Inventories

The components of inventories are as follows:



	June 30, 2011		March 31, 2011
Finished products	$	23,677	$	21,171
Components and packaging material	15,218		14,051
Raw material	4,627		2,151
	$	43,522	$	37,373

Inventories are stated at the lower of cost (using the first-in, first-out method) or market. The cost of inventories includes product costs, inbound freight and handling charges, including an allocation of the Company’s applicable overhead in an amount of $3,789 and $3,799 at June 30, 2011, and March 31, 2011, respectively.

The lead time for certain of the Company's raw materials and components inventory (up to 180 days) requires the Company to maintain at least a three to six-month supply of some items in order to ensure timely production schedules. These lead times are most affected for glass and plastic component orders, as many of the Company's unique designs require the production of molds in addition to the normal production process. This may take 180 to 240 days, or longer, to receive in stock. In addition, when the Company launches a new brand or Stock Keeping Unit (“SKU”), it frequently produces a six to nine-month supply to ensure adequate inventories if the new products exceed forecasted expectations. Generally gross margins on its products outweigh the potential loss due to out-of-stock situations, and the additional carrying costs to maintain higher inventory levels. Also, the composition of the Company's inventory at any given point can vary considerably depending on whether there is a launch of a new product, or a planned sale of a significant amount of product to one or more of the Company's major distributors. However, if future sales do not reach forecasted levels, it could result in excess inventories and may cause the Company to decrease prices to reduce inventory levels.

The Company classifies its inventory into three major categories: finished goods, raw materials, and components and packaging materials. Finished goods include items that are ready for sale to our customers, or essentially complete and ready for use in value sets or other special offers. Raw material consists of fragrance oils or bulk. Components and packaging materials (such as bottles, caps, boxes, etc.) are the individual elements used to manufacture our finished goods. The levels of inventory maintained by the Company vary depending on the age of a brand, its commercial success and market distribution. The Company normally carries higher levels of new products and older products for which demand remains high. Older, slower moving products are periodically reviewed, and inventory levels adjusted, based upon expected future sales. If inventory levels exceed projected demand, management determines whether a product requires a write-down in order to sell the inventory at discounted prices. Management also reviews whether there are any excess components which should be written down or scrapped due to decreased product demand.

Inventories and write-downs, by major categories, as of June 30, 2011, and March 31, 2011, are as follows:



	June 30, 2011
	Finished Goods		Components and Packaging Material		Raw Material		Total
Inventories	$	24,078	$	15,472	$	4,687	$	44,237
Less write-downs	401		254		60		715
Net inventories	$	23,677	$	15,218	$	4,627	$	43,522


	March 31, 2011
	Finished Goods		Components and Packaging Material		Raw Material		Total
Inventories	$	21,441	$	14,504	$	2,204	$	38,149
Less write-downs	270		453		53		776
Net inventories	$	21,171	$	14,051	$	2,151	$	37,373

The Company performs a review of its inventory on a quarterly basis, unless events or circumstances indicate a need for review more frequently. The write-down of inventory results from the application of an analytical approach that incorporates a comparison of sales expectations to the amount of inventory on hand. Other qualitative reasons for writing down selected inventory may include, but are not limited to, product expiration, licensor restrictions, damages, and general economic conditions.

As of June 30, 2011, and March 31, 2011, of our total inventories of $44,237 and $38,149, respectively, management determined that approximately $5,904 and $5,899, respectively, of the finished goods inventory was either selling slower than anticipated or showed signs of deterioration. This inventory was written-down by $401 at June 30, 2011, and $270 at March 31, 2011, respectively. Components and packaging materials are reviewed in light of estimated future sales for finished goods or damages sustained during the production of finished goods. As of June 30, 2011, and March 31, 2011, approximately $2,344 and $1,699, respectively, were identified as problematic and the inventory was written-down by $254 and $453, respectively. Raw materials are usually scrapped due to spoilage or stability issues. As of June 30, 2011, and March 31, 2011, approximately $215 and $53, respectively, were identified as problematic and the inventory was written-down by $60 and $53, respectively.

The Company’s license with GUESS? expired on December 31, 2009, and was not renewed. During the three-months ended June 30, 2010, the Company transferred $783 of GUESS? brand inventory to GUESS? and/or its new fragrance licensee at its March 31, 2010, net carrying value. This transfer of inventory, along with the cost of sales for the brand, have been classified as “Sales-expired license” and “Cost of sales-expired license” in the accompanying unaudited Condensed Consolidated Statements of Operations for the three-months ended June 30, 2010.