			36,002,563			36,002,563

Diluted weighted average common shares outstanding		36,002,563			36,080,371			36,002,563			36,002,563

See Notes to Consolidated Financial Statements.

PEOPLE’S LIBERATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine months Ended September 30,
	2010			2009
Cash flows from operating activities:
Net (loss) income	$	(3,071,400	)	$	205,400
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		392,749			253,887
Allowance for doubtful accounts		503,437			(27,700	)
Stock based compensation		63,089			118,697
Income from sale of litigation interest		(750,000	)		-
Impairment of long-lived asset		-			69,270
Loss on disposal of fixed asset		-			4,141
Changes in operating assets and liabilities:
Receivables		(1,028,475	)		(977,915	)
Inventories		(1,131,024	)		2,016,573
Prepaid expenses and other current assets		(59,690	)		(182,377	)
Other assets		(960	)		(23,615	)
Accounts payable and accrued expenses		1,981,052			(589,036	)
Customer deposits		-			(1,000,000	)
Deferred lease obligations		224,577			58,011
Due to member		(50,913	)		24,295
Income taxes payable		28,815			(36,662	)
Net cash flows used in operating activities		(2,898,743	)		(87,031	)

Cash flows from investing activities:
Proceeds from sale of litigation interest		750,000			-
Decrease in restricted cash		824			(167,000	)
Acquisition of retail store		-			(100,000	)
Acquisition of trademarks		(61,723	)		(113,191	)
Acquisition of property and equipment		(807,759	)		(139,802	)
Net cash flows used in investing activities		(118,658	)		(519,993	)

Cash flows from financing activities:
Proceeds from note payable to related parties		750,000			-

Net decrease in cash and cash equivalents		(2,267,401	)		(607,024	)
Cash and cash equivalents, beginning of period		2,567,005			1,888,718
Cash and cash equivalents, end of period	$	299,604		$	1,281,694

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	140,694		$	161,287
Income taxes paid		8,175			67,021
Non-cash investing activity:
Acquisition of retail store:
Cancellation of trade receivables		-			(250,350	)
Fair value of property and equipment acquired		-			350,350

See Notes to Consolidated Financial Statements.

1. Basis of Presentation of Interim Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments that, in the opinion of the management of People’s Liberation, Inc. (the “Company”) and subsidiaries are considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The accompanying financial statements should be read in conjunction with the audited consolidated financial statements of the Company, as restated, included in the Company’s Form 10-K/A for the year ended December 31, 2009.

Certain reclassifications were made to the December 31, 2009 balance sheet and the statement of cash flows for the nine months ended September 30, 2009 in order to conform to the current period’s presentation.

2. Organization and Nature of Operations

As illustrated above, People’s Liberation, Inc. is the parent holding company of Versatile Entertainment, Inc. (“Versatile”) and Bella Rose, LLC (“Bella Rose”), both of which were consolidated under and became wholly-owned subsidiaries of People’s Liberation on November 22, 2005.

William Rast Sourcing, LLC (“William Rast Sourcing”) and William Rast Licensing, LLC (“William Rast Licensing”) are owned 50% by Bella Rose and 50% by William Rast Enterprises, LLC (“WRE”), an entity owned in part by Justin Timberlake. William Rast Retail, LLC (“William Rast Retail”), a wholly-owned subsidiary of William Rast Sourcing, was formed to operate the Company’s William Rast retail stores. Beginning October 1, 2006, William Rast Sourcing and William Rast Licensing are consolidated under Bella Rose.

Prior to January 1, 2009, because WRE did not have basis in the capital of William Rast Sourcing and William Rast Licensing, losses were not allocated to WRE in accordance with Accounting Research Bulletin 51. Instead, all losses were recognized by Bella Rose in consolidation.

In accordance with the provisions of Statement of Financial Accounting Standard No. 160, Noncontrolling interest in Consolidated Financial Statements – an amendment of ARB No. 51, superseded by ASC 810-10-65 adopted by the Company on January 1, 2009, the Company allocates profits and losses to each of the members of William Rast Sourcing and William Rast Licensing in accordance with the amended and restated limited liability company operating agreements for such entities, which became effective as of January 1, 2007 (the “Operating Agreements”). The Operating Agreements provide that losses are allocated to the members of William Rast Sourcing and William Rast Licensing based on their respective percentage interests in such entities and profits are allocated to the members based on their percentage interest to the extent that the member was previously allocated losses. To the extent each member has positive equity in William Rast Sourcing and William Rast Licensing, profits will be allocated consistent with the cash distribution terms described below.

Subject to certain limitations included in the Operating Agreements, cash distributions are to be made to the members of William Rast Sourcing and William Rast Licensing in the following manner:

●

first to each member in accordance with each member’s respective percentage interest to enable the members to make timely tax payments which shall be treated as advances of, and be offset against, the distributions described below;

●

second to WRE in an amount equal to 6% of applicable sales for each calendar quarter with respect to William Rast Sourcing and 3% of applicable sales for each calendar quarter with respect to William Rast Licensing, which are referred to hereafter as contingent priority cash distributions;

●

third to Bella Rose until the aggregate amount distributed to Bella Rose equals the contingent priority cash distributions made to WRE; and

●

thereafter, in accordance with the members’ respective percentage interests.

William Rast Sourcing and William Rast Licensing have accumulated losses totaling approximately $8.4 million from inception (October 1, 2006) through September 30, 2010. Beginning January 1, 2009 through September 30, 2010, approximately $2.4 million of these losses have been allocated to WRE, the noncontrolling interest member of William Rast Sourcing and William Rast Licensing. Unpaid accumulated contingent priority cash distributions to WRE amounted to approximately $3.2 million and $2.5 million as of September 30, 2010 and December 31, 2009, respectively. If and when the contingent priority cash distributions are paid to WRE, such distributions will be accounted for as decreases in noncontrolling interest in the consolidated balance sheet of the Company. Profit and loss allocations made to WRE are recorded as increases or decreases in noncontrolling interest in the consolidated statements of operations of the Company.

J. Lindeberg USA, LLC (“J. Lindeberg USA”), is owned 50% by Bella Rose and 50% by J. Lindeberg USA Corp., a New York corporation and an entity owned by J. Lindeberg AB, a Swedish corporation (collectively “Lindeberg Sweden”). J. Lindeberg USA Retail, LLC (“J. Lindeberg Retail”), a wholly-owned subsidiary of J. Lindeberg USA, was formed to operate the Company’s J. Lindeberg retail stores. Effective July 1, 2008, Bella Rose and Lindeberg Sweden entered into an operating agreement and other related agreements for J. Lindeberg USA. Pursuant to the agreements, J. Lindeberg USA has the rights to source, market, and distribute J. Lindeberg® branded apparel in the United States on an exclusive basis. The agreements provide that Bella Rose and Lindeberg Sweden each hold a 50% interest in J. Lindeberg USA with the business of J. Lindeberg USA being operated by Bella Rose. Bella Rose has management control over J. Lindeberg USA and therefore, beginning July 1, 2008, the operations of J. Lindeberg USA are included in the consolidated financial statements of the Company. Profit and loss allocations to Lindeberg Sweden are recorded as a noncontrolling interest in the consolidated financial statements of the Company.

Nature of Operations

The Company markets and sells high-end casual apparel under the brand names “People’s Liberation,” “William Rast” and, in the United States, “J. Lindeberg.” The majority of the merchandise the Company offers consists of premium denim, knits, wovens, leather goods, golf wear and outerwear for men and women. In the United States, William Rast Sourcing and J. Lindeberg USA distribute their merchandise to boutiques, specialty stores and better department stores, such as Nordstrom, Bloomingdales, Saks Fifth Avenue and Neiman Marcus, and online at various websites including williamrast.com, jlindebergusa.com and Zappos.com. The Company also markets and sells its J. Lindeberg branded collection and golf apparel through its retail stores in New York City, Los Angeles and Miami, and sells J. Lindeberg golf wear to green grass golf stores and boutiques in the United States. William Rast products are also sold in its four retail stores located in Los Angeles, San Jose and Cabazon, California, and Miami, Florida. Internationally, in select countries, William Rast Sourcing sells its products to better department stores and boutiques throughout the world.

The Company commenced its William Rast clothing line in May 2005. The Company’s William Rast clothing line is a collaboration with Justin Timberlake and his childhood friend, Trace Ayala.

The Company began distributing J. Lindeberg branded apparel products in the United States on an exclusive basis beginning July 2008 in collaboration with Lindeberg Sweden. In addition to being sold in the United States through J. Lindeberg USA, J. Lindeberg branded high-end men’s fashion and premium golf apparel is marketed and sold by Lindeberg Sweden worldwide.

The Company commenced its People’s Liberation business in July 2004. On December 16, 2008, the Company entered into an agreement with Charlotte Russe Holding, Inc. and its wholly-owned subsidiary, Charlotte Russe Merchandising, Inc. (collectively, “Charlotte Russe”), pursuant to which the Company’s wholly-owned subsidiary, Versatile, agreed to exclusively sell to Charlotte Russe, in North America and Central America, People’s Liberation® branded apparel, apparel accessories, eyewear, jewelry, watches, cosmetics and fragrances, and to provide Charlotte Russe with marketing and branding support for People’s Liberation branded apparel and apparel accessories. The Company ceased to sell People’s Liberation branded merchandise in North America and Central America to parties other than Charlotte Russe effective April 30, 2009. Product sales to Charlotte Russe under the terms of this agreement began shipping in June 2009. The Company is in litigation with Charlotte Russe in relation to the agreement. See Note 7 below for further information relating to the Company’s agreement with Charlotte Russe and the pending litigation.

The Company is headquartered in Los Angeles, California, maintains showrooms in New York, Los Angeles and Atlanta, and has sales representatives in Dallas, Texas, and Chicago, Illinois.

3. Recently Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-01, “Equity (Topic 505), Accounting for Distributions to Shareholders with Components of Stock and Cash.” ASU No. 2010-01 clarifies that the stock portion of a distribution to shareholders that allows for the receipt of cash or stock with the potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. This update was effective for the Company’s first quarter of 2010. The adoption of ASU No. 2010-01 did not have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2009, the Company adopted the provisions of FASB Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.” This pronouncement provides new guidance that changes the accounting treatment of contingent assets and liabilities in business combinations under previous topic guidance and is effective for contingent assets or liabilities acquired in business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after December 15, 2008. The adoption of this pronouncement did not have a material effect on the Company’s consolidated financial statements currently, but its effects will depend on the nature of future acquisitions completed by the Company, if any.

Other recent accounting pronouncements did not or are not believed to have a material impact on the Company's present or future consolidated financial statements.

