UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~April~~October 2726, 2013

¨ 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: 001-05893

FREDERICK’S OF HOLLYWOOD GROUP INC.

(Exact name of Registrant as specified in its charter)

New York		13-5651322
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
6255 Sunset Boulevard, Hollywood, CA		90028
(Address of principal executive offices)		(Zip Code)

6255 Sunset Boulevard, Hollywood, CA		90028
(Address of principal executive offices)		(Zip Code)

(323) 466-5151

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report.)

(323) 466-5151 (Registrant’s telephone number, including area code)

N/A (Former name, former address and former fiscal year, if changed since last report.)

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 ¨

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x

No ¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x
(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ¨

No x

The number of common shares outstanding on ~~June~~December 1110, 2013 was 39,~~142~~273,~~699~~254.

FREDERICK’S OF HOLLYWOOD GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page
PART I.	Financial Information
Item 1.	Financial Statements	3
	Consolidated Balance Sheets at April 27, 2013 (Unaudited) and July 28, 2012 (Audited)	3
	Consolidated Balance Sheets at October 26, 2013 (Unaudited) and July 27, 2013 (Audited)	3
	Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended April 27, 2013 and April 28, 2012	4
	Consolidated Statements of Operations (Unaudited) for the Three Months Ended October 26, 2013 and October 27, 2012	4
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended April 27, 2013 and April 28, 2012	5
	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended October 26, 2013 and October 27, 2012	5
	Notes to Consolidated Unaudited Financial Statements	6 – 1514
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1615 – 2524
	Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	24 - 25
Item 4.	Controls and Procedures	26-27
PART II.	Other Information
Item 1.	Legal Proceedings	2725
Item 1A.	Risk Factors	2725
Item 6.	Exhibits	2826
Signatures		27

	2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FREDERICK’S OF HOLLYWOOD GROUP INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

	April 27, 2013				July 28, 2012
	October 26,			July 27,
	(Unaudited)				(Audited)
	2013			2013
ASSETS
	(Unaudited)			(Audited)
CURRENT ASSETS:
ASSETS
Cash	$	205			$	741
CURRENT ASSETS:
Accounts receivable		896				997
Cash	$	253		$	201
Merchandise inventories		11,019				12,915
Accounts receivable		1,475			926
Prepaid expenses and other current assets		582				952
Merchandise inventories		13,431			11,333
Deferred income tax assets		48				48
Prepaid expenses and other current assets		409			815
Total current assets		12,750				15,653
Deferred income tax assets		93			93
PROPERTY AND EQUIPMENT, Net		4,197				6,806
Total current assets		15,661			13,368
INTANGIBLE ASSETS		18,259				18,259
PROPERTY AND EQUIPMENT, Net		2,989			3,196
OTHER ASSETS		879				756
INTANGIBLE ASSETS		18,259			18,259
TOTAL ASSETS	$	36,085			$	41,474
OTHER ASSETS		1,875			1,376
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
TOTAL ASSETS	$	38,784		$	36,199
CURRENT LIABILITIES:
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
Revolving credit facility	$	5,183			$	7,356
CURRENT LIABILITIES:
Accounts payable and other accrued expenses		18,485				14,623
Revolving credit facilities	$	5,767		$	6,078
Total current liabilities		23,668				21,979
Current portion of term loan		5,000			-
DEFERRED RENT AND TENANT ALLOWANCES		3,284				3,887
Accounts payable and other accrued expenses		24,152			19,639
TERM LOAN		9,212				9,039
Total current liabilities		34,919			25,717
DEFERRED INCOME TAX LIABILITIES		7,352				7,352
DEFERRED RENT AND TENANT ALLOWANCES		2,725			3,006
WARRANT LIABILITY		2,831				-
TERM LOANS		14,158			14,068
OTHER		10				-
DEFERRED INCOME TAX LIABILITIES		7,397			7,397
TOTAL LIABILITIES		46,357				42,257
WARRANT LIABILITY		4,216			3,402
COMMITMENTS AND CONTINGENCIES (Note 7)
OTHER		10			10
SHAREHOLDERS’ DEFICIENCY:
TOTAL LIABILITIES		63,425			53,600
Preferred stock, $.01 par value – authorized, 10,000,000 shares at April 27, 2013 and July 28, 2012
COMMITMENTS AND CONTINGENCIES (NOTE 7)		-			-
Series B Convertible Preferred stock, 101,467 and 0 shares issued and outstanding at April 27, 2013 and July 28, 2012, with a stated value of $100		5,998				-
SHAREHOLDERS’ DEFICIENCY:
Series A Convertible Preferred stock, 54,388 and 50,838 shares issued and outstanding at April 27, 2013 and July 28, 2012, with a stated value of $100		5,439				5,084
Preferred stock, $.01 par value – authorized, 10,000,000 shares at October 26, 2013 and July 27, 2013
Common stock, $.01 par value – authorized, 200,000,000 shares at April 27, 2013 and July 28, 2012; issued and outstanding, 39,064,366 shares at April 27, 2013 and 38,964,891 shares at July 28, 2012		391				390
Series B Convertible Preferred stock, 107,576 and 104,545 shares issued and outstanding at October 26, 2013 and July 27, 2013, with a stated value of $100		6,609			6,306
Additional paid-in capital		88,276				88,283
Series A Convertible Preferred stock, 56,778 and 55,625 shares issued and outstanding at October 26, 2013 and July 27, 2013, with a stated value of $100		5,678			5,562
Accumulated deficit		(110,376	)			(94,540	)
Common stock, $.01 par value – authorized, 200,000,000 shares at October 26, 2013 and July 27, 2013; issued and outstanding 39,223,254 shares at October 26, 2013 and 39,167,699 shares at July 27, 2013		393			392
TOTAL SHAREHOLDERS’ DEFICIENCY		(10,272	)			(783	)
Additional paid-in capital		88,370			88,334
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY	$	36,085			$	41,474
Accumulated deficit		(125,691)			(117,995)
TOTAL SHAREHOLDERS’ DEFICIENCY		(24,641)			(17,401)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY	$	38,784		$	36,199

See notes to consolidated ~~unaudited~~ financial statements.

	3

FREDERICK’S OF HOLLYWOOD GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands, Except Per Share Amounts)

	Three Months Ended							~~Nine Months Ended~~
	April 27,				April 28,			April 27,			April 28,
	October 26,			October 27,
	2013			2012	~~2012~~			~~2013~~			~~2012~~
Net sales	$	2319,~~293~~736		$	$22,455	~~30,181~~		$	~~70,036~~		$	~~91,064~~
Cost of goods sold, buying and occupancy		1415,~~007~~504			16,389	~~14,837~~			~~48,825~~			~~56,021~~
Gross profit		94,~~286~~232			6,066	~~15,344~~			~~21,211~~			~~35,043~~
Selling, general and administrative expenses		109,~~082~~877			10,076	~~11,568~~			~~33,860~~			~~36,251~~
Loss on abandonment		45-			521	-			~~755~~			-
Impairment of long-lived assets		-				-			1,295			-
Operating loss		(5,645)			(4,531)
Operating (loss)/income		(841	)			3,776			(14,699	)		(1,208	)
Other expense
Interest expense, net		~~(461~~792	)		531	~~(447~~	)		~~(1,512~~	)		~~(1,299~~	)
Fair value gain on warrant		952				-			952			-
Fair value loss on warrant		814			-
(Loss)/income before income tax provision		(350	)			3,329			(15,259	)		(2,507	)
Loss before income tax provision		(7,251)			(5,062)
Income tax provision		25			25	16			75			50
Net (loss)/income		(375	)			3,313			(15,334	)		(2,557	)
Net loss		(7,276)			(5,087)
Less Preferred stock dividends		268				-			502			-
Less: Preferred stock dividends		418			116
Net (loss)/income applicable to common shareholders	$	(643	)		$	3,313		$	(15,836	)	$	(2,557	)
Net loss applicable to common shareholders	$	(7,694)		$	(5,203)
Basic and diluted net (loss)/income per share applicable to common shareholders	$	(0.02	)		$	0.09		$	(0.41	)	$	(0.07	)
Basic and diluted net loss per share applicable to common shareholders	$	(0.20)		$	(0.13)
Weighted average shares outstanding – basic and diluted		39,~~060~~218			38,978	~~38,928~~			~~39,011~~			~~38,804~~

See notes to consolidated ~~unaudited~~ financial statements.

	4

FREDERICK’S OF HOLLYWOOD GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

	Nine Months Ended
	Three Months Ended
	April 27, 2013				April 28, 2012
	October 26,			October 27,
CASH FLOWS FROM OPERATING ACTIVITIES:
	2013			2012
Net loss	$	(15,334	)		$	(2,557	)
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss	$	(7,276)		$	(5,087)
Depreciation and amortization		1,319				1,938
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of common stock for directors’ fees		33				39
Depreciation and amortization		296			507
Stock-based compensation expense		~~220~~36			94	~~402~~
Fair value gain on warrant		(952	)			-
Fair value loss on warrant		814			-
Impairment of long-lived assets		1,295				-
Loss on abandonment		-			521
Loss on disposal of property, plant and equipment		10				-
Amortization of deferred financing costs		89			68
Loss on abandonment		755				-
Non-cash interest on term loan		90			58
Amortization of deferred financing costs		178				176
Amortization of deferred rent and tenant allowances		(114)			(170)
Non-cash interest on term loan		173				531
Changes in operating assets and liabilities:
Amortization of deferred rent and tenant allowances		(412	)			(722	)
Accounts receivable		(549)			(393)
Changes in operating assets and liabilities:
Merchandise inventories		(2,098)			(895)
Accounts receivable		241				251
Prepaid expenses and other current assets		406			(623)
Merchandise inventories		1,896				(372	)
Other assets		(504)			(298)
Prepaid expenses and other current assets		370				1,000
Accounts payable and other accrued expenses		4,319			5,710
Income tax receivable		-				20
Net cash used in operating activities		(4,491)			(508)
Other assets		(2	)			2
CASH FLOWS FROM INVESTING ACTIVITIES:
Accounts payable and other accrued expenses		2,964				(1,904	)
Purchases of property and equipment		(18)			(3)
Net cash used in operating activities		(7,246	)			(1,196	)
Cash used in investing activities		(18)			(3)
CASH FLOWS FROM INVESTING ACTIVITIES:
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of property and equipment		(214	)			(223	)
Net (repayments)/borrowings under revolving credit facilities		(311)			198
Tenant improvements		22				-
Payment of deferred financing costs		(128)			-
Payment of security deposit		(289	)			-
Proceeds from term loan		5,000			-
Net cash used in investing activities		(481	)			(223	)
Repayment of capital lease obligation		-			(10)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by financing activities		4,561			188
Net borrowings under revolving credit facility		(2,173	)			1,398
NET INCREASE (DECREASE) IN CASH		52			(323)
Repayment of capital lease obligation		(10	)			(44	)
CASH:
Proceeds from the issuance of preferred stock		10,000				-
Beginning of period		201			741
Issuance costs on preferred stock		(626	)			-
End of period	$	253		$	418
Payment of deferred financing costs		-				(131	)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash provided by financing activities		7,191				1,223
Cash paid during period for:
NET DECREASE IN CASH		(536	)			(196	)
Interest	$	565		$	401
CASH:
Taxes	$	3		$	3
Beginning of period		741				448
End of period	$	205			$	252
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest	$	1,180			$	594
Taxes	$	5			$	14

See notes to consolidated ~~unaudited~~ financial statements.

	5

FREDERICK’S OF HOLLYWOOD GROUP INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Description of Business –Frederick’s of Hollywood Group Inc. (the “Company”), through its subsidiaries, sells women’s apparel and related products under its proprietary Frederick’s of Hollywood® brand predominantly through U.S. mall-based specialty stores, which are referred to as “Stores,” and through its catalog and website at www.fredericks.com, which are referred to collectively as “Direct.”

Fiscal Year – The Company’s fiscal year is the 52- or 53-week period ending on the last Saturday in July. References to the three months ended ~~April~~October 2726, 2013 and ~~April~~ 28October 27, 2012 refer to the 13-week periods then ended. References to fiscal years ~~2013~~2014 and ~~2012~~2013 refer to the 52-week period ending July 2726, ~~2013~~2014 and the 52-week period ended July ~~28, 2012, respectively. References to the nine months ended April~~ 27, 2013 ~~and April 28~~, ~~2012 refer to the 39-week periods then ended~~respectively.

Interim Financial Information – In the opinion of management, the accompanying consolidated unaudited financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s ~~balance~~financial ~~sheet~~position as of ~~April~~October 2726, 2013 and ~~July 28, 2012,~~ the results of operations ~~for the three~~ and ~~nine months ended April 27, 2013 and April 28, 2012 and the statement of~~ cash flows for the ~~nine~~three months ended ~~April~~October 2726, 2013 and ~~April~~October 2827, 2012.

The information set forth in these consolidated financial statements is unaudited except for the July 2827, ~~2012~~2013 consolidated balance sheet data. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q, and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The results of operations for the three ~~and nine~~ months ended ~~April~~October 2726, 2013 are not necessarily indicative of the results to be expected for the full year. This Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the year ended July 2827, ~~2012~~2013 included in the Company’s ~~2012~~ Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on October 2625, ~~2012~~2013 and amended on November 1322, ~~2012~~2013.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue ~~Recognition~~ Recognition – The Company records revenue for Stores at the point at which the customer receives and pays for the merchandise at the register. For Direct sales, goods are shipped to the customer when payment is made and the Company records the revenue at the time that we estimate the customer receives the merchandise. The Company estimates and defers revenue and the related product costs for shipments that are in transit to the customer. Customers typically receive goods within a few days of shipment. Outbound shipping charges billed to customers are included in net sales. The Company records an allowance for estimated returns from its customers in the period of sale based on prior experience. At ~~April~~October 2726, 2013 and July 2827, ~~2012~~2013, the allowance for estimated returns was $~~565~~691,000 and $~~665~~559,000, respectively. If actual returns are greater than expected, additional sales returns may be recorded in the future. Historically, management has found its return reserve to be appropriate, and actual results generally do not differ materially from those determined using necessary estimates. Sales are recorded net of sales taxes collected from customers at the time of the transaction.

