ACQUISITION OF ADRIENNE VICTORIA DESIGNS, INC.

12 Months Ended

Dec. 31, 2011

ACQUISITION OF ADRIENNE VICTORIA DESIGNS, INC.

ACQUISITION OF ADRIENNE VICTORIA DESIGNS, INC.

NOTE 6. ACQUISITION OF ADRIENNE VICTORIA DESIGNS, INC.

        On July 3, 2007, the Company, through a wholly-owned subsidiary which was created in connection with the acquisition, acquired certain assets of Adrienne Victoria Designs, Inc. ("AVD"), our largest vendor, at that time. Under the terms of the agreement, the Company made cash payments totaling $5.7 million, including transaction costs. In addition, the Company issued a note payable of $7.0 million ($6.3 million net of imputed interest of 5%) to be paid over 5 years. The Company acquired certain assets of AVD, a design, sourcing and manufacturing company, in order to increase operating efficiencies and increase shareholder value. The acquisition was accounted for in the third quarter of fiscal 2007, using the purchase method in accordance with "Business Combinations", Topic 805 of the FASB ASC. Accordingly, the assets acquired were recorded at their fair values and operating results were included in our financial statements from the date of acquisition.

        During the period ended December 29, 2007, the Company recorded a note payable related to the acquisition of certain assets of Adrienne Victoria Designs, Inc. The $6.3 million note was payable to the principals of Adrienne Victoria Designs, Inc, over five years and had an imputed five percent interest rate. In December 2011 the Company reached an agreement with the principals of AVD to settle the note payable less $345,000 for legal fees incurred by the Company on behalf of the principals, which was recorded as a reduction of general and administrative expenses. At the same time, all contingent payments to the principals based on the achievement of certain annual income targets were eliminated.