4. Earnings Per Share

The Company computes basic earnings per share based upon the weighted average number of common shares outstanding during the period.

Warrants representing 3,565,000 shares of common stock at exercise prices ranging from $0.40 to $2.00 per share and stock options representing 2,675,000 shares of common stock at exercise prices ranging from $0.20 to $1.25 per share were outstanding for the three and nine months ended September 30, 2010, but were excluded from the average number of common shares outstanding in the calculation of earnings per share because the effect of inclusion would be anti-dilutive.

Warrants representing 3,565,000 shares of common stock at exercise prices ranging from $0.40 to $2.00 per share and stock options representing 2,521,000 shares of common stock at exercise prices ranging from $0.30 to $1.25 per share were outstanding for the three months ended September 30, 2009, but were excluded from the average number of common shares outstanding in the calculation of earnings per share because the effect of inclusion would be anti-dilutive.

Warrants representing 3,565,000 shares of common stock at exercise prices ranging from $0.40 to $2.00 per share and stock options representing 2,900,000 shares of common stock at exercise prices ranging from $0.20 to $1.25 per share were outstanding for the nine months ended September 30, 2009, but were excluded from the average number of common shares outstanding in the calculation of earnings per share because the effect of inclusion would be anti-dilutive.

The following is a reconciliation of the numerators and denominators of the basic and diluted (loss) income per share computations:

Three months ended September 30, 2010	(Loss) Income			Shares		Per Share Amount
Basic loss per share:
Loss attributable to common stockholders	$	(875,831	)		36,002,563	$	( 0.02	)

Effect of Dilutive Securities:
Options		-			-		-
Warrants		-			-		-
Loss attributable to common stockholders	$	(875,831	)		36,002,563	$	( 0.02	)

Three months ended September 30, 2009
Basic income per share:
Income attributable to common stockholders	$	890,382	36,002,563	$	0.02

Effect of Dilutive Securities:
Options		-	77,808		-
Warrants		-	-		-
Income attributable to common stockholders	$	890,382	36,080,371	$	0.02

Nine months ended September 30, 2010
Basic loss per share:
Loss available to common stockholders	$	(1,610,387	)	36,002,563	$	(0.04	)

Effect of Dilutive Securities:
Options		-		-		-
Warrants		-		-		-
Loss available to common stockholders	$	(1,610,387	)	36,002,563	$	(0.04	)

Nine months ended September 30, 2009
Basic income per share:
Income available to common stockholders	$	1,090,426	36,002,563	$	0.03

Effect of Dilutive Securities:
Options		-	-		-
Warrants		-	-		-
Income available to common stockholders	$	1,090,426	36,002,563	$	0.03

5. Inventories

Inventories are summarized as follows:


	September 30, 2010			December 31, 2009

Piece goods and trim	$	41,003		$	72,722
Work in process		134,076			35,295
Finished goods		3,918,699			2,933,917
		4,093,778			3,041,934
Less reserve for obsolescence and slow moving inventory		(231,000	)		(310,180	)
	$	3,862,778		$	2,731,754

6. Due from (to) Factor

Due from (to) factor is summarized as follows:

	September 30,			December 31,
	2010			2009
Outstanding receivables:
Without recourse	$	1,173,507		$	3,108,669
With recourse		718,698			990,761
		1,892,205			4,099,430
Advances		(1,154,365	)		(3,685,612	)
Open credits		(416,458	)		(416,347	)
	$	321,382		$	(2,529	)

On October 7, 2010, William Rast Sourcing entered into a new factoring agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”). The factoring agreement has a term of two years, and automatically renews for additional two-year periods unless William Rast provides notice of its intent not to renew the agreement. Pursuant to the factoring agreement, Rosenthal purchases William Rast’s eligible accounts receivable and assumes the credit risk with respect to those accounts for which Rosenthal has given its prior credit approval. If Rosenthal does not assume the credit risk for a receivable, the collection risk associated with the receivable remains with William Rast. The factoring agreement provides that the Company can borrow an amount up to 75% of the value of its approved factored customer invoices. The Company can also borrow up to 50% of its eligible inventory (as defined in the agreement) up to a maximum of $875,000. The factor commission is 0.75% of the customer invoice amount and interest is charged on accounts receivable and inventory advances at prime plus 1.5% and prime plus 2.5%, respectively. The factor facility is secured by substantially all of the assets of William Rast Sourcing and a security interest granted by William Rast Licensing in certain royalties payable to William Rast Licensing, is guaranteed by certain of the Company’s other consolidated entities and is personally guaranteed by Colin Dyne, the Chief Executive Officer of People’s Liberation and Manager of William Rast Sourcing, up to a maximum of $1 million.

The terms of the Company’s J. Lindeberg factoring agreement with FTC Commercial Corp. (“FTC”) provides that the agreement will remain in force indefinitely unless it is terminated by either party in accordance with the terms of the agreement. On July 28, 2010, FTC exercised its right to terminate the factoring agreement for convenience by providing the Company with 60 days prior written notice of termination. As a result of the termination, the obligations, indebtedness and liabilities owed to FTC under the Company’s J. Lindeberg factoring agreement are now due. The Company is currently in negotiations with Rosenthal to replace its J. Lindeberg factoring facility with FTC. The total net amount owed to the Company from FTC related to the terminated J. Lindeberg factoring facility amounted to approximately $220,000 at September 30, 2010.

7. Charlotte Russe Distribution Agreement and Litigation

Distribution Agreement

On December 16, 2008, the Company entered into an agreement (the “Agreement”) with Charlotte Russe, pursuant to which the Company’s wholly-owned subsidiary, Versatile, agreed to exclusively sell to Charlotte Russe, in North America and Central America, People’s Liberation® branded apparel, apparel accessories, eyewear, jewelry, watches, cosmetics and fragrances, and to provide Charlotte Russe with marketing and branding support for People’s Liberation branded apparel and apparel accessories.

Pursuant to the Agreement, the Company is to design, source, sample, fit and deliver an assortment of finished goods selected by Charlotte Russe and sell such merchandise to Charlotte Russe at wholesale prices. Charlotte Russe has the exclusive right to market, distribute, and sell People’s Liberation branded merchandise purchased from the Company in North America and Central America through Charlotte Russe® branded retail stores and related distribution channels, including outlet locations and direct-to-consumer sales. The Company ceased to sell People’s Liberation branded merchandise in such territories to parties other than Charlotte Russe effective April 30, 2009. Product sales to Charlotte Russe under the terms of this agreement began shipping in June 2009.

In consideration for the exclusive rights granted to Charlotte Russe under the Agreement, Charlotte Russe agreed to purchase from the Company a minimum amount of People’s Liberation branded merchandise during each contract year. The aggregate minimum purchase obligation for the period from inception of the Agreement through the end of its initial term on December 31, 2012 is $65 million. The amount of the minimum purchase obligation varies by contract year, and may be less than or greater than $65 million if the Agreement is terminated prior to expiration of the initial term or is renewed for one or more additional renewal periods.

The initial term of the Agreement expires on December 31, 2012, and may be extended by Charlotte Russe for two additional one-year renewal periods with minimum purchase requirements of an aggregate of $65 million during such two-year period. Charlotte Russe may elect to terminate the Agreement early by delivering written notice to the Company at any time between January 1, 2011 and June 30, 2011, in which event the Agreement shall terminate, at Charlotte Russe’s election, on either (i) July 1, 2011 with the payment of an early termination fee, or (ii) December 31, 2011.

In addition to its minimum purchase obligations, if Charlotte Russe elects to renew the Agreement beyond the initial term, then commencing January 1, 2013, Charlotte Russe will pay the Company a royalty equal to a negotiated percentage of the amount by which actual wholesale sales of merchandise for a contract year exceed the minimum purchase obligation for such contract year.

Litigation

On October 27, 2009, the Company filed a complaint for damages and equitable relief against Charlotte Russe in the Superior Court of the State of California, County of Los Angeles, Central District (Versatile Entertainment, Inc. v. Charlotte Russe Merchandising, Inc., BC424674) (the “Charlotte Russe Action”). On that same day, the Company also filed suit against Advent International Corporation and certain of its subsidiaries, and David Mussafer and Jenny J. Ming (collectively, the “Advent Defendants”) in the Superior Court of the State of California, County of Los Angeles, Central District (Versatile Entertainment, Inc. v. Advent International Corporation, BC424675) (the “Advent Action”). Advent International Corporation, through its subsidiaries, acquired Charlotte Russe in October 2009. The complaints relate to the Company’s Agreement with Charlotte Russe described above. The Company subsequently dismissed the Charlotte Russe Action without prejudice and filed its claims against the Charlotte Russe entities in its Cross Complaint described below.

On October 26, 2009, the Company received a letter from Charlotte Russe purportedly terminating the Agreement as a result of the Company’s alleged fraudulent inducement of Charlotte Russe to enter into the Agreement as well as the Company’s alleged subsequent material breaches of the Agreement. The Company believes the allegations in the letter are demonstrably false and that the termination of the Agreement by Charlotte Russe was improper, constituting a material breach of the Agreement by Charlotte Russe for which the Company is entitled to damages. Additionally, the Company asserts that before acquiring Charlotte Russe, Advent International Corporation and certain of its subsidiaries and management, including David Mussafer and Jenny J. Ming, evaluated Charlotte Russe’s ongoing business and contractual relations, and decided that they would wrongfully attempt to avoid the contractual obligations under the Agreement by asserting fabricated breaches of contract against the Company, thus intentionally interfering with the Company’s contract with Charlotte Russe.

In the Advent Action, the Company asserts one cause of action for intentional interference with a contract, for which the Company is seeking compensatory damages of no less than $59,000,000, punitive damages, as well as an award of attorney’s fees and costs incurred in relation to the action.

On October 26, 2009, Charlotte Russe Holding, Inc. and Charlotte Russe Merchandising, Inc. served a complaint against People’s Liberation, Inc. and Versatile Entertainment, Inc., which complaint was filed in the Superior Court of the State of California, County of Los Angeles, Central District (Charlotte Russe Holding, Inc. vs. Versatile Entertainment, Inc., BC424734). Charlotte Russe subsequently filed a First Amended Complaint asserting claims for:

restitution after rescission of the Agreement based on fraudulent misrepresentations made by the Company to induce Charlotte Russe to enter into the Agreement;

restitution after rescission based upon the Company’s breach of the Agreement as described below;

breach of contract by the Company for, among other things, (i) failing to provide the promised services of Marcella Lindeberg; (ii) permitting other retailers to sell People’s Liberation branded products in Charlotte Russe’s exclusive territory; (iii) failing to provide the products in compliance with the Agreement; (iv) failing to maintain the promised quality of the products; (v) failing to provide the promised services of Colin Dyne; (vi) failing to provide the promised services of a dedicated work team; (vii) failing to provide the promised management services under the Agreement; and (viii) failing to deliver products in the time required by the Agreement;

fraud; and

negligent misrepresentation.