The Company records other revenue for shipping revenue, commissions earned on direct sell-through programs on a net basis as the Company acts as an agent on behalf of the related vendor, and product sales to its license partner in the Middle East. Product sales to the Company’s license partner are recognized upon delivery to the partner’s freight forwarder. For the three months ended ~~April~~October 2726, 2013 and ~~April 28,~~October ~~2012, total other revenue recorded in net sales in the accompanying consolidated unaudited statements of operations was $804,000 and $1,628,000, respectively. For the nine months ended April~~ 27, ~~2013 and April 28,~~ 2012, total other revenue recorded in net sales in the accompanying consolidated unaudited statements of operations ~~was~~were $2369,~~293,~~000 and $4798,~~168,~~000, respectively.

Revenue from licensing arrangements is recognized when earned in accordance with the terms of the underlying agreements. For the three months ended ~~April~~October 2726, 2013 and ~~April~~October 2827, 2012, licensing revenue recorded in net sales in the accompanying consolidated unaudited statements of operations ~~was~~ $28,000 and $28,000, respectively. For the nine months ended April 27, 2013 and April 28, 2012, licensing revenue recorded in net sales in the accompanying consolidated unaudited statements of operations was $358,000 and $535,000, respectively.

	6

The Company recognizes the sales from gift cards, gift certificates, and store credits (“Gift Cards and Credits”) as they are redeemed for merchandise. Prior to redemption, the Company maintains a deferred revenue liability for Gift Cards and Credits until the Company is released from such liability. The Company’s Gift Cards and Credits do not have expiration dates; however, over time, a percentage of them are not redeemed or recovered (“breakage”). The Company began recording breakage in the fourth quarter of the year ended July 30, 2011 following an initial evaluation using historical redemption trend data to determine ~~whether~~that the likelihood of the redemption of certain unredeemed Gift Cards and Credits is remote. Breakage of $1416,000 ~~and $68,000~~ was recorded for both the three ~~and nine~~ months ended ~~April~~October 2726, 2013 and ~~breakage~~October ~~of $23~~27,~~000~~ ~~and $69,000 was recorded for the three and nine months ended April 28,~~ 2012. The Company continues to evaluate its historical redemption trends. If these trends ultimately differ from the assumptions underlying the Company’s breakage adjustments, or the Company’s future experience indicates ~~that~~ the likelihood of redemption becomes remote at a different point in time after issuance, the Company may recognize further adjustments to its accruals for such deferred revenue, which could have an effect on the Company’s net sales and results of operations.

Costs of Goods Sold, Buying, and Occupancy – The Company’s costs of goods sold, buying, and occupancy includes the cost of merchandise, freight from vendors, shipping and handling, payroll and benefits for the design, buying, and merchandising personnel, warehouse and distribution, and store occupancy costs. Store occupancy costs include rent, deferred rent, common area maintenance, utilities, real estate taxes, and depreciation. Markdown allowances received from vendors are reflected as reductions to cost of sales in the period they are received if these allowances are received after goods have been sold or marked down. When a markdown allowance is received prior to the sale or mark down of the merchandise, the allowance will be recognized as a reduction in the cost basis of the inventory. For the three months ended ~~April 27~~October 26, 2013 and ~~April~~October 2827, 2012, markdown allowances received from vendors ~~and recorded as a reduction of cost of sales~~ were $233,~~160,~~000 and $4312,~~264,~~000. For the nine months ended April 27, 2013 and April 28, 2012, markdown allowances received from vendors and recorded as a reduction of cost of sales were $2,696,000 and $4,364,000. As of April 27, 2013, markdown allowances received from vendors and recorded as a reduction of the cost basis of the inventory were $1,474,000. There were no markdown allowances received from vendors that were recorded as a reduction of the cost basis of the inventory as of April 28, 2012.

Merchandise Inventories – Stores inventories are valued at the lower of cost or market using the retail inventory first-in, first-out (“FIFO”) method, and Direct inventories are valued at the lower of cost or market, on an average cost basis that approximates the FIFO method. Stores and Direct inventories consist entirely of finished goods. Freight costs are included in inventory and vendor ~~promotional~~ allowances are recorded as a reduction in inventory cost.

These inventory methods inherently require management judgments and estimates, such as the amount and timing of permanent markdowns to clear unproductive or slow-moving inventory, which may impact the ending inventory valuations and gross margins. Markdowns are recorded when the sales value of the inventory has diminished. Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise, and fashion trends. The Company reserves for the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, market conditions, and the age of the inventory. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Markdown allowances received from vendors are reflected as reductions to cost of sales in the period they are received if these allowances are received after goods have been sold or marked down. When a markdown allowance is received prior to the sale or markdown, the allowance will be recognized as a reduction in the cost basis of the inventory. AsMarkdown ~~of April 27, 2013, markdown~~ allowances received from vendors and recorded as a reduction of the cost basis of the inventory were $1210,~~474,~~000 as of October 27, 2012. There were no markdown allowances received from vendors ~~that~~and ~~were~~ recorded as a reduction ofin the cost basis of ~~the~~ inventory as of ~~April~~October 2826, ~~2012~~2013. Historically, management has found its inventory reserves to be appropriate, and actual results generally do not differ materially from those determined using necessary estimates. Inventory reserves were $~~767~~1,086,000 at ~~April~~October 2726, 2013 and $~~628~~939,000 at July 2827, ~~2012~~2013.

7Deferred Catalog Costs – Deferred catalog costs represent direct-response advertising that is capitalized and amortized over its expected period of future benefit. The capitalized costs of the advertising are amortized over the expected revenue stream following the mailing of the respective catalog, which is generally less than three months. The realizability of the deferred catalog costs are also evaluated as of each balance sheet date by comparing the capitalized costs for each catalog, on a catalog by catalog basis, to the probable remaining future gross profit of the related revenue. Direct-response advertising costs included in prepaid expenses and other current assets in the accompanying consolidated balance sheets at October 26, 2013 and July 27, 2013 were $59,000 and $370,000, respectively. Management believes that they have appropriately determined the expected period of future benefit as of the date of the Company’s consolidated financial statements. However, should actual sales results differ from expected sales, deferred catalog costs may be written off on an accelerated basis. Direct-response advertising expense for the three months ended October 26, 2013 and October 27, 2012 was $553,000 and $874,000, respectively.

Deferred Catalog Costs – Deferred catalog costs represent direct-response advertising that is capitalized and amortized over its expected period of future benefit. The capitalized costs of the advertising are amortized over the expected revenue stream following the mailing of the respective catalog, which is generally less than three months. The realizability of the deferred catalog costs are also evaluated as of each balance sheet date by comparing the capitalized costs for each catalog, on a catalog by catalog basis, to the probable remaining future gross profit of the related revenue. Direct-response advertising costs included in prepaid expenses and other current assets in the accompanying consolidated balance sheets at April 27, 2013 and July 28, 2012 were $218,000 and $564,000, respectively. Management believes that they have appropriately determined the expected period of future benefit as of the date of the Company’s consolidated financial statements. However, should actual sales results differ from expected sales, deferred catalog costs may be written off on an accelerated basis. Direct-response advertising expense for the three months ended April 27, 2013 and April 28, 2012 was $786,000 and $1,975,000, respectively. Direct-response advertising expense for the nine months ended April 27, 2013 and April 28, 2012 was $3,767,000 and $6,144,000, respectively.7

Property and Equipment – Property and equipment are stated at cost, less accumulated depreciation. The Company’s policy is to capitalize expenditures that materially increase asset lives and expense ordinary repairs and maintenance as incurred. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets, which is generally three years for computer software, five years for computer equipment, three to seven years for furniture and equipment, and the shorter of the remaining lease term or the estimated useful life for leasehold improvements.

Impairment of Long-Lived Assets – The Company reviews long-lived assets, including property and equipment and its amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted cash flows. If long-lived assets are impaired, an impairment loss is recognized and is measured as the amount by which the carrying value exceeds the estimated fair value of the assets. The estimation of future undiscounted cash flows from operating activities requires significant estimates of factors that include future sales growth and gross margin performance. Management believes they have appropriately ~~determined~~estimated future cash flows and operating performance; however, should actual results differ from those expected, additional impairment may be required. ~~For~~No ~~the nine months ended April 27, 2013, the Company recorded~~ impairment ~~charges~~ ~~for~~was ~~property and equipment of $1,295,000. There were no impairment charges~~ recorded for the three months ended ~~April~~October 2726, 2013 and ~~for~~October ~~the three and nine months ended April 28~~27, 2012.

Abandonment of ~~Leases~~leases – The Company recorded a charge ~~for the nine months ended April 27, 2013~~ of $259,000 related to a portion of its Hollywood corporate office space that was vacated during the ~~nine~~three months ended ~~April~~October 27, ~~2013~~2012 and subleased to a third party. In addition, the Company recorded a charge ~~for the three and nine months ended April 27, 2013~~ of $45262,000 ~~and~~related ~~$496,000,~~to ~~respectively,~~a ~~related~~portion to of its Phoenix facility that housed its customer contact center~~, Stores distribution, Direct fulfillment and data center~~. ~~During the~~ ~~nine~~The ~~months ended April 27, 2013, the~~ customer contact center, ~~Stores~~was ~~distribution and the data center were~~ outsourced to a third ~~parties,~~ ~~and~~party ~~Direct~~during ~~fulfillment~~the ~~was~~three ~~relocated~~months toended aOctober ~~smaller~~27, ~~area within the same building~~2012.

Intangible Assets – The Company has certain indefinite lived intangible assets, principally the Frederick’s of Hollywood trade name and domain names. The Company’s intangible assets are comprised of $18,090,000 attributable to its trademarks and $169,000 ~~attributable~~ to its domain names as of ~~April~~October 2726, 2013 and July 2827, ~~2012~~2013. Applicable accounting guidance requires the Company not to amortize indefinite life intangible assets, but to test those intangible assets for impairment annually and between annual tests when circumstances or events have occurred that may indicate a potential impairment has occurred. No impairment was present and no write-down was required when the trademarks were reviewed for impairment in connection with the annual impairment test. The fair value of the trademarks was determined using the relief-from-royalty method. The relief-from-royalty method estimates the royalty expense that could be avoided in the operating business as a result of owning the respective asset or technology. The royalty savings are measured, tax-effected and, thereafter, converted to present value with a discount rate that considers the risk associated with owning the intangible asset. No impairment was recorded for the three ~~and nine~~ months ended ~~April~~October 2726, 2013 and ~~April 28~~October 27, 2012 related to these intangible assets.

Fair Value of Financial Instruments – The Company’s management believes the carrying amounts of cash, accounts receivable, the Salus Facility ~~(defined below)~~, accounts payable and accrued expenses approximate fair value due to their short maturities. The carrying amount of the revolving line of credit portion of the Salus Facility approximates fair value, as these borrowings have variable rates that reflect currently available terms and conditions for similar debt. The Company believes the long-term loan portion of the Salus Facility approximates fair value because the transaction contemplated by the financing agreement relating to this debt was ~~consummated~~amended on ~~May~~ 31October 10, ~~2012~~2013 under similar financial terms.

The valuation techniques required by applicable accounting guidance are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

8· Level 1 – Quoted prices in active markets for identical assets or liabilities. · Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities. · Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

~~· Level 1 – Quoted prices in active markets for identical assets or liabilities.~~8

·The ~~Level~~hierarchy 2requires –entities ~~Observable~~to ~~inputs~~maximize ~~other~~the ~~than~~use ~~Level~~of 1observable ~~prices~~inputs ~~such~~and asminimize ~~quoted~~the ~~prices~~use ~~for~~of ~~similar~~unobservable ~~assets or liabilities, quoted prices in markets that are not active, or other~~ inputs. The ~~that~~fair ~~are~~value ~~observable~~of orthe ~~can~~Company’s bewarrant ~~corroborated~~liability by(as ~~observable~~defined ~~market~~below ~~data~~in ~~for~~Note ~~substantially~~6) ~~the~~was ~~full~~estimated ~~term~~using of the ~~related~~binomial ~~asset~~lattice ~~or liabilities~~model.

·Accounting ~~Level~~for 3Stock-Based Compensation – ~~Unobservable~~The ~~inputs~~Company ~~that~~measures ~~are~~and ~~supported~~recognizes bycompensation ~~little~~expense orfor noall ~~market~~share-based ~~activity~~payment awards to employees and ~~that~~directors ~~are~~based ~~significant~~on toestimated fair values on the grant date. The Company recognizes the expense on a straight-line basis over the requisite service period, which is the vesting period. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. The fair value generated by the Black-Scholes model may not be indicative of ~~assets~~the orfuture ~~liabilities~~benefit, if any, that may be received by the option holder.

~~The~~During ~~hierarchy~~the ~~requires~~three ~~entities~~months toended ~~maximize~~ October 26, 2013, the ~~use~~Company ofgranted ~~observable~~options ~~inputs~~to ~~and~~purchase ~~minimize~~150,000 shares of common stock under the ~~use~~2010 ofLong-Term ~~unobservable~~Equity ~~inputs.~~Incentive Plan. The ~~fair~~options ~~value~~vest ofin two equal installments on the ~~Company’s~~first ~~warrant~~and ~~liability (as~~second ~~defined~~anniversaries ~~below~~of inthe ~~Note~~grant 6)date. The ~~was~~options ~~estimated~~are ~~using~~exercisable ~~the~~at ~~binomial~~$0.20 ~~lattice~~per ~~model~~share.