Charlotte Russe is seeking restitution of all consideration paid to the Company under the Agreement, compensatory and punitive damages, and an award of attorneys’ fees and costs incurred in relation to each cause of action.

In response to the Amended Complaint, the Company filed a Cross-Complaint against Charlotte Russe Merchandising, Inc. and Charlotte Russe Holding, Inc. alleging, among other things, that the Charlotte Russe entities breached the Agreement by wrongfully terminating it, failing to pay for goods delivered by the Company and accepted by Charlotte Russe, and by discounting the goods in violation of the Agreement. The Company also seeks a declaratory judgment that it did not breach the Agreement. The Company seeks compensatory damages of no less than $59,000,000, attorneys’ fees and the costs of the action. Discovery is ongoing in this action and it is set for a jury trial to commence on January 24, 2011.

The Company intends to vigorously pursue the Advent Action and its Cross-Complaint and to vigorously defend any actions brought forth by Charlotte Russe. Although the purported termination of the Company’s exclusive distribution agreement by Charlotte Russe will continue to have a significant impact on the Company’s subsidiary that holds the People’s Liberation brand business, Versatile Entertainment, management believes it does not affect the ability of the Company as a whole to continue as a going concern because of the continued operations and expected sales, cash flows and results of operations from its other brands, William Rast and J. Lindeberg. As of September 30, 2010, the Company has approximately $588,000 of accounts receivable due from Charlotte Russe and approximately $173,000 of inventory on hand related to purchase orders received from Charlotte Russe. The Company has recorded a 100% reserve for bad debts related to the $588,000 of uncollected accounts receivable due from Charlotte Russe. Although the Company believes it will prevail in its actions against Charlotte Russe, the Company has determined that the trade accounts receivable is impaired and has recorded a reserve for the outstanding balance due as of September 30, 2010. The Company has not recorded a reserve for finished goods inventory purchased on behalf of Charlotte Russe as the Company believes that it will be able to sell its remaining inventory at or above the cost of production.

On August 13, 2010, the Company entered into an asset purchase agreement with two related parties pursuant to which the Company sold 50% of the net proceeds, after contingent legal fees and expenses, that might be received by the Company as a result of its on-going litigation with Charlotte Russe as further described in Note 10 to the consolidated financial statements.

8. Stock Based Compensation

On January 5, 2006, the Company adopted its 2005 Stock Incentive Plan (the “Plan”), which authorized the granting of a variety of stock-based incentive awards. The Plan is administered by the Board of Directors, or a committee appointed by the Board of Directors, which determines the recipients and terms of the awards granted. The Plan provides for a total of 5,500,000 shares of common stock to be reserved for issuance under the Plan.

The Company recognizes stock-based compensation costs on a straight-line basis over the vesting period of each award, which is generally between one to four years.

During the three and nine months ended September 30, 2010, there were no options granted. During the nine months ended September 30, 2009, the Company granted 394,000 options to directors, employees and an officer at an exercise price of $0.20. There were no options granted during the three months ended September 30, 2009. No options or warrants were exercised during the three and nine month periods ended September 30, 2010 and 2009. Options to purchase 2,507,726 and 2,075,242 shares were exercisable as of September 30, 2010 and 2009, respectively. Total stock based compensation expense for the three and nine months ended September 30, 2010 was approximately $8,000 and $63,000, respectively. Total stock based compensation expense for the three and nine months ended September 30, 2009 was approximately $32,000 and $119,000, respectively. The compensation expense recognized during the three and nine months ended September 30, 2010 and 2009 did not change basic and diluted income per share reported in the Company’s Statements of Operations.

The fair value of options is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Stock price volatility is estimated based on a peer group of public companies and expected term is estimated using the “safe harbor” provisions provided in accordance with generally accepted accounting principles. The safe harbor provisions were extended beyond December 31, 2007 for companies that did not have sufficient historical data to calculate the expected term of their related options. The Company does not have sufficient historical data to calculate expected term and the safe harbor provisions were used to calculate expected term for options granted during the periods. The weighted-average assumptions the Company used as inputs to the Black-Scholes pricing model for options granted during the year ended December 31, 2009 included a dividend yield of zero, a risk-free interest rate of 2.5%, expected term of 4.0 years and an expected volatility of 85%.

For stock-based awards issued to employees and directors, stock-based compensation is attributed to expense using the straight-line single option method. Stock-based compensation expense recognized in the Statement of Operations for the three and nine months ended September 30, 2010 and 2009 is included in selling, design and production expense and general and administrative expense, and is based on awards ultimately expected to vest. ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For options granted in the year ended December 31, 2009, the Company used historical data to calculate the expected forfeiture rate.

Options awarded to non-employees are charged to expense when the services are performed and benefit is received as provided by FASB ASC Topic 505-50.

For the nine months ended September 30, 2010 and 2009, total stock-based compensation expense included in the consolidated statements of operations was charged to the following expense categories:

	Nine months ended September 30, 2010		Nine months ended September 30, 2009
Selling, design and production	$	9,974	$	16,875
General and administrative		53,115		101,822
Total stock-based compensation	$	63,089	$	118,697

The following table summarizes the activity in the Plan:

	Number of Shares			Weighted Average Exercise Price

Options outstanding – January 1, 2009		2,716,000		$	0.64
Granted		394,000			0.20
Exercised		-			-
Forfeited		(215,000	)		0.83

Options outstanding – December 31, 2009		2,895,000			0.56
Granted		-			-
Exercised		-			-
Forfeited		(220,000	)		0.43

Options outstanding – September 30, 2010		2,675,000		$	0.57

Additional information relating to stock options and warrants outstanding and exercisable at September 30, 2010, summarized by exercise price, is as follows:

			Outstanding Weighted Average						Exercisable Weighted Average
					Life		Exercise				Exercise
Exercise Price Per Share			Shares		(years)		Price		Shares		Price
$	0.20	(options)		276,000		8.8	$	0.20		152,250	$	0.20
$	0.30	(options)		60,000		7.8	$	0.30		60,000	$	0.30
$	0.31	(options)		48,000		6.8	$	0.31		48,000	$	0.31
$	0.38	(options)		265,000		7.0	$	0.38		265,000	$	0.38
$	0.40	(options)		450,000		7.8	$	0.40		444,435	$	0.40
$	0.40	(warrants)		150,000		2.2	$	0.40		150,000	$	0.40
$	0.46	(options)		400,000		6.8	$	0.46		400,000	$	0.46
$	0.50	(options)		655,000		7.0	$	0.50		622,875	$	0.50
$	0.50	(warrants)		290,000		2.2	$	0.50		290,000	$	0.50
$	1.25	(options)		521,000		6.0	$	1.25		515,167	$	1.25
$	1.25	(warrants)		625,000		0.2	$	1.25		625,000	$	1.25
$	2.00	(warrants)		2,500,000		0.2	$	2.00		2,500,000	$	2.00

				6,240,000		3.3	$	1.20		6,072,727	$	1.23

A summary of the changes in the Company’s unvested stock options is as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested stock options – January 1, 2009		1,176,865		$	0.24
Granted		394,000			0.03
Vested		(688,012	)		(0.20	)
Forfeited		(215,000	)		(0.31	)

Unvested stock options – December 31, 2009		667,853			0.14
Granted		-			-
Vested		(280,580	)		(0.18	)
Forfeited		(220,000	)		(0.14	)

Unvested stock options – September 30, 2010		167,273		$	0.06

As of September 30, 2010, there were 2,507,727 vested stock options. As of September 30, 2010, there was approximately $14,000 of total unrecognized compensation expense related to share-based compensation arrangements granted under the Plan. The cost is expected to be recognized on a weighted-average basis over the next three years. The aggregate intrinsic value of stock options outstanding was zero at September 30, 2010 and 2009 as the market value of the options was lower than the exercise value.

The Company has recorded a 100% valuation allowance on its deferred tax asset related to net operating loss carryforwards. As a result, the stock-based compensation has not been tax effected on the consolidated statement of operations. For the nine months ended September 30, 2010 and 2009, the deferred tax effect related to nonqualified stock options was not material.

9. Note Payable to Related Parties

On August 13, 2010, the Company’s subsidiary, William Rast Licensing, entered into a promissory note in the amount of $750,000 with Mobility Special Situations I, LLC (“Mobility”), an entity owned in part by Mark Dyne, the brother of the Company’s Chief Executive Officer, Colin Dyne, and New Media Retail Concepts, LLC, an entity owned by Gerard Guez, a significant beneficial owner of the Company’s common stock. The promissory note bears interest at 8%, payable monthly in arrears, and is due February 13, 2012. The promissory note is secured by the assets of William Rast Licensing and is guaranteed by the Company’s other entities under common control, including People’s Liberation, Inc., William Rast Sourcing, LLC, William Rast Retail, LLC, Bella Rose, LLC and Versatile Entertainment, Inc.

10. Asset Purchase Agreement

On August 13, 2010, the Company entered into an asset purchase agreement with New Media Retail Concepts, LLC, an entity owned by Gerard Guez, a significant beneficial owner of the Company’s common stock, and ECA Holdings II, LLC, an entity owned in part by Mark Dyne, the brother of the Company’s Chief Executive Officer, Colin Dyne. In exchange for $750,000 cash, the Company sold 50% of the net proceeds, after legal fees and expenses, that might be received by the Company as a result of its on-going litigation with Charlotte Russe, as further described in Note 7. The Company is not required to repay the $750,000 cash proceeds received from the asset purchase agreement regardless of a favorable or unfavorable outcome of the Charlotte Russe litigation. The $750,000 cash proceeds received from the asset purchase agreement have been recorded as other income in the Company’s consolidated statement of operations for the three months ended September 30, 2010.

11. Customer and Supplier Concentrations

During the nine months ended September 30, 2010, one customer comprised greater than 10% of the Company’s sales. Sales to this customer amounted to 10.8% of net revenue for the nine months ended September 30, 2010. During the nine months ended September 30, 2009, two customers comprised greater than 10% of the Company’s sales. Sales to these customers amounted to 23.0% and 19.9% of net sales for the nine months ended September 30, 2009. At September 30, 2010 and 2009, the majority of receivables due from these customers were sold to the factor and are included in the due to factor balance.

During the nine months ended September 30, 2010, two suppliers comprised greater than 10% of the Company’s purchases. Purchases from these suppliers amounted to 36.8% and 28.5% for the nine months ended September 30, 2010. During the nine months ended September 30, 2009, three suppliers comprised greater than 10% of the Company’s purchases. Purchases from these suppliers amounted to 30.1%, 21.3% and 12.0% for the nine months ended September 30, 2009. At September 30, 2010 and 2009, accounts payable and accrued expenses, and the current portion of due to member included an aggregate of approximately $1,730,000 and $669,000, respectively, due to these vendors.

During the nine months ended September 30, 2010 and 2009, the Company purchased all of its J. Lindeberg brand products from J. Lindeberg AB in Sweden. Total purchases from J. Lindeberg AB for the nine months ended September 30, 2010 and 2009 amounted to approximately $3.2 million and $2.1 million, respectively. Included in the current portion due to member as of September 30, 2010 and 2009 is approximately $376,000 and $67,000, respectively, due to J. Lindeberg AB for product purchases.

Due to member as of September 30, 2010 and 2009 represents amounts payable to J. Lindeberg AB related to finished good purchases and the Company’s New York retail store and showroom deposits.

12. Off Balance Sheet Risk and Contingencies

Financial instruments that potentially subject the Company to off-balance sheet risk consist of factored accounts receivable. The Company sells the majority of its trade accounts receivable to its factor and is contingently liable to the factor for merchandise disputes and other customer claims. At September 30, 2010, total factored receivables approximated $1.9 million. The factor may also issue letters of credit and vendor guarantees on the Company’s behalf. There were no outstanding letters of credit or vendor guarantees as of September 30, 2010. Ledger debt (payables to suppliers that use the same factor as the Company) amounted to approximately $1.1 million at September 30, 2010.

The Company is subject to certain legal proceedings and claims arising in connection with its business. In the opinion of management, with the exception of the Charlotte Russe legal action described in Note 7, there are currently no claims that will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Pursuant to the operating agreement the Company entered into with J. Lindeberg USA Corp. and J. Lindeberg AB, the Company contributed $20,000 in cash to its 50% owned subsidiary, J. Lindeberg USA, LLC, and will be required to contribute up to a maximum of $1.5 million in working capital or related guaranties through December 2010. At this point in time, the cash amount in excess of $20,000 that the Company will be required to contribute to J. Lindeberg USA, LLC, if any, is uncertain as the Company’s J. Lindeberg USA, LLC factoring agreements provide for corporate guaranties from its related entities, People’s Liberation, Inc., Bella Rose, LLC, and Versatile Entertainment, Inc.

In accordance with the bylaws of the Company, officers and directors are indemnified for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the lifetime of the officer or director. The maximum potential amount of future payments the Company could be required to make under the indemnification provisions of its bylaws is unlimited. At this time, the Company believes the estimated fair value of the indemnification provisions of its bylaws is minimal and therefore, the Company has not recorded any related liabilities.

In addition to the indemnification required by the Company’s Amended and Restated Certificate of Incorporation and bylaws, the Company has entered into indemnity agreements with each of its current officers, directors and a key employee. These agreements provide for the indemnification of the Company’s directors, officers and key employee for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were the Company’s agents. The Company believes these indemnification provisions and agreements are necessary to attract and retain qualified directors, officers and employees.

The Company enters into indemnification provisions under its agreements in the normal course of business, typically with suppliers, customers, distributors and landlords. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by the Company with regard to intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has not recorded any related liabilities.

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

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2009 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K, as amended. The following discussion and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Form 10-Q.

This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of People’s Liberation, Inc. for the three and nine months ended September 30, 2010 and 2009. Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond our control. Actual results could differ materially from those projected in the forward-looking statements as a result of, among other things, those factors set forth in “Risk Factors” contained in Item 1A of each of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2009 and this Quarterly Report on Form 10-Q.

Overview

We design, market and sell high-end casual apparel under the brand names “People’s Liberation,” “William Rast” and, in the United States, “J. Lindeberg.” The majority of the merchandise we offer consists of premium denim, knits, wovens, leather goods, golf wear and outerwear for men and women. In the United States, we distribute our merchandise to better specialty stores, boutiques and department stores, such as Nordstrom, Bloomingdales, Saks Fifth Avenue and Neiman Marcus, and online at various websites including williamrast.com, jlindebergusa.com and Zappos.com. We also market and sell our J. Lindeberg branded collection and golf apparel through our retail stores in New York City, Los Angeles and Miami, and J. Lindeberg golf wear to green grass golf stores and boutiques in the United States. William Rast products are also sold in our four retail stores located in Los Angeles, San Jose and Cabazon, California, and Miami, Florida. Internationally, in select countries, we sell our William Rast branded apparel products directly and through distributors to better department stores and boutiques throughout the world.

We are headquartered in Los Angeles, California, maintain showrooms in New York, Los Angeles and Atlanta, and have sales representatives in Dallas, Texas, and Chicago, Illinois.

International Distribution

Our William Rast branded apparel products are also sold internationally in select countries directly and through agents and distributors to better department stores and boutiques. Our distributors purchase products at a discount for resale in their respective territories and market, sell, warehouse and ship William Rast branded apparel products at their expense. Our agents are paid a commission on net sales of our William Rast products. We anticipate growing our international distribution channels across new territories.

Manufacturing and Supply

We use third party contract manufacturers and full package suppliers to produce our William Rast denim finished goods from facilities located primarily in Mexico, Columbia and Los Angeles, California. Our denim is made from high quality fabrics milled primarily in the United States, Japan, Italy, Turkey and Mexico. For the majority of our William Rast knits and other non-denim products, we source these goods from international suppliers primarily in Asia. We sourced our People’s Liberation denim products sold to Charlotte Russe under our exclusive distribution agreement from international suppliers of full package goods primarily located in Mexico. We sourced our People’s Liberation knit products sold to Charlotte Russe from international suppliers of full package goods located primarily in Asia. We currently purchase all of our J. Lindeberg branded apparel products from J. Lindeberg AB in Sweden, the beneficial owner of 50% of our subsidiary, J. Lindeberg USA, LLC. We intend to continue our transition to international suppliers of full package denim finished goods which will enable us to remain competitive and improve margins.

Structure of Operations

Our wholly-owned subsidiary Versatile Entertainment, Inc. conducts our People’s Liberation brand business. Our William Rast brand business is conducted through our wholly-owned subsidiary Bella Rose, LLC. William Rast Sourcing, LLC and William Rast Licensing, LLC are consolidated under Bella Rose and are each owned 50% by Bella Rose and 50% by William Rast Enterprises, LLC, an entity owned in part by Justin Timberlake. William Rast Retail, LLC, a California limited liability company, was formed on August 26, 2009 and is a wholly-owned subsidiary of William Rast Sourcing. William Rast Retail was formed to operate our William Rast retail stores. Our J. Lindeberg brand business is conducted through Bella Rose. J. Lindeberg USA, LLC is consolidated under Bella Rose and is owned 50% by Bella Rose and 50% by J. Lindeberg USA Corp. an entity owned by J. Lindeberg AB, a Swedish corporation. J. Lindeberg USA Retail, LLC, a California limited liability company, was formed on August 21, 2009 and is a wholly-owned subsidiary of J. Lindeberg USA. J. Lindeberg Retail was formed to operate our J. Lindeberg retail stores.

Recent Developments

Charlotte Russe Litigation

As discussed under Note 7 to the Consolidated Financial Statements, we are in litigation with Charlotte Russe and its affiliates in relation to our exclusive distribution agreement, which Charlotte Russe purported to terminate on October 26, 2009. We derived a significant portion of our revenues and operating cash flow from the sale of People’s Liberation branded merchandise pursuant to this distribution agreement. In the first year of the contract, we received approximately $5.5 million through September 30, 2009 as required by the distribution agreement and we are owed $59.5 million in guaranteed minimum payments over the remainder of the term of the distribution agreement, which amount may be reduced if Charlotte Russe elects to terminate the distribution agreement early, beginning July 2011 with an early termination fee. As a result of Charlotte Russe’s purported termination of the distribution agreement, Charlotte Russe ceased to make their contractually obligated payments to us, which significantly decreased our net sales and cash flows from operations of our People’s Liberation business. We were also negatively impacted by a reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of the trade accounts receivable due from Charlotte Russe. We believe our results of operations and financial condition could be negatively impacted if we are unable to reach a settlement in a manner acceptable to us or the ensuing litigation, which is currently in its early stage, is not resolved in a manner favorable to us. Additionally, we may continue to incur significant expenses in our litigation with Charlotte Russe, and unless the cases are settled, we will continue to incur additional expenses in increasing amounts as the cases move toward trial.

As of September 30, 2010, we had approximately $588,000 of accounts receivable due from Charlotte Russe and approximately $173,000 of inventory on hand related to purchase orders received from Charlotte Russe. We have recorded a 100% reserve for bad debts related to the $588,000 of uncollected accounts receivable due from Charlotte Russe. Although we believe we will prevail in our actions against Charlotte Russe, we have determined that the trade accounts receivable is impaired and have recorded a reserve for the outstanding balance due as of September 30, 2010. We have not recorded a reserve for finished goods inventory purchased on behalf of Charlotte Russe as we believe that we will be able to sell the remaining inventory at or above the cost of production.

Although the purported termination of our exclusive distribution agreement by Charlotte Russe will have a significant impact on our subsidiary that holds the People’s Liberation brand business, Versatile Entertainment, we believe it does not affect our ability as a whole to continue as a going concern because of the continued operations and expected sales, cash flows and results of operations from our other subsidiaries, William Rast Sourcing and J. Lindeberg USA.

On August 13, 2010, we entered into an asset purchase agreement with two related parties. In exchange for $750,000 cash, we sold 50% of the net proceeds, after legal fees and expenses, that might be received as a result of our on-going litigation with Charlotte Russe, as further described elsewhere in this report. We are not required to repay the $750,000 cash proceeds received from the asset purchase agreement regardless of a favorable or unfavorable outcome of the Charlotte Russe litigation. The $750,000 cash proceeds received from the asset purchase agreement have been recorded as other income in our consolidated statement of operations for the three months ended September 30, 2010.

Other Developments

On October 7, 2010, our subsidiary, William Rast Sourcing, entered into a new factoring agreement with Rosenthal & Rosenthal, Inc. The terms of our new William Rast factoring facility are further described in Note 6 to our consolidated financial statements. We are currently in negotiations with Rosenthal & Rosenthal to replace our J. Lindeberg factoring facility with FTC Commercial Corp. On July 28, 2010, FTC exercised its right to terminate for convenience its factoring agreement with our J. Lindeberg subsidiary by providing us with 60 days prior written notice of termination. As a result of the termination, the obligations, indebtedness and liabilities owed to FTC under our J. Lindeberg factoring agreement are now due. The total net amount owed to us from FTC related to the terminated J. Lindeberg factoring facility amounted to approximately $220,000 at September 30, 2010.