~~Accounting~~Income ~~for~~Taxes ~~Stock-Based Compensation~~ – ~~The~~Income ~~Company~~taxes ~~measures~~are ~~and~~accounted ~~recognizes compensation expense~~ for ~~all~~under ~~share-based~~an ~~payment~~asset ~~awards~~and toliability ~~employees~~approach ~~and~~that ~~directors based~~requires onthe ~~estimated~~recognition ~~fair~~of ~~values~~deferred onincome ~~the~~tax ~~grant~~assets ~~date. The~~and ~~Company~~liabilities ~~recognizes~~for the ~~expense~~expected onfuture aconsequences ~~straight-line~~of ~~basis~~events ~~over~~that ~~the~~have ~~requisite service~~been ~~period,~~recognized ~~which~~in is the ~~vesting~~Company’s ~~period.~~financial ~~The~~statements ~~value~~and ofincome ~~each~~tax ~~stock~~returns. The ~~option~~Company isprovides ~~estimated~~a onvaluation ~~the~~allowance ~~date~~for ofdeferred ~~grant~~income ~~using~~tax ~~the~~assets ~~Black-Scholes option-pricing~~when ~~model. The~~it ~~fair~~is ~~value~~considered ~~generated~~more bylikely ~~the~~than ~~Black-Scholes~~not ~~model~~that ~~may~~all ~~not~~or bea ~~indicative~~portion of ~~the~~such ~~future~~deferred ~~benefit,~~income ~~if any,~~tax ~~that~~assets ~~may~~will not be ~~received by the option holder~~realized.

Applicable accounting guidance requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Accounting provisions also require that a change in judgment that results in subsequent recognition, derecognition, or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the period in which the change occurs. The ~~following~~Company ~~assumptions~~regularly ~~were~~evaluates ~~used~~the ~~for~~likelihood ~~options granted~~of ~~during~~recognizing the ~~nine~~benefit ~~months~~for ~~ended~~income ~~April~~tax 28positions taken in various federal and state filings by considering all relevant facts, ~~2012:~~circumstances, and information available.

Risk-free interest rate		1.34% - 1.41%
Expected life (years)		7
Expected volatility		74.43% - 76.13%
Dividend yield		0.0%

The Company classifies any interest and penalties related to unrecognized tax benefits as a component of income tax expense.

~~During~~Supplemental ~~the~~Disclosure ~~nine~~of ~~months~~Cash ~~ended~~Flow ~~April~~Information ~~28,~~– ~~2012,~~The ~~the~~ Company ~~issued an~~had ~~aggregate~~outstanding ofaccounts ~~230,000~~payable ~~shares of restricted stock~~ and ~~granted~~accrued ~~options~~expenses ~~to purchase an aggregate~~ of ~~500~~$76,000 ~~shares~~and ~~of common stock under the Company’s 2010 Long-Term Equity Incentive Plan. 50~~$201,000 ofat ~~the~~October ~~restricted shares vested on the grant date~~26, ~~40,000 shares~~2013 ~~vested~~and inJuly ~~the first quarter of fiscal year 2013~~27, ~~50,000 shares vested in the second quarter of fiscal year~~ 2013, 40respectively,~~000 shares~~ ~~will~~related ~~vest~~to inpurchases ~~the first quarter~~ of ~~fiscal~~property ~~year 2014,~~ and ~~50,000~~equipment. The ~~shares~~Company ~~will~~had ~~vest~~outstanding inaccounts ~~the~~payable ~~second~~and ~~quarter~~accrued expenses of ~~fiscal year 2014. Options to purchase 150~~$76,000 ~~shares of common stock are exercisable~~ at ~~$0.62~~October ~~per share~~26, ~~75,000~~2013 ofrelated ~~which~~to ~~vested~~deferred infinancing ~~the first quarter of fiscal year 2013 and 75~~fees,~~000~~ of which ~~will vest in the first quarter of fiscal year 2014. Options to purchase 350,000 shares~~ are ~~exercisable~~classified atas ~~$0.40~~other ~~per~~assets ~~share, with 1/3 vesting~~ on the ~~grant~~consolidated ~~date~~balance ~~and the second quarter of each of fiscal years 2013 and 2014~~sheets.

~~There~~During ~~were~~the nothree ~~options~~months ~~granted~~ended ~~during~~October 26, 2013, the ~~nine~~Company accrued dividends of $115,000 on its Series A Convertible Preferred Stock and $303,000 on its Series B Convertible Preferred Stock. During the three months ended ~~April~~ October 27, ~~2013~~2012, the Company accrued dividends of $116,000 on its Series A Convertible Preferred Stock.

~~Income~~Recently ~~Taxes~~Issued Accounting Updates – ~~Income taxes~~In ~~are~~July ~~accounted~~2013, ~~for~~the ~~under~~Financial anAccounting ~~asset~~Standards ~~and~~Board ~~liability~~(“FASB”) ~~approach~~issued ~~that~~Accounting ~~requires~~Standards ~~the~~Update ~~recognition~~(“ASU”) 2013-11, Income Taxes (Topic 740): Presentation of ~~deferred~~an ~~income~~Unrecognized ~~tax~~Tax ~~assets~~Benefit ~~and~~When ~~liabilities for~~a ~~the~~Net ~~expected~~Operating ~~future~~Loss ~~consequences~~Carryforward, ofa ~~events~~Similar ~~that~~Tax ~~have~~Loss, ~~been~~or ~~recognized~~a inTax Credit Carryforward Exists (“ASU No. 2013-11”) to clarify the ~~Company’s~~presentation ~~financial~~of ~~statements~~an ~~and~~unrecognized ~~income~~ tax ~~returns. The~~benefit ~~Company~~when ~~provides~~a net operating loss carryforward, a ~~valuation~~similar ~~allowance~~tax ~~for~~loss, ~~deferred~~or ~~income~~a tax ~~assets~~credit ~~when~~carryforward itexists. ASU No. 2013-11 is ~~considered~~effective ~~more~~prospectively ~~likely than~~for ~~not~~fiscal ~~that~~years ~~all~~and orinterim aperiods ~~portion~~within those years beginning after December 15, 2013. The Company adopted ASU No. 2013-11 in the fourth quarter of ~~such~~fiscal ~~deferred~~year ~~income~~2013. The ~~tax~~adoption ~~assets~~of ~~will~~ASU No. 2013-11 did not behave ~~realized~~an impact on the Company’s consolidated financial statements.

~~Applicable~~In ~~accounting~~February ~~guidance~~2013, ~~requires~~the ~~that a~~FASB ~~position~~issued ~~taken~~ASU orNo. ~~expected~~2013-02, toComprehensive beIncome ~~taken~~(Topic in220): aReporting ~~tax~~of ~~return~~Amounts beReclassified ~~recognized~~Out inof ~~the~~Accumulated ~~financial~~Other ~~statements~~Comprehensive ~~when~~Income it(“ASU isNo. ~~more~~2013-02”). ASU ~~likely~~No. ~~than not~~2013-02 ~~that~~requires ~~the~~an ~~position~~entity ~~would~~to bereport ~~sustained~~the ~~upon~~effect ~~examination~~of bysignificant ~~tax~~reclassifications ~~authorities. A~~out ~~recognized~~of ~~tax~~accumulated ~~position~~other iscomprehensive ~~then~~income ~~measured at~~on the ~~largest~~respective ~~amount~~line ofitems ~~benefit~~in ~~that~~net income if the amount being reclassified is ~~greater~~required ~~than~~to ~~50%~~be ~~likely~~reclassified ofin ~~being~~its ~~realized~~entirety ~~upon~~to ~~ultimate~~net ~~settlement~~income. ~~Accounting~~ ~~provisions also~~For ~~require~~other amounts that aare ~~change~~not required to be reclassified in ~~judgment~~their ~~that~~entirety ~~results~~to net income in ~~subsequent~~the ~~recognition,~~same ~~derecognition~~reporting period, oran ~~change~~entity inis arequired ~~measurement~~to ofcross-reference aother ~~tax position~~disclosures ~~taken~~that inprovide aadditional ~~prior~~detail ~~annual~~about ~~period~~those ~~(including~~amounts. ~~any~~The ~~related~~amendments ~~interest~~do ~~and~~not ~~penalties)~~change bethe ~~recognized~~current asrequirements afor ~~discrete~~reporting ~~item~~net income or other comprehensive income in financial statements. For public entities, the ~~period~~ amendments in ~~which~~ASU ~~the~~No. ~~change~~2013-02 ~~occurs~~were effective prospectively for interim and annual reporting periods beginning after December 15, 2012. The Company ~~regularly~~adopted ~~evaluates~~ASU ~~the likelihood~~No. of2013-02 ~~recognizing~~in the ~~benefit~~second ~~for~~quarter ~~income~~of ~~tax~~fiscal ~~positions~~year ~~taken~~2013. The inadoption ~~various~~of ~~federal~~ASU ~~and~~No. ~~state~~2013-02 ~~filings~~did bynot ~~considering~~have ~~all~~an ~~relevant facts,~~impact ~~circumstances,~~on ~~and~~the ~~information~~Company’s ~~available.~~consolidated financial statements.

~~The Company classifies any interest and penalties related to unrecognized tax benefits as a component of income tax expense.~~9

~~Supplemental~~In ~~Disclosure~~July of2012, ~~Cash~~the ~~Flow Information~~FASB –issued ~~The~~ASU ~~Company~~No. ~~had~~2012-02, ~~outstanding~~Intangibles ~~accounts~~– ~~payable~~Goodwill and ~~accrued~~Other: ~~expenses~~Testing Indefinite-Lived Intangible Assets for Impairment (“ASU No. 2012-02”). ASU No. 2012-02 gives companies testing indefinite-lived intangible assets for impairment the option of ~~$5,000~~performing ~~and~~a ~~$29,000~~qualitative atassessment ~~April~~before 27calculating the fair value of the indefinite-lived intangible asset in a quantitative impairment test. If companies determine, ~~2013~~ ~~and~~based ~~July~~on 28qualitative factors, ~~2012~~that the fair value of the intangible asset is more likely than not less than the carrying amount, ~~respectively~~the quantitative impairment test would be required. Otherwise, ~~related~~further totesting ~~purchases~~would ofnot ~~property~~be needed. ASU No. 2012-02 is effective for annual and ~~equipment~~interim impairment tests performed for fiscal years beginning after September 15, 2012. ~~The~~ Early ~~Company~~adoption ~~had~~was ~~outstanding~~permitted, ~~accounts payable~~including for annual and ~~accrued~~interim ~~expenses~~impairment tests performed as of ~~$233,000~~a atdate ~~April~~before July 27, ~~2013~~2012 ~~related~~if tothe ~~deferred~~financial ~~financing~~statements ~~fees,~~for ~~which~~the ~~are~~most ~~classified~~recent asor ~~other~~interim ~~assets~~ period had not yet been issued. The Company adopted ASU No. 2012-02 in the fourth quarter of fiscal year 2012. The application of ASU 2012-02 did not have an impact on the Company’s consolidated ~~balance~~financial ~~sheets~~statements.

9 3. GOING CONCERN

~~During~~The Company had net losses of $23,455,000 and $6,516,000 for the ~~three~~years ended July 27, 2013 and ~~nine~~July 28, 2012 and had a net loss of $7,694,000 for the three months ended ~~April 27~~October 26, 2013. As of October 26, 2013, the Company ~~accrued~~had ~~dividends~~a working capital deficiency of $~~121~~19,258,000 and a shareholders’ deficiency of $~~355~~24,641,000. The onCompany ~~its~~used ~~Series~~cash Aof ~~Convertible~~$13,126,000 ~~Preferred~~and ~~Stock~~$6,571,000 ~~(“Series~~in Aoperating ~~Preferred Stock”)~~activities for the years ended July 27, 2013 and July 28, 2012 and used cash of $~~147~~4,491,000 ~~for~~in ~~three~~operating ~~and~~activities ~~nine~~for the three months ended ~~April~~October 2726, 2013. onThese ~~its~~conditions ~~Series~~raise Bsubstantial ~~Convertible~~doubt ~~Preferred~~about ~~Stock~~the ~~(“Series B~~Company’s ~~Preferred~~ability ~~Stock”)~~to continue as a going concern.