In May 2010, our subsidiary, William Rast Sourcing, LLC, entered into a design and licensing agreement with a major retailer. The agreement provides that we will design an exclusive collection of William Rast apparel for sale in the major retailer’s stores in the United States for a limited period of time beginning in the fourth quarter of 2010. During the nine months ended September 30, 2010, we received $500,000 in design revenue from this major retailer. We expect to generate product revenues in excess of $3,000,000 over the term of the agreement.

On January 29, 2010, we entered into a sponsorship agreement with Sony Electronics Inc. The sponsorship agreement provided Sony Electronics with the title sponsorship at our William Rast fashion show held during Fashion Week in New York City in February 2010. The sponsorship agreement also grants Sony Electronics with title sponsorship in our “My Name is William Rast 2010 Campaign” and the placement of Sony products in our William Rast retail and pop-up stores. The sponsorship agreement expires in December 2010.

In November 2009, we launched our retail expansion plan with the opening of two new full-price William Rast brand retail stores at the Westfield Century City Shopping Mall in Los Angeles, California, and the Westfield Valley Fair Shopping Mall in San Jose, California. Additionally, we opened our first William Rast brand outlet store at the Desert Hills Premium Outlets in Cabazon, California, near Palm Springs. These store openings are part of our retail expansion plan which includes the roll-out of retail stores in major metropolitan locations over the next several years. We continue to revise our expansion plan as retail market conditions change in response to economic conditions. We believe that the retail stores will enhance our net sales and gross profit and the outlet store will allow us to sell our overstock or slow moving items at higher profit margins

To further our retail expansion plan, in November 2009 we entered into two new leases for a William Rast retail store and a J. Lindeberg retail store, both located in Miami, Florida. The J. Lindeberg store opened in April 2010 and the William Rast store opened in August 2010.

As of November 12, 2010, we had the following retail store locations:

Brand	Location	Opening or Acquisition Date
William Rast	Miami, Florida	August 2010
J. Lindeberg	Miami, Florida	April 2010
William Rast	Century City, California	November 2009
William Rast	San Jose, California	November 2009
William Rast Outlet	Cabazon, California	November 2009
J. Lindeberg	Los Angeles, California	May 2009
J. Lindeberg	New York, New York	July 2008

Critical Accounting Policies, Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our valuation of inventories and our allowance for uncollectible house accounts receivable, recourse factored accounts receivable and chargebacks, and contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Inventories. Inventories are evaluated on a continual basis and reserve adjustments, if any, are made based on management’s estimate of future sales value of specific inventory items. Reserve adjustments are made for the difference between the cost of the inventory and the estimated market value, if lower, and charged to operations in the period in which the facts that give rise to the adjustments become known. Inventories, consisting of piece goods and trim, work-in-process and finished goods, are stated at the lower of cost (first-in, first-out method) or market.

Accounts Receivable. Factored accounts receivable balances with recourse, chargeback and other receivables are evaluated on a continual basis and allowances are provided for potentially uncollectible accounts based on management’s estimate of the collectability of customer accounts. Factored accounts receivable without recourse are also evaluated on a continual basis and allowances are provided for anticipated returns, discounts and chargebacks based on management’s estimate of the collectability of customer accounts and historical return, discount and other chargeback rates. If the financial condition of a customer were to deteriorate, resulting in an impairment of its ability to make payments, an additional allowance may be required. Allowance adjustments are charged to operations in the period in which the facts that give rise to the adjustments become known.

Intangible Assets. Intangible assets are evaluated on a continual basis and impairment adjustments are made based on management’s reassessment of the useful lives related to intangible assets with definite useful lives. Intangible assets with indefinite lives are evaluated on a continual basis and impairment adjustments are made based on management’s comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Impairment adjustments are made for the difference between the carrying value of the intangible asset and the estimated valuation and charged to operations in the period in which the facts that give rise to the adjustments become known.

Revenue Recognition. Wholesale revenue is recognized when merchandise is shipped to a customer, at which point title transfers to the customer, and when collection is reasonably assured. Customers are not given extended terms or dating or return rights without proper prior authorization. Revenue is recorded net of estimated returns, charge backs and markdowns based upon management’s estimates and historical experience. Website revenue is recognized when merchandise is shipped to a customer and when collection is reasonably assured. Retail revenue is recognized on the date of purchase from our retail stores. Advertising revenue is recorded in the period in which the event to which the advertising rights were granted occurred. Design revenue is recorded in the period in which the design services are provided.

Deferred Tax Assets. We may record a valuation allowance to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. We consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If we determine that we may not realize all or part of our deferred tax assets in the future, we will make an adjustment to the carrying value of the deferred tax asset, which would be reflected as an income tax expense. Conversely, if we determine that we will realize a deferred tax asset, which currently has a valuation allowance, we would be required to reverse the valuation allowance, which would be reflected as an income tax benefit. Valuation allowance adjustments are made in the period in which the facts that give rise to the adjustments become known.

Income Taxes. We file U.S. Federal tax returns, multiple U.S. state and state franchise tax returns. For U.S. Federal tax purposes, all periods subsequent to December 31, 2005 are subject to examination by the U.S. Internal Revenue Service (“IRS”). We believe that our income tax filing positions and deductions will be sustained on audit and we do not anticipate any adjustments that will result in a material change. Therefore, no reserves for uncertain income tax positions have been recorded. In addition, we do not anticipate that the total amount of unrecognized tax benefit related to any particular tax position will change significantly within the next twelve months. Our policy for recording interest and penalties, if any, associated with IRS audits is to record such items as a component of income taxes.

Stock Based Compensation. Stock-based compensation expense is recognized based on awards ultimately expected to vest on a straight-line prorated basis. The fair value of options is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Stock price volatility was estimated based on a peer group of public companies and the expected term was estimated using the “safe harbor” provisions provided by generally accepted accounting principles.

Litigation Contingencies. We are subject to on-going litigation which requires management to make certain assumptions and estimates regarding gain or loss contingencies, if any, related to the outcome of pending litigation. In consultation with legal counsel, we consider the facts and circumstances surrounding the pending litigation and the probability of the outcome of pending litigation, whether favorable or unfavorable, in our estimates of gain or loss contingencies.

Noncontrolling Interest. Profit and loss allocations to noncontrolling interest members of our subsidiaries are recorded as increases and decreases in noncontrolling interest in our consolidated financial statements. Cash distributions, if any, made to a noncontrolling interest member of any of our subsidiaries are accounted for as decreases in noncontrolling interest in the consolidated balance sheet of the Company. To the extent the priority distributions are made, it would reduce the income allocable to the controlling interest.

Recent Accounting Pronouncements

See Note 3 to Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and effects on results of operations and financial condition.

Results of Operations

The following table presents consolidated statement of operations data for each of the periods indicated as a percentage of revenues.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Net revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		57.5			49.6			49.9			52.1
Gross profit		42.5			50.4			50.1			47.9
Selling, design and production expenses		25.7			24.2			29.3			27.1
General and administrative expenses		51.2			17.9			37.5			19.4
Operating (loss) income		(34.4	)%		8.3	%		(16.7	)%		1.4	%

Comparison of three months ended September 30, 2010 and three months ended September 30, 2009

Net Revenue

	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009		Percent Change

Net Revenue	$	6,543,066	$	11,005,915		(40.5	)%

The decrease in net revenue for the three months ended September 30, 2010 was due to decreased People’s Liberation sales due to the termination of our exclusive distributor relationship with Charlotte Russe, as discussed above. We shipped goods to Charlotte Russe under the terms of our agreement from June through October 2009. The decrease in net revenue was also due to a decrease in wholesale sales of our William Rast apparel line in the United States during the third quarter of 2010 due to current macro economic conditions resulting in retail store closures and major retailers carrying reduced amounts of inventory. The decrease in wholesale sales of our People’s Liberation and William Rast apparel lines was offset by increased wholesale sales of our J. Lindeberg apparel line, and increased retail sales from our William Rast and J. Lindeberg retail stores. The increase in retail sales of each of our William Rast and J. Lindeberg apparel lines resulted from more retail stores being open in the third quarter of 2010 as compared to the third quarter of 2009. We acquired a J. Lindeberg retail store in Los Angeles, California, in May 2009 and opened a full price J. Lindeberg store in Miami, Florida, in April 2010. In November 2009, we opened two new full-price William Rast brand retail stores in Los Angeles and San Jose, California. Additionally, we opened our first William Rast brand outlet store in November 2009 at the Desert Hills Premium Outlets in Cabazon, California, near Palm Springs. We also opened a full price William Rast store in Miami, Florida, in August 2010. These store openings are part of our retail expansion plan which includes the roll-out of retail stores in major metropolitan locations over the next several years. We continue to revise our expansion plan as retail market conditions change in response to economic conditions. We believe that the retail stores will enhance our net revenue and gross profit and the outlet store will allow us to sell our overstock or slow moving items at higher profit margins.

Gross Profit

	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009		Percent Change

Gross Profit	$	2,778,262	$	5,549,437		(49.9	)%

Selling, Design and Production Expenses

	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009		Percent Change

Selling, design and production expenses	$	1,680,247	$	2,659,481		(36.8	)%

Selling, design and production expenses for the three months ended September 30, 2010 and 2009 primarily related to salaries and commissions, design fees, advertising, marketing and promotion, samples, travel and showroom expenses. The decrease in selling, design and production expenses for the quarter ended September 30, 2010 was attributable primarily to decreased sales, design and production salaries and consulting expenses, decreased promotion and marketing costs and decreased travel and entertainment costs in the third quarter of 2010 related to our William Rast brand as a result of cost cutting measures implemented to decrease expenditures. The decrease is further attributable to the elimination of the majority of our selling, design and production expenses related to our People’s Liberation brand operations during the period, as a result of the termination of our exclusive distributor relationship with Charlotte Russe in September 2009. As a percentage of net revenue, selling, design and production expenses increased to 25.7% for the three months ended September 30, 2010 compared to 24.2% for the three months ended September 30, 2009, as a result of decreased net sales during the three months ended September 30, 2010.

General and Administrative Expenses

	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009		Percent Change

General and administrative expenses	$	3,349,194	$	1,970,929		69.9	%

General and administrative expenses for the three months ended September 30, 2010 and 2009 primarily related to salaries, professional fees, facility costs, travel and entertainment, depreciation and amortization expense, and other general corporate expenses. As a percentage of net revenue, general and administrative expenses increased to 51.2% for the three months ended September 30, 2010 from 17.9% for three months ended September 30, 2009. The increase in general and administrative expenses during the three months ended September 30, 2010 was primarily due a reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of the trade accounts receivable due from Charlotte Russe, as discussed above. The increase in general and administrative expenses was also due to the expansion of our retail store operations and increased legal expenses related to the negotiation of our new financing arrangements and our on-going litigation with Charlotte Russe. In the third quarter of 2009, we operated two retail stores, compared to seven retail stores at the end of the third quarter of 2010. Retail store operation costs primarily include salaries, rent and other operating costs. As discussed above, we are currently subject to litigation in relation to our agreement with Charlotte Russe. As a result of this litigation, we experienced a reduction of our general and administrative expenses related to direct expenses of our People’s Liberation brand. The decrease in direct expenses of our People’s Liberation brand was offset by increased legal expenses as a result of the on-going litigation and the reserve for bad debts recorded in the third quarter of 2010 related to the impairment of the trade accounts receivable due from Charlotte Russe.

Interest Expense, net

	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009		Percent Change

Interest Expense, net	$	45,643	$	59,653		(23.5	)%

Under our former William Rast factoring arrangement which was replaced on October 7, 2010, as discussed elsewhere in this report, we were able to borrow up to 85% on our factored accounts receivable and 50% on our eligible inventories. Maximum borrowings under our People’s Liberation and William Rast inventory facility were not to exceed $1.3 million of eligible inventory. Under our current J. Lindeberg factoring arrangement which has been terminated, as discussed elsewhere in this report, we were able to borrow up to 85% on our factored accounts receivable and 50% on our eligible inventories. Maximum borrowings, including borrowings related to factored accounts receivable and inventory, related to our J. Lindeberg facility were not to exceed $1.5 million. Outstanding borrowings under our factoring arrangements amounted to approximately $1.2 million and $3.1 million at September 30, 2010 and 2009, respectively. The decrease in interest expense is due to an average decrease in borrowings under our factoring arrangements during the quarter ended September 30, 2010, offset by an increase in the interest rate under our William Rast facility from prime plus 1% to prime plus 2% beginning January 1, 2010. The decrease in interest expense was further offset by interest expense related to our note payable to related parties. On August 13, 2010, our subsidiary, William Rast Licensing, entered into a promissory note in the amount of $750,000 with two related parties. The promissory note bears interest at 8%, payable monthly in arrears, and is due February 13, 2012.

Provision for Income Tax

	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009		Percent Change

Provision for Income Tax	$	7,000	$	8,190		(14.5	)%

The provision for income taxes for the three months ended September 30, 2010 and 2009 represents the minimum tax payments due for state and local purposes, including gross receipts tax on sales generated by our limited liability companies. A provision for Federal income taxes has not been recorded for the three months ended September 30, 2010, as we had a net loss during the quarter. A provision for Federal income taxes was not recorded for the three months ended September 30, 2009, as any tax liabilities generated from net income would be offset by the Company’s net operating loss carryforwards. As of September 30, 2010 and 2009, a valuation allowance has been provided for our deferred income tax assets related to net operating loss carryforwards, factored accounts receivable and bad debt reserves and other reserves. As of December 31, 2009, total net operating losses available to carry forward to future periods amounted to approximately $4.9 million. At this time, we cannot determine that it is more likely than not that we will realize the future income tax benefits related to our net operating losses and other deferred tax assets.

Net (Loss) Income

	Three Months Ended September 30, 2010			Three Months Ended September 30, 2009		Percent Change

Net (loss) income	$	(1,553,822	)	$	851,184		*
* Not meaningful

Our net loss incurred during the three months ended September 30, 2010 compared to net income for the three months ended September 30, 2009 was due primarily to decreased net revenue and gross margin, the reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of the trade accounts receivable due from Charlotte Russe and increased retail operating expenses incurred during the period, offset by decreased selling, design and production expenses, as discussed above, and $750,000 of cash proceeds, included in other income, received in August 2010 from an asset purchase agreement in which we sold 50% of the net proceeds, after legal fees and expenses, that we may receive as a result of our on-going litigation with Charlotte Russe, as further described elsewhere in this report.

Noncontrolling Interest

	Three Months Ended September 30, 2010			Three Months Ended September 30, 2009			Percent Change

Noncontrolling interest	$	(677,991	)	$	(39,198	)		*
* Not meaningful

Noncontrolling interest recorded for the three months ended September 30, 2010 and 2009 represents profit or loss allocations to William Rast Enterprises, a member of William Rast Sourcing and William Rast Licensing, and J. Lindeberg USA Corp., a member of J. Lindeberg USA, LLC. Beginning January 1, 2009, losses are allocated to the members of William Rast Sourcing and William Rast Licensing based on their respective percentage interests in such entities and profits are allocated to the members based on their percentage interest to the extent that the member was previously allocated losses. Beginning July 1, 2008, the operations of J. Lindeberg USA, LLC are included in our consolidated financial statements. Profit and loss allocations to its member, J. Lindeberg USA Corp., are recorded as noncontrolling interest in our consolidated financial statements. The increase in noncontrolling interest recorded for the three months ended September 30, 2010 compared to the three months ended September 30, 2009 was due primarily to increased net loss allocations to William Rast Enterprises during the three months ended September 30, 2010, compared to net loss allocations during the three months ended September 30, 2009.

Net (Loss) Income Attributable to Common Stockholders

	Three Months Ended September 30, 2010			Three Months Ended September 30, 2009		Percent Change

Net (loss) income attributable to common stockholders	$	(875,831	)	$	890,382		*
* Not meaningful

Our net loss attributable to common stockholders incurred during the three months ended September 30, 2010 compared to net income for the three months ended September 30, 2009 is due primarily to decreased net revenue and gross margin, the reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of the trade accounts receivable due from Charlotte Russe and increased retail operating expenses, offset by decreased selling, design and production expenses, increased noncontrolling interest incurred during the three months ended September 30, 2010, as discussed above, and $750,000 of cash proceeds, included in other income, received in August 2010 from an asset purchase agreement in which we sold 50% of the net proceeds, after legal fees and expenses, that we may receive as a result of our on-going litigation with Charlotte Russe, as further described elsewhere in this report.

Comparison of nine months ended September 30, 2010 and nine months ended September 30, 2009

Net Revenue

	Nine months Ended September 30, 2010		Nine months Ended September 30, 2009		Percent Change

Net Revenue	$	21,754,424	$	28,485,857		(23.6	)%

The decrease in net revenue for the nine months ended September 30, 2010 was due primarily to decreased People’s Liberation sales due to the termination of our exclusive distributor relationship with Charlotte Russe, as discussed above. We shipped goods to Charlotte Russe under the terms of our agreement from June through October 2009. The decrease in net revenue was also due to a decrease in wholesale sales of our William Rast apparel line in the United States during the first nine months of 2010 due to current macro economic conditions resulting in retail store closures and major retailers carrying reduced amounts of inventory. The decrease in wholesale sales of our People’s Liberation and William Rast apparel lines was offset by advertising revenue received from Sony Electronics in the first quarter of 2010 in accordance with our sponsorship agreement and design services revenue received from a major retailer in the second quarter of 2010 in accordance with our design and licensing agreement. On January 29, 2010, we entered into a sponsorship agreement with Sony Electronics Inc. The sponsorship agreement provided Sony Electronics with the title sponsorship at our William Rast fashion show held during Fashion Week in New York City in February 2010. The majority of the amount received from Sony Electronics for title sponsorship was recorded as advertising revenue during the first quarter of 2010. In May 2010, we entered into a design and license agreement with a major retailer. Amounts received from the major retailer were recorded as design revenue during the second quarter of 2010. The decrease in net sales for the nine months ended September 30, 2010 was also offset by increased wholesale sales of our J. Lindeberg apparel line, and increased retail sales from our William Rast and J. Lindeberg retail stores. The increase in retail sales of each of our William Rast and J. Lindeberg apparel lines resulted from more retail stores being open in the first nine months of 2010 as compared to the first nine months 2009. We acquired a J. Lindeberg retail store in Los Angeles, California, in May 2009 and opened a full price J. Lindeberg store in Miami, Florida, in April 2010. In November 2009, we opened two new full-price William Rast brand retail stores in Los Angeles and San Jose, California. Additionally, we opened our first William Rast brand outlet store in November 2009 at the Desert Hills Premium Outlets in Cabazon, California, near Palm Springs. We also opened a full price William Rast store in Miami, Florida, in August 2010. These store openings are part of our retail expansion plan which includes the roll-out of retail stores in major metropolitan locations over the next several years. We continue to revise our expansion plan as retail market conditions change in response to economic conditions. We believe that the retail stores will enhance our net revenue and gross profit and the outlet store will allow us to sell our overstock or slow moving items at higher profit margins.

Gross Profit

	Nine months Ended September 30, 2010		Nine months Ended September 30, 2009		Percent Change

Gross Profit	$	10,897,402	$	13,638,565		(20.1	)%

Gross profit consists of net revenue less cost of goods sold. Cost of goods sold includes expenses primarily related to inventory purchases and contract labor, duty, freight and overhead expenses. Overhead expenses primarily consist of warehouse and shipping salaries and expenses. As a percentage of net revenue, our gross margin increased to 50.1% for the nine months ended September 30, 2010 from 47.9% for the nine months ended September 30, 2009. The increase in gross profit as a percentage of net revenue was primarily due to advertising revenue received from Sony Electronics in the first quarter of 2010 in accordance with our sponsorship agreement, design revenue received in the second quarter of 2010 in accordance with our design and license agreement with a major retailer, and increased retail sales of our J. Lindeberg and William Rast product lines at higher gross margins. There was no cost of revenue associated with the advertising and design revenue, which resulted in an increase in gross profit as a percentage of net revenue during the nine months ended September 30, 2010. The increase in gross profit as a percentage of net revenue was offset by discounts provided to one of our major customers during the third quarter of 2010 and off-price sales of our remaining People’s Liberation brand inventory during the nine months ended September 30, 2010.

Selling, Design and Production Expenses

	Nine months Ended September 30, 2010		Nine months Ended September 30, 2009		Percent Change

Selling, design and production expenses	$	6,382,209	$	7,703,663		(17.2	)%

The decrease in selling, design and production expenses for the nine months ended September 30, 2010 was attributable primarily to decreased sales, design and production salaries and consulting expenses, decreased promotion and marketing costs and decreased travel and entertainment costs during the period related to our William Rast brand as a result of cost cutting measures implemented to decrease expenditures. The decrease was further attributed to the elimination of the majority of our selling, design and production expenses related to our People’s Liberation brand operations during the first nine months of 2010, as a result of the termination of our exclusive distributor relationship with Charlotte Russe in September 2009. The decrease in selling, design and production expenses for the nine months ended September 30, 2010 was offset by the increased cost of our William Rast fashion show held during Fashion Week in New York City in February 2010. As a percentage of net revenue, selling, design and production expenses increased to 29.3% for the nine months ended September 30, 2010 compared to 27.1% for the nine months ended September 30, 2009, as a result of decreased net sales during the nine months ended September 30, 2010.