~~Recently~~On ~~Issued~~September ~~Accounting~~26, ~~Updates – In February~~ 2013, the ~~Financial~~Company’s ~~Accounting~~board ~~Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Comprehensive Income (Topic 220): Reporting~~ of ~~Amounts~~directors ~~Reclassified~~received ~~Out~~a ~~of Accumulated Other Comprehensive Income (“ASU No. 2013~~non-~~02”).~~binding ~~ASU~~proposal ~~No.~~letter ~~2013-02~~from ~~requires~~HGI anFunding, ~~entity~~LLC, toTTG ~~report~~Apparel, ~~the~~LLC, ~~effect~~Tokarz ofInvestments, ~~significant~~LLC, ~~reclassifications~~Fursa ~~out~~Alternative ~~of accumulated~~Strategies ~~other~~LLC, ~~comprehensive~~and ~~income~~Arsenal onGroup, ~~the~~LLC ~~respective~~(collectively, ~~line items in net income if~~ the ~~amount~~Consortium ~~being~~Members”), ~~reclassified~~pursuant ~~is required~~ to bewhich ~~reclassified~~they inproposed ~~its entirety~~ to ~~net~~acquire ~~income.~~all ~~For~~of ~~other~~the ~~amounts~~outstanding ~~that~~shares ~~are~~of ~~not required to be reclassified in their entirety to net income in~~ the ~~same~~Company’s ~~reporting~~common ~~period,~~stock ~~an entity is required to cross-reference other disclosures that provide additional detail about those amounts. The amendments do~~ not ~~change~~currently ~~the~~owned ~~current~~by ~~requirements~~them ~~for~~at ~~reporting~~a ~~net~~proposed ~~income~~price orof ~~other comprehensive income in financial statements~~$0.23 ~~For~~per ~~public~~share ~~entities,~~as ~~the~~part ~~amendments~~of ina ~~ASU~~going ~~No.~~private ~~2013-02 were effective prospectively for interim and annual reporting periods beginning after December 15~~transaction, ~~2012.~~subject ~~The~~to ~~Company~~certain ~~adopted~~conditions ~~ASU~~(see ~~No.~~Note ~~2013-02 in the second quarter of fiscal year 2013~~9). ~~The adoption of ASU No. 2013-02 did not have an impact on the Company’s consolidated financial statements.~~

InOn ~~July~~October ~~2012~~10, ~~the FASB issued ASU No. 2012-02~~2013, Intangibles – Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment (“ASU No. 2012-02”). ASU No. 2012-02 gives companies testing indefinite-lived intangible assets for impairment the ~~option~~Company’s ofCredit ~~performing~~Agreement awas ~~qualitative assessment~~amended ~~before~~to ~~calculating~~increase the ~~fair~~Salus ~~value~~Facility ofby ~~the~~$11,000,000, ~~indefinite-lived~~from ~~intangible~~$24,000,000 ~~asset~~to in$35,000,000, awith ~~quantitative~~$5,000,000 ~~impairment~~having ~~test. If~~been ~~companies~~advanced ~~determine, based~~ on ~~qualitative~~October ~~factors~~10, ~~that~~2013 ~~the~~and ~~fair value of~~ the ~~intangible~~remaining ~~asset is more likely than not less than the carrying amount~~$6, ~~the quantitative impairment test would be required. Otherwise~~000,000 ~~further~~to ~~testing would not~~ be ~~needed. ASU~~advanced ~~No.~~upon ~~2012-02~~the isconsummation ~~effective~~of ~~for~~a ~~annual~~proposed ~~and~~merger ~~interim~~to ~~impairment~~be ~~tests~~effected ~~performed~~as ~~for~~part ~~fiscal~~of ~~years~~the ~~beginning~~going ~~after~~private ~~September~~transaction ~~15,~~referenced ~~2012~~above. ~~Early~~ ~~adoption~~The ~~was permitted~~$5,000,000 ~~including~~advance ~~for~~is ~~annual~~to ~~and~~be ~~interim~~repaid ~~impairment~~on ~~tests~~April ~~performed as of a date before July 27~~10, ~~2012~~2014 if ~~the~~ ~~financial statements for~~ the ~~most~~merger ~~recent~~is ornot ~~interim~~consummated ~~period~~by ~~had~~that ~~not~~date, ~~yet~~or ~~been~~on ~~issued. The~~May ~~Company~~31, ~~adopted~~2015 ~~ASU~~if ~~No. 2012-02 in~~ the ~~fourth~~merger ~~quarter~~is ofconsummated ~~fiscal~~on ~~year~~or ~~2012. The~~before ~~application~~April of10, ~~ASU~~2014 ~~2012-02~~(see ~~did~~Note ~~not have an impact on the Company’s consolidated financial statements~~5).

3If the Company is unsuccessful in consummating the going private transaction with the Consortium Members, the Company will need to raise additional capital through debt or equity financings, strategic relationships or other arrangements. Additional ~~ACCOUNTS~~financing ~~PAYABLE~~may ~~AND~~not ~~OTHER~~be ~~ACCRUED~~available ~~EXPENSES~~in amounts or on terms acceptable to the Company or at all, and if available, may be at prices and on terms that may not be as favorable as they would be without a going concern qualification. The foregoing could negatively impact the Company’s results of operations.

~~Accounts~~ ~~payable~~4. ACCOUNTS ~~and~~PAYABLE ~~other~~AND ~~accrued~~OTHER ~~expenses at~~ACCRUED ~~April 27, 2013 and July 28, 2012 consist of the following (in thousands):~~EXPENSES

	April 27, 2013		July 28, 2012
Accounts payable	$	10,167	$	6,875
Accrued payroll and benefits		528		1,182
Accrued vacation		1,070		914
Deferred revenue from gift cards, gift certificates, and store credits		1,406		1,428
Return reserves		565		665
Deferred revenue		290		328
Sales and other taxes payable		625		541
Miscellaneous accrued expense and other		3,834		2,690
Total	$	18,485	$	14,623

Accounts payable and other accrued expenses at October 26, 2013 and July 27, 2013 consist of the following (in thousands):

4. FINANCING AGREEMENT

	October 26,		July 27,
	2013		2013
Accounts payable	$	14,964	$	10,324
Accrued payroll and benefits		389		835
Accrued vacation		1,023		1,021
Deferred revenue from gift cards, gift certificates, and store credits		1,331		1,380
Return reserves		691		559
Deferred revenue		536		364
Sales and other taxes payable		706		553
Miscellaneous accrued expense and other		4,512		4,603
Total	$	24,152	$	19,639

~~Salus Credit and Security Agreement~~10

On May 31, 2012, the Company and its subsidiaries (collectively, the “Borrowers”) entered into a Credit and Security Agreement (“Credit Agreement”) with Salus Capital Partners, LLC (“Salus”), which provides the Borrowers with a $24,000,000 revolving line of credit through May 31, 2015 (the “Salus Facility”)5. FINANCING AGREEMENT

10Salus Credit and Security Agreement

~~The~~On ~~Salus~~May ~~Facility~~31, ~~includes~~2012, athe ~~“first~~Company inand ~~last~~its ~~out” tranche~~subsidiaries (~~“FILO~~collectively, ~~Advance~~the “Borrowers”) ofentered upinto toa ~~$9,000,000~~Credit ~~that~~and ~~consists~~Security ofAgreement ~~the~~(“Credit ~~first~~Agreement”) ~~advances~~with ~~made~~Salus ~~under~~Capital ~~the~~Partners, LLC (“Salus”), ~~Facility~~which ~~and will~~originally beprovided the ~~last~~Borrowers ~~amounts~~with ~~repaid. The~~a ~~maximum~~$24,000,000 ~~amount~~revolving line of ~~the~~credit ~~FILO~~through ~~Advance~~May ~~and~~31, 2015 (the ~~total~~ “Salus Facility ~~will be reduced by certain mandatory and voluntary prepayments~~”). On ~~The~~October ~~Borrowers~~10, ~~may periodically borrow~~2013, ~~repay~~the inBorrowers ~~whole~~entered orinto ina ~~part,~~fourth ~~and~~amendment ~~reborrow~~to ~~under~~ the ~~Salus Facility,~~Credit ~~except~~Agreement ~~that~~to, ~~amounts~~among ~~repaid~~other onthings, ~~account~~increase of the ~~FILO~~Salus ~~Advance~~Facility ~~may~~by ~~not~~$11,000,000 beto ~~reborrowed~~$35,000,000. The ~~actual~~fourth ~~amount~~amendment ~~of credit available under the Salus Facility~~ is ~~determined~~described ~~using~~in ~~measurements~~further ~~based~~detail ~~on the Borrowers’ receivables, inventory, intellectual property and other measures~~below.

The ~~unpaid~~Salus ~~principal~~Facility ofincludes ~~the~~a ~~FILO~~“first ~~Advance~~in ~~bears~~last ~~interest,~~out” ~~payable monthly~~tranche, inor ~~arrears~~FILO Advance, atwhich ~~the~~consists ~~30-day~~of ~~LIBOR~~the ~~rate~~first ~~plus~~advances ~~11.5%,~~made ~~but~~under ~~not~~the ~~less~~Salus ~~than~~Facility ~~12.0%~~and ~~regardless~~which will ofbe ~~fluctuations in~~ the ~~LIBOR~~last ~~rate (12~~amounts repaid.0% On atMay ~~April 27~~23, 2013)., Upthe toBorrowers ~~2.5%~~entered ofinto ~~the~~a ~~interest~~second ~~payable~~amendment onto the ~~FILO~~Credit ~~Advance~~Agreement ~~will~~to beincrease ~~capitalized, compounded and added to~~ the ~~unpaid~~principal ~~amount~~balance of the ~~obligations~~FILO ~~each~~Advance ~~month~~from $9,000,000 ~~will~~to ~~accrue~~$14,000,000, ~~interest~~which atrepresents the ~~rate~~“Tranche ~~applicable~~A-1 toAdvance” of the FILO Advance. On ~~and~~October ~~will~~10, be2013, ~~due and~~the ~~payable~~Borrowers inentered ~~cash~~into ~~upon~~a ~~the~~fourth ~~expiration~~amendment orto ~~other termination of~~ the ~~Salus~~Credit ~~Facility.~~Agreement Atto ~~April~~include ~~27,~~a ~~2013,~~“Tranche ~~$9,212,000~~A-2 ~~was~~Advance” ~~outstanding under~~of the FILO Advance, which is described below.

The ~~unpaid~~maximum ~~principal~~amount of ~~advances~~the ~~other~~FILO ~~than~~Advance and the ~~FILO~~total ~~Advance bears~~Salus ~~interest,~~Facility ~~payable~~will ~~monthly~~be reduced by certain mandatory and voluntary prepayments. The Borrowers may periodically borrow, repay in ~~arrears~~whole or in part, atand ~~the~~reborrow ~~Prime~~under ~~rate~~the ~~plus~~Salus ~~4.0%~~Facility, ~~but~~except ~~not~~that ~~less~~amounts ~~than~~repaid ~~7.0%,~~on ~~regardless~~account of ~~fluctuations in~~ the ~~Prime~~FILO ~~rate~~Advance (7may not be reborrowed.~~25%~~ The atactual ~~April~~amount ~~27,~~of ~~2013).~~credit Atavailable ~~April~~under ~~27,~~the ~~2013,~~Salus ~~$5,183,000~~Facility ofis ~~advances~~determined ~~other~~using ~~than~~measurements based on the ~~FILO~~Borrowers’ ~~Advance~~receivables, ~~was~~inventory, ~~outstanding~~intellectual property and other measures.

The ~~obligations~~unpaid principal of the ~~Borrowers~~Tranche ~~under~~A-1 Advance bears interest, payable monthly, in arrears, at the ~~Credit~~30-day ~~Agreement are~~LIBOR ~~secured~~rate byplus ~~first~~11.5%, ~~priority~~but ~~security~~not ~~interests~~less inthan ~~all~~12.0% regardless of fluctuations in the ~~Borrowers’~~LIBOR ~~tangible~~rate ~~and~~(12.0% ~~intangible~~at ~~property~~October 26, ~~including~~2013). ~~intellectual property~~Up ~~such~~to as2.5% ~~trademarks~~of the interest payable on the Tranche A-1 Advance will be capitalized, compounded and ~~copyrights~~added to the unpaid amount of the obligations each month, aswill ~~well~~accrue asinterest ~~shares~~at the rate applicable to the Tranche A-1 Advance and ~~membership~~will ~~interests~~be due and payable in cash upon the expiration or other termination of the ~~Company’s~~Salus ~~subsidiaries~~Facility. At October 26, 2013, $14,158,000 was outstanding under the Tranche A-1 Advance.

The ~~Credit~~unpaid ~~Agreement~~principal ~~provides~~of ~~for~~advances other than the ~~Borrowers~~FILO toAdvance ~~pay~~bears ~~Salus an~~interest, ~~origination~~payable ~~fee~~monthly, ofin ~~$465~~arrears,~~000~~ at the Prime rate plus 4.0%, 50but not less than 7.0%, regardless of ~~which~~fluctuations ~~was~~in ~~paid~~the Prime rate (7.25% at October 26, 2013). On July 25, 2013, the ~~closing~~Borrowers ~~and~~entered ~~50%~~into toa bethird ~~paid~~amendment onto the ~~first~~Credit ~~anniversary~~Agreement ofto remove the ~~closing~~minimum excess availability requirement until October 31, 2013. The ~~Credit~~third ~~Agreement~~amendment also ~~provides~~provided ~~for~~that ~~certain~~through ~~customary~~October ~~fees~~31, to2013, bethe ~~paid~~initial to$1,500,000 ~~Salus~~of the outstanding balance of advances other than the FILO Advance would bear interest at 20.0% per annum, ~~including:~~and ~~(i)~~thereafter aat ~~monthly~~no ~~fee~~less than 7.0% per annum. As described below, on ~~the~~October ~~unused~~10, ~~portion of~~2013, the ~~Salus~~Borrowers ~~Facility;~~entered ~~(ii)~~into a ~~monthly~~fourth ~~collateral~~amendment ~~monitoring~~to ~~fee;~~the ~~and~~Credit ~~(iii)~~Agreement anwhich, ~~annual~~among ~~FILO~~other ~~facility~~things, ~~fee~~reinstated ~~based~~the on$1,500,000 minimum excess availability requirement effective October 10, 2013. At October 26, 2013, $5,767,000 of advances other than the ~~then-outstanding~~ FILO Advance was outstanding.

The ~~Credit~~obligations ~~Agreement~~of ~~and~~the ~~other~~Borrowers ~~loan~~under ~~documents~~the ~~contain~~Credit ~~customary representations~~Agreement ~~and~~are ~~warranties,~~secured ~~affirmative~~by ~~and~~first ~~negative~~priority ~~covenants~~security ~~and~~interests ~~events~~in all of ~~default, including covenants that restrict~~ the Borrowers’ ~~ability~~tangible ~~to create certain liens, make certain types of borrowings~~ and ~~investments,~~intangible ~~liquidate or dissolve~~property, ~~engage in~~including ~~mergers,~~intellectual ~~consolidations,~~property ~~significant~~such ~~asset~~as ~~sales~~trademarks and ~~affiliate transactions~~copyrights, ~~incur~~as ~~certain~~well ~~lease~~as ~~obligations,~~shares ~~pay cash dividends, redeem or repurchase outstanding equity~~ and ~~issue~~membership ~~capital~~interests ~~stock. In lieu~~ of ~~financial~~our ~~covenants, fixed charge coverage and overall debt ratios, the Salus Facility has a $1~~subsidiaries.5 million minimum availability reserve requirement. At April 27, 2013, the Company was in compliance with the Salus Facility’s affirmative and restrictive covenants and minimum availability reserve requirement.