General and Administrative Expenses

	Nine months Ended September 30, 2010		Nine months Ended September 30, 2009		Percent Change

General and administrative expenses	$	8,159,181	$	5,539,017		47.3	%

As a percentage of net sales, general and administrative expenses increased to 37.5% for the nine months ended September 30, 2010 from 19.4% for nine months ended September 30, 2009. The increase in general and administrative expenses during the nine months ended September 30, 2010 was primarily due to the expansion of our retail store operations, increased legal expenses related to the negotiation of our new financing arrangements and our on-going litigation with Charlotte Russe and a reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of the trade accounts receivable due from Charlotte Russe. In the third quarter of 2009, we operated two retail stores, compared to seven retail stores at the end of the third quarter of 2010. Retail store operation costs primarily include salaries, rent and other operating costs. As discussed above, we are currently subject to litigation in relation to our agreement with Charlotte Russe. As a result of this litigation, we experienced a reduction of our general and administrative expenses related to direct expenses of our People’s Liberation brand. The decrease in direct expenses of our People’s Liberation brand was offset by increased legal expenses as a result of the on-going litigation.

Interest Expense, net

	Nine months Ended September 30, 2010		Nine months Ended September 30, 2009		Percent Change

Interest Expense, net	$	140,422	$	160,505		(12.5	)%

Under our former William Rast factoring arrangement which was replaced on October 7, 2010, as discussed elsewhere in this report, we were able to borrow up to 85% on our factored accounts receivable and 50% on our eligible inventories. Maximum borrowings under our People’s Liberation and William Rast inventory facility were not to exceed $1.3 million of eligible inventory. Under our current J. Lindeberg factoring arrangement which has been terminated, as discussed elsewhere in this report, we were able to borrow up to 85% on our factored accounts receivable and 50% on our eligible inventories. Maximum borrowings, including borrowings related to factored accounts receivable and inventory, related to our J. Lindeberg facility were not to exceed $1.5 million. Outstanding borrowings under our factoring arrangements amounted to approximately $1.2 million and $3.1 million at September 30, 2010 and 2009, respectively. The decrease in interest expense is due to an average decrease in borrowings under our factoring arrangements during the nine months ended September 30, 2010, offset by an increase in the interest rate under our William Rast facility from prime plus 1% to prime plus 2% beginning January 1, 2010.

Provision for Income Tax

	Nine months Ended September 30, 2010		Nine months Ended September 30, 2009		Percent Change

Provision for Income Tax	$	36,990	$	29,980		23.4	%

The provision for income taxes for the nine months ended September 30, 2010 and 2009 represents the minimum tax payments due for state and local purposes, including gross receipts tax on sales generated by our limited liability companies. A provision for Federal income taxes has not been recorded for the nine months ended September 30, 2010, as we had a net loss during the period. A provision for Federal income taxes was not recorded for the nine months ended September 30, 2009, as any tax liabilities generated from net income would be offset by the Company’s net operating loss carryforwards. As of September 30, 2010 and 2009, a valuation allowance has been provided for our deferred income tax assets related to net operating loss carryforwards, factored accounts receivable and bad debt reserves and other reserves. As of December 31, 2009, total net operating losses available to carry forward to future periods amounted to approximately $4.9 million. At this time, we cannot determine that it is more likely than not that we will realize the future income tax benefits related to our net operating losses and other deferred tax assets.

Net (Loss) Income

	Nine months Ended September 30, 2010			Nine months Ended September 30, 2009		Percent Change

Net (loss) income	$	(3,071,400	)	$	205,400		*
* Not meaningful

The increase in net loss incurred during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 was due primarily to decreased net revenue, increased retail operating expenses incurred during the period and the reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of the trade accounts receivable due from Charlotte Russe, offset by decreased selling, design and production expenses, as discussed above, $750,000 of cash proceeds, included in other income, received in August 2010 from an asset purchase agreement in which we sold 50% of the net proceeds, after legal fees and expenses, that we may receive as a result of our on-going litigation with Charlotte Russe, as further described elsewhere in this report.

Noncontrolling Interest

	Nine months Ended September 30, 2010			Nine months Ended September 30, 2009			Percent Change

Noncontrolling Interest	$	(1,461,013	)	$	(885,026	)		65.1	%

Noncontrolling interest recorded for the nine months ended September 30, 2010 and 2009 represents profit or loss allocations due to William Rast Enterprises, a member of William Rast Sourcing and William Rast Licensing, and J. Lindeberg USA Corp., a member of J. Lindeberg USA, LLC. Beginning January 1, 2009, losses are allocated to the members of William Rast Sourcing and William Rast Licensing based on their respective percentage interests in such entities and profits are allocated to the members based on their percentage interest to the extent that the member was previously allocated losses. Beginning July 1, 2008, the operations of J. Lindeberg USA, LLC are included in our consolidated financial statements. Profit and loss allocations to its member, J. Lindeberg USA Corp., are recorded as noncontrolling interest in our consolidated financial statements. The increase in noncontrolling interest recorded for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 was due primarily to increased loss allocations to William Rast Enterprises during the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009.

Net (Loss) Income Attributable to Common Stockholders

	Nine months Ended September 30, 2010			Nine months Ended September 30, 2009		Percent Change

Net (loss) income attributable to common stockholders	$	(1,610,387	)	$	1,090,426		*
* Not meaningful

The increase in net loss attributable to common stockholders during the nine months ended September 30, 2010 compared to net income attributable to common stockholders for the nine months ended September 30, 2009 is due primarily to decreased net revenue, increased retail operating expenses and the reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of the trade accounts receivable due from Charlotte Russe, offset by decreased selling, design and production expenses, increased noncontrolling interest incurred during the nine months ended September 30, 2010, as discussed above, $750,000 of cash proceeds, included in other income, received in August 2010 from an asset purchase agreement in which we sold 50% of the net proceeds, after legal fees and expenses, that we may receive as a result of our on-going litigation with Charlotte Russe, as further described elsewhere in this report.

Liquidity and Capital Resources

As of September 30, 2010, we had cash and cash equivalents of approximately $300,000, a working capital deficit of approximately $252,000, and approximately $1.75 million of availability from our factor. As of September 30, 2010, advances from our factor totaled approximately $1.2 million. As of September 30, 2009, we had cash and cash equivalents of approximately $1.3 million, working capital of approximately $3.0 million, and approximately $1.6 million of availability from our factor. As of September 30, 2009, advances from our factor totaled approximately $3.1 million.

Operating Capital Requirements

We are in litigation with Charlotte Russe and its affiliates in relation to our exclusive distribution agreement, which Charlotte Russe purported to terminate on October 26, 2009. We derived a significant portion of our revenues and operating cash flow from the sale of People’s Liberation branded merchandise pursuant to the distribution agreement. In the first year of the contract, we received approximately $5.5 million through September 30, 2009 as required by the distribution agreement and we are owed $59.5 million in guaranteed minimum payments over the remainder of the term of the distribution agreement, which amount may be reduced if Charlotte Russe elects to terminate the agreement early, beginning July 2011 with an early termination fee. As a result of Charlotte Russe’s purported termination of the distribution agreement, Charlotte Russe ceased to make their contractually obligated payments to us, which significantly decreased our net sales and cash flows from operations of our People’s Liberation business. We were also negatively impacted by a reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of the trade accounts receivable due from Charlotte Russe. We believe our results of operations and financial condition could be further negatively impacted if we are unable to reach a settlement in a manner acceptable to us or the ensuing litigation is not resolved in a manner favorable to us. Additionally, we may continue to incur significant expenses in our litigation with Charlotte Russe, and unless the cases are settled, we will continue to incur additional legal fees in increasing amounts as the cases move toward trial.

In November 2009, we launched our retail expansion plan with the opening of two new full-price William Rast brand retail stores at the Westfield Century City Shopping Mall in Los Angeles, California, and the Westfield Valley Fair Shopping Mall in San Jose, California. Additionally, we opened our first William Rast brand outlet store at the Desert Hills Premium Outlets in Cabazon, California. We opened a J. Lindeberg full price retail store in Miami, Florida, in April 2010 and a William Rast full price retail store in Miami, Florida, in August 2010. These store openings are part of our retail expansion plan which includes the roll-out of retail stores in major metropolitan locations over the next several years. The costs associated with our store openings have been financed primarily through cash flow from operations, as well as through tenant improvements received from landlords at some of our locations. In an effort to reduce the capital required to open future locations, we will attempt to continue to negotiate landlord concessions. We continue to revise our retail expansion plan as retail market conditions change in response to economic conditions.

We are subject to a contractual agreement that may require us to contribute cash to our subsidiary, J. Lindeberg USA, LLC. Pursuant to the operating agreement we entered into with J. Lindeberg USA Corp. and J. Lindeberg AB, we contributed $20,000 in cash to our 50% owned subsidiary, J. Lindeberg USA, LLC, and will be required to contribute up to a maximum of $1.5 million in working capital or related guaranties through December 2010. Our J. Lindeberg USA, LLC, factoring agreements currently provide for corporate guaranties from our related entities, People's Liberation, Inc., Bella Rose, LLC, and Versatile Entertainment, Inc. At this point in time, the cash amount in excess of $20,000 that we may be required to contribute to J. Lindeberg USA, LLC, if any, is uncertain and our future cash position may be adversely impacted.

Sources of Liquidity

We are currently exploring additional sources of capital, including an alternative factor for our J. Lindeberg facility, to fund current operations and to be used to expand our business and fund future growth, including the opening of our new retail stores. If we are not able to replace our current J. Lindeberg factoring arrangement on favorable terms, we will need to raise additional funds in the next twelve months in order to fund our minimum working capital and capital expenditure needs. We are currently in negotiations with a factor, Rosenthal & Rosenthal, Inc., to replace our J. Lindeberg factor facility and have received preliminary agreements that are subject to further negotiations.