5In connection with the closing of the Salus Facility, the Borrowers paid Salus an origination fee of $465,000, 50% of which was paid at the closing and 50% of which was paid on the first anniversary of the closing. ~~SERIES~~The BCredit ~~PREFERRED~~Agreement ~~STOCK~~also ~~TRANSACTION~~provides for certain customary fees to be paid to Salus, including: (i) a monthly fee on the unused portion of the Salus Facility; (ii) a monthly collateral monitoring fee; and (iii) an annual FILO facility fee based on the then-outstanding FILO Advance.

OnThe ~~March~~Credit ~~15,~~Agreement ~~2013,~~and ~~the~~other ~~Company~~loan ~~sold~~documents ~~100,000~~contain ~~shares~~customary ofrepresentations ~~Series B~~and ~~Preferred Stock with a stated value of $100 per share to Five Island Asset Management LLC~~warranties, ~~(the~~affirmative ~~“Purchaser”),~~and anegative ~~subsidiary of~~covenants ~~Harbinger~~and ~~Group~~events ~~Inc., receiving gross proceeds~~ of ~~$10~~default,~~000,000.~~ ~~The~~including ~~Company~~covenants ~~also~~that ~~issued~~restrict to the ~~Purchaser~~Borrowers’ ~~six~~ability ~~separate warrants~~ to ~~purchase~~create upcertain ~~to an aggregate of 10~~liens,~~246,477~~ ~~shares~~make ofcertain ~~common~~types ~~stock. Five~~ of ~~the~~borrowings ~~warrants~~and ~~may~~investments, beliquidate ~~exercised~~or todissolve, ~~purchase~~engage upin tomergers, ~~an aggregate of 4~~consolidations,~~778,350~~ ~~shares~~significant ofasset ~~common~~sales ~~stock at exercise prices ranging from $0.67 to $1.21 per share (“Corresponding Warrants”)~~ and ~~one~~affiliate oftransactions, ~~the~~incur ~~warrants~~certain ~~may~~lease beobligations, ~~exercised~~pay tocash ~~purchase up to 5~~dividends,~~468,127~~ ~~shares~~redeem ofor ~~common~~repurchase ~~stock~~outstanding atequity anand ~~exercise~~issue ~~price~~capital ~~of $0~~stock.01 ~~per~~In ~~share (“Series~~lieu Aof ~~Preferred~~financial ~~Stock~~covenants, ~~Coverage~~fixed ~~Warrant”).~~charge ~~These~~coverage ~~warrants~~and ~~are~~overall ~~exercisable~~debt byratios, the ~~Purchaser~~Salus ~~only~~Facility ~~upon~~has a ~~corresponding exercise or conversion of specified outstanding securities, as set forth in the warrants. The Corresponding Warrants were valued at~~ $~~366~~1,500,000 ~~using~~minimum ~~the~~availability ~~Black-Scholes~~reserve ~~model and~~requirement, which was ~~recorded~~waived aseffective anJuly ~~increase~~25, to2013 ~~additional~~and ~~paid~~reinstated ineffective ~~capital~~October 10, 2013. At ~~The~~October ~~Series~~26, A2013, ~~Preferred Stock~~the ~~Coverage~~Borrowers ~~Warrant~~were ~~was~~in ~~valued~~compliance ~~using~~with athe ~~binomial~~Salus ~~lattice~~Facility’s ~~model~~affirmative and ~~recorded~~restrictive ascovenants aand ~~warrant~~minimum ~~liability~~availability ~~(see~~reserve ~~Note 6)~~requirement.

~~The terms of the Series B Preferred Stock, as set forth in a certificate of amendment (the “Certificate of Amendment”) to the Company’s certificate of incorporation, are as follows:~~11

·On ~~Dividends.~~October ~~Cumulative~~10, ~~dividends~~2013, onthe Borrowers entered into a fourth amendment to the ~~Series~~Credit BAgreement ~~Preferred~~to, ~~Stock~~among ~~will~~other bethings, ~~payable~~increase ~~quarterly~~the inSalus ~~arrears~~Facility ~~either~~by ~~(i)~~$11,000,000 atto $35,000,000. The $11,000,000 represents the ~~rate~~Tranche A-2 Advance of 9%the ~~per~~FILO ~~annum~~Advance, inwith ~~cash~~$5,000,000 orhaving been advanced on October 10, at2013 and the ~~Company’s~~remaining ~~discretion~~$6,000,000 ~~(ii)~~to atbe advanced upon the ~~rate~~consummation of ~~12%~~a ~~per~~proposed ~~annum~~merger into ~~additional~~be ~~shares~~effected as part of ~~Series~~a Bgoing ~~Preferred~~private ~~Stock.~~transaction ~~The~~that, ~~dividends~~if onconsummated, will result in the ~~Series~~Company Bbecoming ~~Preferred~~wholly ~~Stock~~owned ~~will~~by bethe ~~paid~~Consortium ~~prior~~Members (see Note 9 – Going Private Proposal). The $5,000,000 advance is to ~~dividends~~be repaid on April 10, 2014 if the ~~Company’s~~merger ~~common~~is ~~stock~~not ~~and~~consummated ~~preferred~~by ~~stock~~that ~~ranking~~date, ~~junior~~or toon May 31, 2015 if the ~~Series~~merger Bis ~~Preferred~~consummated ~~Stock~~on ~~(“Junior~~or ~~Preferred~~before ~~Stock”)~~April 10, 2014. The $6,000,000 advance, if made, plus any additional amount that Salus may elect to advance in its sole discretion, is to be repaid on May 31, 2015.

11The unpaid principal of the Tranche A-2 Advance bears interest, payable monthly, in arrears, at the 30-day LIBOR rate plus 13.5%, but not less than 14.0% regardless of fluctuations in the LIBOR Rate. Following the consummation of the proposed merger described above, so long as no event of default has occurred and is continuing, an amount equal to 6.0% of the interest payable on the Tranche A-2 Advance (or such lesser amount as the Borrowers elect) will be capitalized, compounded and added to the unpaid amount of the obligations each month, will accrue interest at the rate applicable to the Tranche A-2 Advance and will be due and payable in cash upon the expiration or other termination of the Salus Facility. The initial $5,000,000 advance will be used for general corporate purposes and the $6,000,000 advance, if made, is to be used for fees, expenses, costs and obligations incurred by Borrowers in connection with the merger.

~~· Rank.~~ The ~~Series~~fourth Bamendment ~~Preferred~~also ~~Stock~~provides ~~ranks~~that, ~~with~~at ~~respect~~the toBorrowers’ ~~rights~~request, ~~upon~~the aSalus ~~Liquidation~~Facility ~~Event~~may ~~(as~~be ~~defined~~permanently ~~below),~~increased ~~(a)~~by ~~junior~~up to ~~any~~$4,000,000, ~~other~~either ~~class~~in ortwo ~~series~~$2,000,000 ofadvances ~~capital~~or ~~stock~~one of$4,000,000 ~~the~~advance, ~~Company~~subject ~~subsequently~~to ~~created~~Salus’ ~~that~~prior bywritten ~~its~~consent, ~~terms~~which ~~ranks~~may ~~senior~~be togiven ~~the~~or ~~Series~~denied Bin ~~Preferred~~Salus’ ~~Stock;~~sole ~~(b)~~discretion, ~~senior~~and toconditioned ~~the~~upon ~~common~~(A) ~~stock~~Salus’ receipt and ~~the~~approval ~~Series~~of Aa ~~Preferred~~revised ~~Stock;~~business plan, (cB) ~~senior~~the toabsence of any ~~class~~default or ~~series~~event of ~~capital~~default ~~stock~~under of the ~~Company~~Credit ~~subsequently~~Agreement, ~~created~~(C) ~~that~~payment ~~does~~of ~~not~~an ~~specifically~~accordion ~~rank~~fee ~~senior~~ to orSalus onequal ~~parity~~to 1.0% ~~with~~of ~~the~~such ~~Series~~increase Bin ~~Preferred~~the ~~Stock;~~Salus Facility and (dD) onthe ~~parity~~execution ~~with~~of ~~any~~documents ~~class~~necessary orto ~~series~~evidence ofany ~~capital~~such ~~stock~~increase ofin ~~the~~form ~~Company~~and ~~subsequently~~substance ~~created~~acceptable ~~that~~to bySalus. ~~its~~On ~~terms~~November ~~ranks~~1, on2013, ~~parity~~at ~~with~~the Borrowers’ request, the ~~Series~~Salus BFacility ~~Preferred~~was ~~Stock~~permanently increased by $4,000,000.

·In ~~Voting~~connection ~~Rights.~~with ~~Except~~the asfourth ~~otherwise~~amendment, ~~required by law or by~~ the ~~terms~~Borrowers ofand ~~the~~Salus ~~Certificate~~entered ofinto ~~Amendment,~~a ~~the~~Supplemental ~~Series~~Fee BLetter ~~Preferred~~that ~~Stock~~provides ~~does~~for ~~not~~the ~~have~~accordion ~~voting~~fee ~~rights.~~described ~~However~~above, as ~~long~~well as ~~any shares of Series B Preferred Stock are outstanding, the Company may not, without the vote or written consent of the holders of at least~~ a ~~majority~~Tranche ofA-2 ~~the~~origination ~~outstanding~~fee ~~shares~~in ofan ~~Series~~amount Bequal ~~Preferred~~to ~~Stock: (a) amend, alter or repeal any provision of~~ the ~~Company’s~~greater ~~certificate~~ of ~~incorporation or by-laws;~~ (bi) ~~alter or change the powers~~$110, ~~preferences or other special rights~~000, ~~privileges~~ or ~~restrictions of the Series B Preferred Stock;~~ (cii) ~~authorize~~1.0% orof ~~designate any new security ranking on a parity with or senior to~~ the ~~Series~~aggregate Bportion ~~Preferred Stock; (d) issue any common stock or equity or debt security convertible into common stock (other than shares~~ of ~~Series A Preferred Stock issued as dividends on~~ the ~~outstanding shares of Series A Preferred Stock)~~$11, ~~whether senior~~000,000 onincrease ~~parity~~funded orby ~~junior~~Salus, ~~to the Series B Preferred Stock; (e) issue any equity or debt in a Series B Qualifying Investment (as defined in the Certificate~~ of ~~Amendment)~~which ~~where~~$50,000 ~~the~~was ~~securities~~accrued ~~issued~~on inOctober ~~such~~10, ~~investment~~2013 ~~are~~and ~~by their terms mandatorily redeemable by~~ the ~~Company;~~balance (~~f) incur~~$60,000 ~~assume~~plus or1.0% ~~guarantee~~of any ~~indebtedness~~incremental ~~for~~amount ~~borrowed~~elected ~~money~~to inbe ~~excess~~advanced ofby ~~$1,000,000~~Salus ~~or permit any liens other than~~ in ~~connection~~its ~~with~~sole ~~such indebtedness; (g~~discretion) ~~enter~~to ~~into~~be ~~any~~due ~~transaction with affiliates other than salary~~ and ~~benefits~~payable inon the ~~ordinary~~earliest ~~course~~ of ~~business or conversion of the Series A Preferred Stock into common stock;~~ (hA) ~~purchase,~~the ~~redeem~~date oron ~~otherwise~~which ~~acquire~~Salus ~~any~~funds ~~equity interests of~~ the ~~Company,~~balance ~~other than a mandatory redemption~~ of the ~~Series~~advances ~~A Preferred Stock pursuant~~ to ~~its~~Borrowers ~~terms;~~in ~~(i)~~connection ~~declare~~with orthe ~~pay~~consummation ~~any dividend or distribution to any equity holders~~ of the ~~Company other than preferred dividends on the Series B Preferred Stock~~merger, ~~the Series A Preferred Stock and any dividends payable in additional shares of common stock;~~ (jB) ~~except~~an asevent ~~provided in the Certificate~~ of ~~Amendment,~~default ~~increase~~under ~~or decrease~~ the ~~size~~Credit ofAgreement, ~~the Company’s Board of Directors;~~ or (kC) ~~liquidate,~~April ~~dissolve or wind up~~10, or2014 ~~commence~~if ~~any~~the ~~bankruptcy~~merger orhas ~~similar~~not ~~proceeding,~~occurred ~~with~~by ~~respect~~such ~~to the Company~~date.

·Amounts ~~Director~~repaid ~~Election~~on ~~Rights.~~account ~~As long as the holders~~ of the ~~Series~~principal Bbalance ~~Preferred Stock (together with former holders (or affiliates thereof) who have exercised their conversion rights) represent (A) at least 25%~~ of the ~~outstanding~~Salus ~~shares~~Facility ofshall ~~the~~be ~~Company’s~~applied common stock (assuming (x) conversion of the Series A Preferred Stock and the Series B Preferred Stock and (y) exercise of any warrants held by the holders of the Series A Preferred Stock and Series B Preferred Stock)first, ~~the~~to ~~holders~~reduce ~~of a majority of~~ the ~~outstanding~~principal ~~shares~~balance of ~~Series B Preferred Stock will be entitled to elect 35% of~~ the ~~Board~~advances ~~(rounded~~other upthan to the ~~nearest~~FILO ~~whole~~Advance ~~number~~until ofpaid ~~directors and~~ in ~~all cases at least two directors) or (B) at least 15%~~full, ~~but less than 25%~~second, ofto ~~the~~reduce ~~outstanding shares of~~ the ~~Company’s~~principal ~~common~~balance ~~stock (assuming (x) conversion~~ of the ~~Series~~Tranche A-1 ~~Preferred~~Advance ~~Stock and the Series B Preferred Stock and (y) exercise~~ of ~~any warrants held by~~ the ~~holders~~FILO ofAdvance ~~the~~until ~~Series~~paid Ain ~~Preferred~~full, ~~Stock~~ and ~~Series B Preferred Stock)~~third, ~~the~~against ~~holders of a majority of~~ the ~~outstanding~~Tranche ~~shares~~A-2 ofAdvance ~~Series B Preferred Stock will be entitled to elect one director~~ of the ~~Board~~FILO ~~(in either case, such directors or director shall be referred to as the “Series B Directors” or “Series B Director”)~~Advance.

At ~~any annual or special meeting of the Company’s shareholders, the holders of a majority of the outstanding shares of Series B Preferred Stock will be entitled to elect the Series B Directors~~6. WARRANT Series B Directors may be removed, with or without cause, only by a vote of the holders of a majority of the outstanding shares of Series B Preferred Stock. Vacancies in seats held by Series B Directors can only be filled by a vote of the holders of a majority of the outstanding shares of Series B Preferred Stock.LIABILITY

~~Additionally,~~In asconnection ~~long~~with as the ~~holders~~issuance of the ~~Series B~~Company’s ~~Preferred Stock (together with any former holders (or affiliates thereof) of shares of~~ Series B Convertible Preferred Stock ~~who~~on ~~have~~March ~~exercised their~~15, ~~conversion~~2013, ~~rights)~~the ~~represent~~Company atissued ~~least~~ a ~~majority~~warrant ofthat ~~the~~contains ~~outstanding~~a ~~shares~~“down ofround” ~~the~~anti-dilution ~~Company’s~~adjustment. This ~~common~~warrant ~~stock~~is ~~(assuming (x)~~referred ~~conversion~~to ofas the “Series A Preferred Stock Coverage Warrant”, and ~~the~~it ~~Series~~may Bbe ~~Preferred~~exercised ~~Stock~~to ~~and~~purchase ~~(y)~~up ~~exercise~~to 5,468,127 shares of ~~any~~common ~~warrants~~stock ~~held~~at byan ~~the~~exercise ~~holders~~ price of ~~the~~$0.01 per share. The Series A Preferred Stock ~~and~~Coverage ~~Series~~Warrant Bmay ~~Preferred~~only ~~Stock)~~be exercised, ~~upon~~in ~~delivery~~whole ofor ~~written~~in ~~notice~~part, toupon ~~the~~conversion ~~Company from all~~ of the ~~remaining holders of~~ Series BA Preferred Stock. The ~~exercising~~“down ~~their~~round” ~~right~~anti-dilution toadjustment ~~convert~~provides ~~all~~for of the ~~Series~~number Bof ~~Preferred~~shares ~~Stock,~~underlying the ~~number~~warrant ofto ~~directors of~~be ~~the~~increased ~~Board~~if ~~will~~the ~~automatically~~Company ~~increase~~issues ~~without~~or sells any ~~action~~additional ~~required~~shares byof ~~the~~common ~~Company~~stock orat ~~Board,~~a ~~such~~price ~~that~~per ~~the~~share ~~number~~less ofthan ~~newly~~the ~~created seats~~then ~~plus~~applicable ~~the~~conversion ~~number~~price of the Series BA ~~Directors~~Preferred ~~will~~Stock ~~constitute~~(or aSeries ~~majority~~A ofPreferred ~~the~~Stock ~~Board~~dividend). ~~The~~Because ~~holders~~this ofdown-round provision is a ~~majority~~guarantee of value, the ~~outstanding shares of~~ Series BA Preferred Stock ~~delivering~~Coverage ~~the~~Warrant ~~conversion~~is ~~notice~~required ~~will~~to be ~~entitled~~classified toas ~~elect~~a ~~directors~~derivative for accounting purposes, and reported as a liability and marked to ~~fill~~market ~~all~~at ofeach ~~the~~balance ~~newly created~~sheet ~~seats~~date.

	12

·The ~~Liquidation~~original ~~Rights.~~amount ~~Upon the occurrence~~ of ~~an Acquisition or Asset Transfer (each as defined in~~ the ~~Certificate~~liability ofrelated ~~Amendment)~~to ~~or upon any bankruptcy, liquidation, dissolution or winding up of~~ the ~~Company,~~Series ~~whether~~A ~~voluntary~~Preferred orStock ~~involuntary~~Coverage ~~(any~~Warrant ~~such~~was ~~Acquisition~~$3, ~~Asset Transfer~~782,697 ~~bankruptcy,~~and ~~liquidation,~~was ~~dissolution~~recorded oras ~~winding up,~~ a ~~“Liquidation~~warrant ~~Event”),~~liability on the ~~holders~~Issuance ofDate. Because the Series BA Preferred Stock ~~will~~Coverage beWarrant ~~entitled~~was torecorded ~~receive,~~as ina ~~preference~~warrant toliability, the ~~holders~~portion of ~~any~~proceeds ~~Junior~~from ~~Preferred Stock, an amount equal to: (i)~~ the ~~stated~~sale ~~value~~ of the Series B Preferred Stock ~~then~~that inwas ~~effect~~recorded ~~plus~~as ~~all~~equity ~~accrued~~was ~~but~~reduced ~~unpaid dividends thereon, multiplied by (ii) (A) 1~~accordingly.09, if the Liquidation Event occurs no later than March 15, 2014, (B) 1.05, if the Liquidation Event occurs after March 15, 2014 but no later than March 15, 2015, or (C) 1.00, if the Liquidation Event occurs after March 15, 2015.

·The ~~Mandatory~~Company ~~Repurchase~~estimates ~~Obligation. A holder of~~ the ~~Series~~value ~~B Preferred Stock will have the right to require the Company to purchase its shares~~ of ~~Series B Preferred Stock for a price equal to~~ the ~~amount~~warrant ~~the~~liability ~~holder would be entitled to receive~~ upon ~~a Liquidation Event in~~ the ~~event~~issuance of ~~a cash investment in~~ the ~~Company (other than by holders of the~~ Series BA Preferred Stock) ~~resulting~~Coverage inWarrant ~~(i)~~and ~~30%~~at oreach ~~more~~balance ofsheet ~~the~~date ~~equity~~using of the ~~Company~~binomial ~~being~~lattice ~~held~~model byto ~~one~~allocate ortotal ~~more~~enterprise ~~parties~~value ~~that did not own it immediately prior~~ to the ~~investment~~warrant. ~~and~~The ~~(ii)~~following ~~the~~table ~~securities~~is ~~issued~~a ~~under~~roll-forward ~~such~~of ~~investment are not by their terms mandatorily redeemable by~~ the ~~Company.~~warrant liability:

· Conversion. The Series B Preferred Stock may be converted at any time, at the option of the holder, into shares of common stock at an initial conversion price of $0.25 per share (“Conversion Price”). The Conversion Price is subject to standard anti-dilution adjustments to protect the holder from dilution resulting from dividends, distributions, stock combinations, splits, recapitalizations or similar capital adjustments. The Conversion Price is also subject to “down-round” adjustment if the Company sells common stock or common stock equivalents at a price below the Conversion Price; provided, however, that the foregoing conversion price adjustments can never result in a conversion price of less than $0.07 per share, as adjusted from time to time for any stock combinations, splits, recapitalizations or similar capital adjustments.

Level 3 Change in Fair Value

Level 3 fair value of warrant liability at March 15, 2013 (issuance date)	$	3,782,697

(Gain) as a result of change in fair value		(380,788)

Level 3 fair value of warrant liability at July 27, 2013		3,401,909

Loss as a result of change in fair value		814,130

Level 3 fair value as of October 26, 2013	$	4,216,039

·The ~~Optional~~loss ~~Redemption~~on by the ~~Company.~~warrant ~~The~~liability ~~Series~~for ~~B Preferred Stock is redeemable, at~~ the ~~option~~three ofmonths ~~the~~ended ~~Company,~~October ~~at any time after March 15~~26, ~~2018.~~2013 ~~Upon~~was ~~redemption~~$814,130 aand ~~holder~~is ofincluded ~~Series~~in Bthe ~~Preferred~~accompanying ~~Stock~~consolidated ~~will~~statement ~~be paid, for each share~~ of ~~Series B Preferred Stock, a price equal to the stated value of the Series B Preferred Stock then in effect plus all accrued or cumulated but unpaid dividends thereon~~operations.

InThe ~~connection~~warrant ~~with~~liability ~~the~~is ~~transaction,~~measured ~~the~~at ~~holder~~fair ofvalue ~~the~~using ~~outstanding shares~~certain ofestimated ~~Series A Preferred Stock consented to the transaction and waived~~inputs, onwhich ~~behalf~~are ofclassified ~~itself~~within ~~and~~Level ~~any~~3 ~~transferees~~ of the ~~Series A~~valuation ~~Preferred~~hierarchy. The ~~Stock,~~following ~~(a)~~assumptions ~~any~~were ~~and~~used ~~all~~in ~~anti-dilution adjustments applicable to~~ the ~~Series~~fair Avalue ~~Preferred~~measurement ~~Stock~~as ~~which might otherwise be made to the conversion prices~~ of ~~such~~October ~~shares~~26, ~~and~~2013, ~~any~~July ~~additional~~27, ~~shares~~2013 ~~of Series A Preferred Stock that may be issued as a dividend on such shares~~ and ~~(b)~~March ~~any~~15, ~~and~~2013 ~~all rights to redemption in connection with a Qualifying Investment~~ (asissuance ~~defined in the Company’s certificate of incorporation~~date)~~, in each case as a result of the transactions contemplated by the Purchase Agreement.~~:

6. WARRANT LIABILITY

							(issuance date)
	October 26, 2013			July 27, 2013			March 15, 2013

Fair value of underlying stock – per share	$	0.22		$	0.18		$	0.20
Risk-free interest rate		2.04	%		2.04	%		2.04	%
Expected life (years)		15			15			15
Expected volatility		70	%		70	%		70	%
Dividend yield		0.0	%		0.0	%		0.0	%

In connection with the Series B Preferred Stock transaction described above in Note 5, on March 15, 2013 (“Issuance Date”), the Company issued to the Purchaser six separate Warrants to purchase up to an aggregate of 10,246,477 shares of common stock 7. COMMITMENTS ~~One~~AND of these warrants, referred to as the “Series A Preferred Stock Coverage Warrant”, may be exercised to purchase up to 5,468,127 shares of common stock at an exercise price of $0.01 per share. The Series A Preferred Stock Coverage Warrant may only be exercised, in whole or in part, upon conversion of the Series A Preferred Stock. The Series A Preferred Stock Coverage Warrant contains a “down round” anti-dilution adjustment, which provides for the number of shares underlying the warrant to be increased if the Company issues or sells any additional shares of common stock at a price per share less than the then applicable conversion price of the Series A Preferred Stock (or dividend). Because this down-round provision is a guarantee of value, the Series A Preferred Stock Coverage Warrant is required to be classified as a derivative for accounting purposes, and reported as a liability and marked to market at each balance sheet date.CONTINGENCIES

On December 18, 2012, a former California store employee filed a purported class action lawsuit in the California Superior Court, County of Los Angeles, against the Company, Frederick’s of Hollywood, Inc. and Frederick’s of Hollywood Stores, Inc. (Kassandra Harvey-Smith, on behalf of herself and all others similarly situated v. Frederick’s of Hollywood Group Inc. et al, Case No. BC497673). The ~~original~~complaint ~~amount~~alleges, among other things, violations of the ~~liability~~California ~~related~~Labor Code, failure to ~~the~~pay ~~Series~~overtime, ~~A Preferred~~failure ~~Stock~~to ~~Coverage~~provide ~~Warrant~~meal ~~was~~and $3rest periods and termination compensation,~~782~~ various additional wage violations and violations of California’s Unfair Competition Law. The first amended complaint seeks,~~697~~ among other relief, collective and ~~was~~class ~~recorded~~certification of the lawsuit (the class being defined as aall ~~warrant~~California ~~liability~~part-time onsales associates), unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the ~~Issuance~~Court ~~Date~~might find just and proper. The ~~Because~~parties agreed to stay discovery proceedings, engaged in mediation, and on September 25, 2013, the ~~Series A~~parties ~~Preferred~~entered ~~Stock~~into ~~Coverage~~a ~~Warrant~~Joint Stipulation of Settlement and Release, which was ~~recorded~~later asmodified ato ~~warrant~~change the administrator and the amount. Without admitting or denying liability, the ~~portion~~Company has agreed to pay a gross settlement amount of ~~proceeds~~$95,000. The ~~from~~hearing for the ~~sale~~Court’s preliminary approval of the ~~Series~~settlement Bhas ~~Preferred Stock~~not yet been scheduled, but is expected to occur within the next 60 to 90 days, after which a final approval hearing date will be set. After preliminary approval, class members will receive notice of the settlement and will have an opportunity to elect not to participate or file objections to the settlement. The Company expects that ~~was~~funding ~~recorded~~of aspayment ~~equity~~of ~~was~~the ~~reduced~~settlement ~~accordingly~~will occur in the second half of fiscal year 2014.

	13

The Company ~~estimates~~also ~~the~~is ~~value~~involved offrom ~~the~~time ~~warrant~~to ~~liability~~time ~~upon the~~in ~~issuance~~litigation ofincidental ~~the~~to ~~Series~~its Abusiness. The ~~Preferred~~Company ~~Stock~~believes ~~Coverage~~that ~~Warrant and at each balance sheet date using~~ the ~~binomial~~outcome ~~lattice~~of ~~model~~such ~~to allocate~~litigation ~~total~~will ~~enterprise~~not ~~value~~have toa ~~the~~material ~~warrant.~~adverse ~~The~~effect ~~following~~on ~~table~~its isresults ~~a roll-forward~~ of ~~the~~operations ~~warrant~~or ~~liability:~~financial condition.