On August 13, 2010, our subsidiary, William Rast Licensing, entered into a promissory note in the amount of $750,000 with Mobility Special Situations I, LLC (“Mobility”), an entity owned in part by Mark Dyne, the brother of our Chief Executive Officer, Colin Dyne, and New Media Retail Concepts, LLC, an entity owned by Gerard Guez, a significant beneficial owner of our common stock. The promissory note bears interest at 8%, payable monthly in arrears, and is due February 13, 2012. The promissory note is secured by the assets of William Rast Licensing and is guaranteed by our other entities under common control, including People’s Liberation, Inc., William Rast Sourcing, LLC, William Rast Retail, LLC, Bella Rose, LLC and Versatile Entertainment, Inc.

On August 13, 2010, we also entered into an asset purchase agreement with New Media Retail Concepts, LLC, an entity owned by Gerard Guez, a significant beneficial owner of our common stock, and ECA Holdings II, LLC, an entity owned in part by Mark Dyne, the brother of our Chief Executive Officer, Colin Dyne. In exchange for $750,000 cash, we sold 50% of the net proceeds, after legal fees and expenses, that might be received as a result of our on-going litigation with Charlotte Russe, as further described elsewhere in this report. We are not required to repay the $750,000 cash proceeds received from the asset purchase agreement regardless of a favorable or unfavorable outcome of the Charlotte Russe litigation. The $750,000 cash proceeds received from the asset purchase agreement have been recorded as other income in our consolidated statement of operations for the three months ended September 30, 2010.

The extent of our future capital requirements will depend on many factors, including our results of operations, the terms of a new J. Lindeberg factoring agreement or alternative accounts receivable financing and the availability of landlord concessions for future retail store locations. We may also need to raise additional capital if our working capital requirements or capital expenditures are greater than we expect or if we expand our business by acquiring or investing in additional brands. There can be no assurance that additional debt or equity financing will be available on acceptable terms or at all, especially given the economic conditions that currently prevail.

In addition, any additional equity funding may result in significant dilution to existing stockholders, and, if we raise debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available, we may be required to delay or curtail significantly our business activities. This would have a material adverse effect on our business, financial condition and/or results of operations, and could ultimately cause us to have to cease operations.

Cash Flows

We currently satisfy our working capital requirements primarily through borrowings from our factor and cash flows generated from operations. Cash flows from operating and investing activities for the nine months ended September 30, 2010 and 2009 are summarized in the following table:

	Nine months Ended June 30,
Activity:	2010			2009
Operating activities	$	(2,898,743	)	$	(87,031	)
Investing activities		(118,658	)		(519,993	)
Financing activities		750,000			-
Net decrease	$	(2,267,401	)	$	(607,024	)

Operating Activities

Net cash used in operating activities was approximately $2,899,000 and $87,000 for the nine months ended September 30, 2010 and 2009, respectively. Net cash used in operating activities for the nine months ended September 30, 2010 was primarily a result of a net loss of approximately $3.1 million and increased receivables and inventories, offset by increased accounts payable and accrued expenses. Net cash used in operating activities during the nine months ended September 30, 2009 was primarily a result of a reduction in customer deposits, increased receivables and decreased accounts payable and accrued expenses, offset by decreased inventories and the net income earned during the period.

Investing Activities

Net cash used in investing activities was approximately $119,000 and $520,000 for the nine months ended September 30, 2010 and 2009, respectively. Net cash used in investing activities for the nine months ended September 30, 2010 primarily consisted of an increase in capital expenditures for computer equipment, leasehold improvements and furniture and fixtures for our new retail store locations, and expenditures for our tradeshow booth; offset by $750,000 of cash proceeds received in August 2010 from an asset purchase agreement in which we sold a portion of the net proceeds that might be received as a result of our on-going litigation with Charlotte Russe. We opened two new retail stores in 2010 and a significant portion of the capital expenditures incurred for the build-out of one of our new retail stores was offset by a tenant improvement reimbursement received from one of our landlords. Net cash used in investing activities for the nine months ended September 30, 2009 consisted of an increase in restricted cash held under lease lines as collateral to secure two lease agreements, an increase in capital expenditures primarily for leasehold improvements and furniture and fixtures for the relocation of our corporate offices, trademark costs and cash paid in the acquisition of a J. Lindeberg retail store. Effective May 13, 2009, we purchased certain assets related to the operation of a J. Lindeberg retail store in Los Angeles, California, from an unrelated party. The asset purchase agreement provided for the payment of $100,000 in cash upon closing and cancellation of approximately $250,000 of trade accounts receivable due from the seller. The asset purchase agreement also provided that we acquire certain leasehold improvements, furniture and fixtures, and computer and store equipment.

Financing Activities

Net cash provided by financing activities was approximately $750,000 for the nine months ended September 30, 2010. On August 13, 2010, our subsidiary, William Rast Licensing, entered into a note payable to related parties in the amount of $750,000. The note bears interest at 8%, payable monthly in arrears, and is due February 13, 2012. There were no financing activities during the nine months ended September 30, 2009.

Factoring Agreements

On October 7, 2010, our subsidiary, William Rast Sourcing entered into a new factoring agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”). The factoring agreement has a term of two years, and automatically renews for additional two-year periods unless William Rast provides notice of its intent not to renew the agreement. Pursuant to the factoring agreement, Rosenthal purchases William Rast’s eligible accounts receivable and assumes the credit risk with respect to those accounts for which Rosenthal has given its prior credit approval. If Rosenthal does not assume the credit risk for a receivable, the collection risk associated with the receivable remains with William Rast. The factoring agreement provides that we may borrow an amount up to 75% of the value of our approved factored customer invoices. We may also borrow up to 50% of eligible inventory (as defined in the agreement) up to a maximum of $875,000. The factor commission is 0.75% of the customer invoice amount and interest is charged on accounts receivable and inventory advances at prime plus 1.5% and prime plus 2.5%, respectively. The factor facility is secured by substantially all of the assets of William Rast Sourcing and a security interest granted by William Rast Licensing in certain royalties payable to William Rast Licensing, is guaranteed by certain of the Company’s other consolidated entities and is personally guaranteed by Colin Dyne, the Chief Executive Officer of People’s Liberation and Manager of William Rast, up to a maximum of $1 million.

The terms of our J. Lindeberg factoring agreement with FTC Commercial Corp. (“FTC”) provides that the agreement will remain in force indefinitely unless it is terminated by either party in accordance with the terms of the agreement. On July 28, 2010, FTC exercised its right to terminate the factoring agreement for convenience by providing us with 60 days prior written notice of termination. As a result of the termination, the obligations, indebtedness and liabilities owed to FTC under our J. Lindeberg factoring agreement are now due. The total net amount owed to us from FTC related to the terminated J. Lindeberg factoring facility amounted to approximately $220,000 at September 30, 2010. We are currently in negotiations with Rosenthal to replace our J. Lindeberg factoring facility with FTC and have received preliminary agreements that are subject to further negotiations.

As of September 30, 2010 and 2009, total factored accounts receivable included in due to factor amounted to approximately $1.9 million and $5.3 million, respectively. Outstanding advances as of September 30, 2010 and 2009 amounted to approximately $1.2 million and $3.1 million, respectively, and are included in the due from factor balance.

Contractual Obligations and Off-Balance Sheet Arrangements

The following summarizes our contractual obligations at September 30, 2010 and the effects such obligations are expected to have on liquidity and cash flows in future periods:

	Payments Due by Period
			Less than		1-3		4-5		After
Contractual Obligations	Total		1 Year		Years		Years		5 Years
Operating leases	$	13,172,786	$	2,446,498	$	5,595,331	$	2,404,784	$	2,726,173
Note payable to related parties		750,000		-		750,000		-		-
Operating leases	$	13,922,786	$	2,446,498	$	6,345,331	$	2,404,784	$	2,726,173

At September 30, 2010, approximately $166,000 of our cash is held under lease lines as collateral to secure two lease agreements.

At September 30, 2010 and 2009, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Factored accounts receivable may subject us to off-balance sheet risk. We sell the majority of our trade accounts receivable to our factor and are contingently liable to the factor for merchandise disputes, other customer claims and invoices that are not credit approved by the factor. From time to time, our factor may also issue letters of credit and vendor guarantees on our behalf. There were no outstanding letters of credit or vendor guarantees as of September 30, 2010 and 2009. Ledger debt (payables to suppliers that use the same factor as the Company) amounted to approximately $1.1 million and at September 30, 2010.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4T.

Controls and Procedures.

Evaluation of Controls and Procedures

Members of the our management, including our Chief Executive Officer, Colin Dyne, and Chief Financial Officer and President, Darryn Barber, have evaluated the effectiveness of our disclosure controls and procedures, as defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of September 30, 2010, the end of the period covered by this report. Based upon that evaluation, Messrs. Dyne and Barber concluded that our disclosure controls and procedures were effective as of September 30, 2010.

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the third quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1A.

Risk Factors

Cautionary Statements and Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Our actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors, including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2009 and our quarterly reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010. There have been no material changes to such risk factors during the three months ended September 30, 2010.

Item 6. Exhibits

The following exhibits are filed as part of this report:

Exhibit Number	Exhibit Title

10.1	Asset Purchase Agreement entered into on August 13, 2010 by and among ECA Holdings II, LLC and New Media Retail Concepts, LLC and People’s Liberation, Inc. and its wholly-owned subsidiary Versatile Entertainment, Inc.
10.2	Form of Promissory Note entered into on August 13, 2010 by William Rast Licensing, LLC in favor of Mobility Special Situations I, LLC.
10.3	Borrower Security Agreement entered into on August 13, 2010 by William Rast Licensing, LLC in favor of Mobility Special Situations I, LLC.
10.4	Guarantor Security Agreement entered into on August 13, 2010 by People’s Liberation, Inc., Versatile Entertainment, Inc., Bella Rose, LLC, William Rast Sourcing, LLC, and William Rast Retail, LLC in favor of Mobility Special Situations I, LLC.
10.5	Guaranty entered into on August 13, 2010 by People’s Liberation, Inc., Versatile Entertainment, Inc., Bella Rose, LLC, William Rast Sourcing, LLC, and William Rast Retail, LLC in favor of Mobility Special Situations I, LLC.
10.6	APA Security Agreement entered into on August 13, 2010 by People’s Liberation, Inc., Versatile Entertainment, Inc., Bella Rose, LLC, William Rast Licensing, LLC, William Rast Sourcing, LLC, and William Rast Retail, LLC in favor of ECA Holdings II, LLC.
31.1	Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PEOPLE’S LIBERATION, INC.
Date: November 12, 2010	/s/ Darryn Barber By: Darryn Barber Its: Chief Financial Officer and President (Principal Financial and Accounting Officer)

SEQUENTIAL BRANDS GROUP, INC. - FORM 10-Q - November 12, 2010

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SEQUENTIAL BRANDS GROUP, INC. Reports