Level 3 Change in Fair Value
Level 3 Fair value of warrant liability at March 15, 2013	$	3,782,697
Gain as a result of change in fair value		(951,972	)
Level 3 Fair value as of April 27, 2013	$	2,830,725

8. NET LOSS PER SHARE

The ~~gain~~Company’s oncalculations ~~the~~of ~~warrant~~basic ~~liability~~and ~~for~~diluted ~~the~~net ~~three~~loss ~~months~~per ~~ended April~~share ~~27,~~applicable ~~2013~~to ~~was~~common ~~$951,972~~shareholders ~~and~~are isas ~~included~~follows (in inthousands, ~~the~~except ~~accompanying~~per ~~consolidated~~share ~~statement of operations.~~amounts):

The warrant liability is measured at fair value using certain estimated inputs, which are classified within Level 3 of the valuation hierarchy. The following assumptions were used in the fair value measurement as of March 15, 2013 and April 27, 2013:

	Three Months Ended
	October 26,			October 27,
	2013			2012
Net loss applicable to common shareholders	$	(7,694)	^(a)	$	(5,203)	^(b)

Basic and diluted:

Weighted average number of shares outstanding		39,218			38,978

Total basic and diluted net loss per share	$	(0.20)		$	(0.13)

	March 15, 2013			April 27, 2013
Fair value of underlying stock – per share	$	0.20		$	0.15
Risk-free interest rate		2.04	%		2.04	%
Expected life (years)		15			15
Expected volatility		70	%		70	%
Dividend yield		0.0	%		0.0	%

_______________________________________________________

7.(a) Includes ~~COMMITMENTS~~preferred ~~AND~~stock ~~CONTINGENCIES~~dividend of $418.

On February 2, 2012, a former California store employee filed a purported class action lawsuit in the California Superior Court, County of San Francisco, naming Frederick’s of Hollywood, Inc., one of the Company’s subsidiaries, as a defendant (~~Michelle Weber, on behalf of herself and all others similarly situated v. Frederick’s of Hollywood, Inc., Case No. CGC-12-517909~~b). Includes ~~The~~preferred ~~complaint~~stock ~~alleges,~~dividend ~~among other things, violations~~ of the California Labor Code, failure to pay overtime, failure to provide meal and rest periods and termination compensation and violations of California’s Unfair Competition Law. The complaint seeks, among other relief, collective and class certification of the lawsuit (the class being defined as all California retail store hourly employees), unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the Court might find just and proper. The Company contests these allegations and denies any liability with respect to the lawsuit. On April 2, 2012, the Company answered the Plaintiff’s first amended complaint. The parties agreed to stay discovery proceedings, engaged in mediation, and on May 23, 2013, the parties entered into a Joint Stipulation of Settlement and Release, which was filed with the Court on May 31, 2013. Without admitting or denying liability, the Company has agreed to pay a gross settlement amount of $~~365,000 in connection with the settlement~~116. The hearing for the Court’s preliminary approval of the settlement is scheduled for June 26, 2013, at which time a final approval hearing date will be set. After preliminary approval, class members will receive notice of the settlement and will have an opportunity to elect not to participate or file objections to the settlement. The Company expects that funding of payment of the settlement will occur in the second quarter of fiscal year 2014.

On ~~December~~For ~~18, 2012, a former California store employee filed a purported class action lawsuit in~~ the ~~California~~three ~~Superior~~months ~~Court,~~ended ~~County~~October ~~of Los Angeles~~26, ~~against~~2013 ~~the Company, Frederick’s of Hollywood, Inc.~~ and ~~Frederick’s~~October ~~of Hollywood Stores~~27, ~~Inc. (Kassandra Harvey-Smith~~2012, onthere ~~behalf~~were ~~of herself and all others similarly situated v. Frederick’s of Hollywood Group Inc. et al~~22,000 ~~Case No. BC497673). The complaint alleges, among other things, violations of the California Labor Code, failure to pay overtime, failure to provide meal~~ and ~~rest periods and termination compensation~~ 66, ~~various~~000 ~~additional~~potentially ~~wage~~dilutive ~~violations~~shares ~~and~~that ~~violations~~were ofnot ~~California’s~~included Unfair Competition Law. The complaint seeks, among other relief, collective and class certification of the lawsuit (the class being defined as all California retail store hourly employees), unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the Court might find just and proper. The Company contests these allegations and intends to vigorously defend the lawsuit. This lawsuit is in ~~its early stages and~~ the ~~Court~~computation ~~has ordered a 90-day stay while the parties discuss the possibility~~ of ~~settlement.~~diluted ~~Accordingly,~~net ~~the~~loss ~~Company~~per isshare ~~unable to~~since ~~estimate~~their ~~its~~effect ~~potential~~would ~~liability~~be ~~in the event of an unfavorable outcome with respect to these allegations~~anti-dilutive.

14 For the three months ended October 26, 2013, there were 5,204,000 shares of common stock issuable upon the exercise of warrants that were not included in the computation of diluted net loss per share since their effect would be anti-dilutive.

~~The~~ ~~Company~~For ~~also~~the isthree ~~involved~~months ~~from~~ended ~~time~~October to26, ~~time~~2013 inand ~~litigation incidental~~October to27, ~~its~~2012, ~~business.~~there ~~The~~were ~~Company~~2,372,000 ~~believes~~and 2,674,000 shares of common stock issuable upon exercise of stock options that were not included in the ~~outcome~~computation of ~~such~~diluted ~~litigation~~net ~~will~~loss ~~not~~per ~~have~~share asince ~~material~~the ~~adverse~~exercise ~~effect~~prices ~~on its~~of ~~results~~these instruments exceeded the average market price of ~~operations~~the orcommon ~~financial~~stock ~~condition~~during the period.

8. ~~NET~~For ~~(LOSS)/INCOME~~the ~~PER~~three ~~SHARE~~months ended October 26, 2013 and October 27, 2012, there were 10,243,000 and 5,544,000 shares of common stock issuable upon exercise of warrants that were not included in the computation of diluted net loss per share since the exercise prices of these instruments exceeded the average market price of the common stock during the period.

~~The~~ 9. GOING ~~Company’s~~PRIVATE ~~calculations of basic and diluted net loss per share applicable to common shareholders are as follows (in thousands, except per share amounts):~~PROPOSAL

	Three Months Ended					Nine Months Ended
	April 27,			April 28,		April 27,			April 28,
	2013			2012		2013			2012
Net (loss)/income applicable to common shareholders	$	(643	)(a)	$	3,313	$	(15,836	)(a)	$	(2,557	)
Basic and diluted weighted average number of shares outstanding		39,060			38,928		39,011			38,804
Basic and diluted net (loss)/income per share applicable to common shareholders	$	(0.02	)	$	0.09	$	(0.41	)	$	(0.07	)

On September 26, 2013, the Company’s board of directors received a non-binding proposal letter from HGI Funding, LLC, TTG Apparel, LLC, Tokarz Investments, LLC, Fursa Alternative Strategies LLC, and Arsenal Group LLC (collectively, the “Consortium Members”), pursuant to which they proposed to acquire all of the outstanding shares of the Company’s common stock not currently owned by them at a proposed price of $0.23 per share as part of a going private transaction, subject to certain conditions.

~~(a)~~HGI ~~Includes~~Funding ~~preferred~~is ~~stock~~an ~~dividends~~affiliate of ~~$268~~Five Island Asset Management LLC and ~~$502~~the ~~for~~current holder of the ~~three~~Company’s Series B Convertible Preferred Stock; TTG Apparel is the holder of the Company’s Series A Convertible Preferred Stock, and ~~nine~~together ~~months~~with ~~ended~~Tokarz ~~April~~Investments, 27own approximately 25.9% of the outstanding shares of the Company’s common stock; and Fursa and Arsenal are controlled by William F. Harley, ~~2013~~a member of the Company’s board of directors, ~~respectively~~and own, in the aggregate, approximately 43.4% of the outstanding shares of the Company’s common stock as of December 10, 2013.

~~For~~The ~~the~~Company’s ~~three~~board ~~and~~of ~~nine~~directors ~~months~~has ~~ended~~appointed ~~April~~Milton 27Walters, ~~2013,~~its ~~there~~sole ~~were 5,213,000~~disinterested ~~and~~independent 1director,~~738,000~~ ~~potentially~~to ~~dilutive~~serve ~~shares~~as ~~that~~the ~~were~~lead ~~not~~director ~~included~~ in connection with the ~~computation~~full ofboard’s ~~diluted~~review ~~net~~and ~~loss~~consideration ~~per~~of ~~share~~the ~~since their~~proposed ~~effect~~transaction. ~~would~~Any proposed transaction must be ~~anti-dilutive.~~approved ~~There~~by ~~were~~the ~~26,000~~lead ~~potentially~~director. ~~dilutive~~Although ~~shares~~discussions ~~that~~continue ~~were~~between ~~not~~the ~~included~~Company inand the ~~computation~~Consortium ~~of diluted~~Members, ~~net~~there ~~loss~~can ~~per~~be ~~share~~no ~~for~~assurance ~~the~~that ~~nine~~any ~~ended~~definitive ~~April~~agreement ~~28,~~will ~~2012~~be ~~since~~reached ~~their~~or ~~effect~~that ~~would~~this or any other transaction will be ~~anti-dilutive~~approved or consummated.

For the three and nine months ended April 27, 2013, there were 2,575,000 and 2,623,000 shares of common stock issuable upon exercise of stock options and 9,145,000 and 6,744,000 shares of common stock issuable upon the exercise of warrants that were not included in the computation of diluted net loss per share since the exercise prices of these instruments exceeded the average market price of the common stock during the period.14

~~For~~ITEM ~~the three and nine months ended April 28, 2012, there were 3,113,000 and~~ 2~~,940,000~~. ~~shares~~MANAGEMENT’S ofDISCUSSION ~~common~~AND ~~stock~~ANALYSIS ~~issuable~~OF ~~upon~~FINANCIAL ~~exercise~~CONDITION ofAND ~~stock~~RESULTS ~~options~~OF and 4,044,000 shares of common stock issuable upon the exercise of warrants that also were not included in the computation of diluted net loss per share since the exercise prices of these instruments exceeded the average market price of the common stock during the period.OPERATIONS

9.Forward-Looking ~~SUBSEQUENT EVENT~~Statements

On ~~May~~When ~~23,~~used ~~2013,~~in ~~the~~this ~~Borrowers~~Form ~~entered~~10-Q ~~into~~of aFrederick’s ~~Second~~of ~~Amendment to~~Hollywood ~~its~~Group ~~Credit~~Inc. ~~Agreement~~(the ~~with~~“Company,” ~~Salus~~“we,” (“~~Second~~us,” ~~Amendment~~“our” or “Frederick’s”). ~~The~~and ~~Second~~in ~~Amendment~~our ~~provides~~future ~~for~~filings anwith ~~increase~~the inSecurities and Exchange Commission (“SEC”), the ~~Borrowers’ ability~~words toor ~~borrow~~phrases ~~under~~“will ~~its~~likely ~~$24~~result,~~000~~” “management expects” or “we expect,~~000~~” ~~credit~~“will ~~facility~~continue,” ~~with~~“is ~~Salus~~anticipated,” by“estimated” ~~increasing~~or similar expressions are intended to identify “forward-looking statements” within the ~~amount~~meaning of the ~~FILO~~Private ~~Advance~~Securities ~~from~~Litigation ~~$9,000,000~~ Reform Act of 1995. Readers are cautioned not to ~~$14~~place undue reliance on any such forward-looking statements,~~000,000~~ each of which speaks only as of the date made. We have no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

~~Concurrently~~ ~~with~~Such ~~the~~statements ~~execution~~are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. These risks are included in “Item 1: Business,” “Item 1A: Risk Factors” and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the ~~Second~~year ~~Amendment~~ended July 27, ~~the Borrowers~~2013. In ~~paid~~assessing forward-looking statements contained herein, readers are urged to ~~Salus~~carefully inread ~~cash~~those ~~(i)~~statements. Among the ~~outstanding~~factors ~~balance~~that could cause actual results to differ materially are: competition; business conditions and industry growth; rapidly changing consumer preferences and trends; general economic conditions; working capital needs; continued compliance with government regulations; loss of ~~interest~~key ~~under~~personnel; ~~the~~labor ~~FILO~~practices; ~~Advance~~product indevelopment; ~~the~~management ~~amount~~of growth; increases of ~~$226,000~~costs of operations or inability to meet efficiency or cost reduction objectives; timing of orders and ~~(ii) a~~deliveries ~~one-time~~of ~~fee~~products; risks of ~~$50,000~~doing inbusiness ~~consideration~~abroad; ~~for~~and ~~Salus’s~~our ~~agreement~~ability to ~~enter~~protect ~~into~~our ~~the~~intellectual ~~Second Amendment~~property.

15Our History

~~ITEM~~ 2We are a New York corporation incorporated on April 10, 1935. On ~~MANAGEMENT~~January 28, 2008, we consummated a merger with FOH Holdings, Inc., a privately-held Delaware corporation (“FOH Holdings”), whereby FOH Holdings became our wholly-owned subsidiary. FOH Holdings is the parent company of Frederick’Ss ~~DISCUSSION~~of ~~AND~~Hollywood, ~~ANALYSIS~~Inc. Upon OFconsummation ~~FINANCIAL~~of ~~CONDITION~~the ~~AND~~merger, ~~RESULTS~~we OFchanged ~~OPERATIONS~~our name from Movie Star, Inc. to Frederick’s of Hollywood Group Inc.

~~Forward-Looking~~Our ~~Statements~~Business

~~When~~ ~~used in this Form 10-Q of~~ Frederick’s of Hollywood Group Inc., ~~(the~~through ~~“Company,”~~its ~~“we~~subsidiaries,” ~~“us,”~~sells ~~“our” or “Frederick~~women’s~~”) and~~ inapparel ~~our future filings with the Securities~~ and ~~Exchange~~related ~~Commission~~products ~~(“SEC”),~~under ~~the~~its ~~words~~proprietary Frederick’s orof ~~phrases~~Hollywood® ~~“will~~brand ~~likely result,”~~predominantly ~~“management~~through ~~expects”~~its orU.S. ~~“we~~mall-based ~~expect,”~~specialty ~~“will~~retail ~~continue~~stores,” ~~“is~~which ~~anticipated,” “estimated” or similar expressions~~ are ~~intended~~referred to ~~identify~~as “~~forward-looking statements~~Stores,” ~~within~~and ~~the~~through ~~meaning of~~its ~~the~~catalog ~~Private~~and ~~Securities~~website ~~Litigation~~at ~~Reform Act of 1995~~www.fredericks.com, ~~Readers~~which are ~~cautioned~~referred ~~not~~ to ~~place~~collectively ~~undue reliance on any such forward-looking statements, each of which speaks only~~ as ~~of the date made~~“Direct.” As Weof ~~have~~October no26, ~~obligation~~2013, towe ~~publicly~~operated ~~release~~112 ~~the~~Frederick’s ~~result~~ of ~~any~~Hollywood ~~revisions which~~stores ~~may~~in be28 ~~made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements~~states.

~~Such~~ ~~statements~~We ~~are~~also ~~subject~~have toa ~~certain risks~~license ~~and~~agreement ~~uncertainties~~with ~~that~~a ~~could~~subsidiary ~~cause~~of ~~actual~~Emirates ~~results~~Associated toBusiness ~~differ~~Group ~~materially from historical earnings and those presently anticipated or projected. These risks are included in~~ (“~~Item~~EABG”), 1:which ~~Business,”~~provides ~~“Item~~for ~~1A:~~EABG ~~Risk~~to ~~Factors”~~build and ~~“Item~~operate ~~7: Management~~Frederick’s ~~Discussion~~of ~~and~~Hollywood ~~Analysis~~retail ofstores ~~Financial~~in ~~Condition~~the ~~and~~Middle ~~Results~~East. As of ~~Operations”~~October of26, ~~our~~2013, ~~Form~~EABG ~~10-K~~had ~~for~~opened ~~the~~three ~~year ended~~stores ~~July~~in ~~28,~~the ~~2012~~region. In ~~assessing forward-looking statements contained herein~~addition, ~~readers~~we ~~are~~have ~~urged~~selectively tolicensed ~~carefully read those statements. Among~~ the ~~factors~~right ~~that could cause actual results~~ to ~~differ~~use ~~materially~~the ~~are:~~Frederick’s ~~competition;~~of ~~business~~Hollywood® ~~conditions~~brand and ~~industry~~logo ~~growth; rapidly~~on ~~changing~~specified ~~consumer~~categories ~~preferences and trends; general economic conditions; working capital needs; continued compliance with government regulations; loss~~ of ~~key~~products ~~personnel;~~manufactured ~~labor~~and ~~practices;~~sold ~~product~~by ~~development;~~other ~~management~~companies. Our oflicensed ~~growth;~~merchandise ~~increases~~categories ofcurrently ~~costs~~include ~~of operations~~Halloween orcostumes ~~inability~~and toaccessories, ~~meet efficiency or cost reduction objectives; timing of orders~~ and ~~deliveries~~we ofdo ~~products;~~not ~~risks~~expect ~~of doing~~to ~~business~~renew ~~abroad;~~the ~~and~~accessories ~~our~~license ~~ability~~upon toits ~~protect~~expiration ~~our~~in ~~intellectual~~December ~~property~~2013.

~~Our~~Critical ~~History~~Accounting Policies and Estimates

We ~~are~~The apreparation ~~New~~of ~~York~~financial ~~corporation~~statements ~~incorporated on~~in ~~April~~conformity ~~10,~~with ~~1935.~~accounting Onprinciples ~~January~~generally ~~28,~~accepted ~~2008,~~in wethe ~~consummated~~United aStates ~~merger~~of ~~with~~America ~~FOH~~requires ~~Holdings,~~the ~~Inc.,~~appropriate aapplication ~~privately-held~~of ~~Delaware~~certain ~~corporation (“FOH~~accounting ~~Holdings”)~~policies, ~~whereby~~many ~~FOH~~of ~~Holdings~~which ~~became~~require ~~our~~estimates ~~wholly-owned~~and ~~subsidiary.~~assumptions ~~FOH~~about ~~Holdings~~future isevents ~~the~~and ~~parent~~their ~~company~~impact ofon ~~Frederick’s of~~amounts ~~Hollywood,~~reported ~~Inc~~in the financial statements and related notes. Since ~~Upon~~future ~~consummation~~events ofand ~~the~~their ~~merger~~impact cannot be determined with certainty, wethe ~~changed~~actual ~~our~~results ~~name~~will ~~from~~inevitably ~~Movie~~differ ~~Star,~~from ~~Inc~~our estimates. Such todifferences ~~Frederick’s~~could ofbe ~~Hollywood Group~~material ~~Inc~~to the financial statements.

~~Our Business~~15

~~Frederick’s~~ ofManagement ~~Hollywood~~believes ~~Group~~that ~~Inc., through~~the ~~its~~application ~~subsidiaries,~~of ~~sells~~accounting ~~women’s~~policies, ~~apparel~~ and ~~related~~the ~~products~~estimates ~~under~~inherently ~~its~~required ~~proprietary~~by ~~Frederick’s~~the ofpolicies, ~~Hollywood® brand~~are ~~predominantly~~reasonable. These ~~through~~accounting ~~its~~policies ~~U.S.~~and ~~mall-based~~estimates ~~specialty~~are ~~retail~~constantly ~~stores~~re-evaluated, ~~which~~and adjustments are ~~referred~~made towhen asfacts ~~“Stores,”~~ and ~~through~~circumstances ~~its~~dictate ~~catalog~~a ~~and website at www~~change.~~fredericks.com~~ Historically, ~~which~~management ~~are~~has ~~referred~~found tothe ~~collectively~~application asof ~~“Direct.” As~~accounting ofpolicies ~~April~~to ~~27,~~be ~~2013~~appropriate, weand ~~operated~~actual ~~112~~results ~~Frederick’s~~generally ofdo ~~Hollywood~~not ~~stores~~differ inmaterially 28from ~~states~~those determined using necessary estimates.

We ~~also~~Our ~~have~~accounting apolicies ~~license~~are ~~agreement~~more ~~with~~fully ~~a subsidiary~~described ofin ~~Emirates~~Note ~~Associated~~2 ~~Business Group (“EABG”), which provides for EABG~~ to ~~build and operate Frederick’s of Hollywood retail stores in~~ the ~~Middle~~consolidated ~~East.~~unaudited Asfinancial ofstatements ~~April~~appearing ~~27,~~earlier ~~2013, EABG had opened three stores~~ in ~~the~~this ~~region~~report. InManagement ~~addition,~~has ~~we have~~identified ~~selectively~~certain ~~licensed~~critical ~~the~~accounting ~~right~~policies tothat ~~use~~are ~~the~~described ~~Frederick’s of Hollywood® brand and logo on specified categories of products manufactured and sold by other companies~~below. ~~Our licensed merchandise categories currently include Halloween costumes, jewelry and accessories.~~

~~Critical~~ ~~Accounting~~Our ~~Policies~~most significant areas of estimation and ~~Estimates~~assumption are:

~~The~~· ~~preparation~~determination of ~~financial~~the ~~statements in~~appropriate ~~conformity~~amount ~~with~~and ~~accounting~~timing ~~principles~~of ~~generally~~markdowns ~~accepted~~to inclear ~~the~~unproductive ~~United~~or ~~States~~slow-moving inventory and overall inventory obsolescence; · estimation of ~~America~~future ~~requires~~cash flows used to assess the ~~appropriate~~recoverability ~~application~~ of ~~certain~~long-lived ~~accounting policies~~assets, ~~many~~including trademarks; · estimation of ~~which~~expected ~~require~~customer ~~estimates~~merchandise ~~and~~returns; ~~assumptions~~· ~~about~~estimation ~~future~~of ~~events~~the ~~and~~net ~~their~~deferred ~~impact~~income ontax ~~amounts reported~~asset invaluation ~~the~~allowance; ~~financial~~· ~~statements~~estimation ~~and~~of ~~related~~gift ~~notes.~~card ~~Since~~breakage; ~~future~~· ~~events~~estimation ~~and~~of ~~their~~our ~~impact~~warrant ~~cannot~~liability; beand ~~determined~~· ~~with~~capitalization ~~certainty, the~~of ~~actual~~deferred ~~results~~catalog ~~will~~costs ~~inevitably~~and ~~differ~~the ~~from~~estimated ~~our~~amount ~~estimates.~~of ~~Such~~future ~~differences~~benefit ~~could~~to be ~~material~~derived tofrom the ~~financial statements~~catalogs.

16Revenue Recognition – We record revenue for Stores at the point at which the customer receives and pays for the merchandise at the register. For Direct sales, goods are shipped to the customer when payment is made and we record the revenue at the time that we estimate the customer receives the merchandise. We estimate and defer revenue and the related product costs for shipments that are in transit to the customer. Customers typically receive goods within a few days of shipment. Outbound shipping charges billed to customers are included in net sales. We record an allowance for estimated returns from our customers in the period of sale based on prior experience. At October 26, 2013 and July 27, 2013, the allowance for estimated returns was $691,000 and $559,000, respectively. If actual returns are greater than expected, additional sales returns may be recorded in the future. Historically, management has found its return reserve to be appropriate, and actual results generally do not differ materially from those determined using necessary estimates. Sales are recorded net of sales taxes collected from customers at the time of the transaction.

~~Management~~Merchandise ~~believes~~Inventories ~~that~~– Stores inventories are valued at the ~~application~~ lower of ~~accounting~~cost ~~policies,~~or ~~and~~market using the ~~estimates~~retail ~~inherently~~inventory ~~required~~first-in, byfirst-out ~~the~~(“FIFO”) ~~policies~~method, and Direct inventories are ~~reasonable.~~valued ~~These~~at ~~accounting~~the ~~policies~~lower ~~and~~of ~~estimates are~~cost ~~constantly~~or ~~re-evaluated~~market, ~~and~~on ~~adjustments~~an ~~are~~average ~~made~~cost ~~when~~basis ~~facts~~that ~~and~~approximates ~~circumstances~~the ~~dictate~~FIFO ~~a change~~method. Stores ~~Historically,~~and ~~management~~Direct ~~has found~~inventories ~~the~~consist ~~application~~entirely of ~~accounting~~finished ~~policies~~goods. Freight tocosts beare ~~appropriate,~~included ~~and~~in ~~actual~~inventory ~~results~~and ~~generally~~vendor doallowances ~~not~~are ~~differ~~recorded ~~materially~~as ~~from~~a ~~those determined~~reduction ~~using~~in ~~necessary~~inventory ~~estimates~~cost.

~~Our~~These ~~accounting~~inventory ~~policies~~methods inherently require management judgments and estimates, such as the amount and timing of permanent markdowns to clear unproductive or slow-moving inventory, which may impact the ending inventory valuations and gross margins. Markdowns are ~~more~~recorded ~~fully~~when ~~described~~ the sales value of the inventory has diminished. Factors considered in ~~Note~~the 2determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise, and fashion trends. We reserve for the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, market conditions, and the age of the inventory. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Markdown allowances received from vendors are reflected as reductions to cost of sales in the ~~consolidated~~period ~~unaudited~~they ~~financial~~are ~~statements~~received ~~appearing~~if ~~elsewhere~~these allowances are received after goods have been sold or marked down. When markdown allowances are received prior to the sale or markdown, the allowance will be recognized as a reduction in ~~this~~the ~~report~~cost basis of the inventory. Markdown ~~Management~~allowances received from vendors and recorded as a reduction of the cost basis of the inventory were $210,000 as of October 27, 2012. There were no markdown allowances received from vendors and recorded as a reduction in the cost basis of inventory as of October 26, 2013. Historically, management has ~~identified~~found ~~certain critical~~its ~~accounting~~inventory ~~policies~~reserves ~~that~~to ~~are~~be ~~described~~appropriate, ~~below~~and actual results generally do not differ materially from those determined using necessary estimates. Inventory reserves were $1,086,000 at October 26, 2013 and $939,000 at July 27, 2013.

~~Our most significant areas of estimation and assumption are:~~16

·Deferred ~~determination~~Catalog Costs – Deferred catalog costs represent direct-response advertising that is capitalized and amortized over its expected period of future benefit. The capitalized costs of the ~~appropriate~~advertising ~~amount~~are ~~and~~amortized ~~timing~~over the expected revenue stream following the mailing of ~~markdowns~~the respective catalog, which is generally less than three months. The realizability of the deferred catalog costs are also evaluated as of each balance sheet date by comparing the capitalized costs for each catalog, on a catalog by catalog basis, to ~~clear~~the ~~unproductive~~probable orremaining ~~slow~~future gross profit of the related revenue. Direct-~~moving~~response advertising ~~retail~~costs ~~inventory~~of $59,000 and ~~overall~~$370,000 ~~inventory~~are ~~obsolescence;~~included in prepaid expenses and other current assets in the accompanying consolidated balance sheets at October 26, 2013 and July 27, 2013, respectively. Management believes that they have appropriately determined the expected period of future benefit as of the date of our consolidated financial statements. However, should actual sales results differ from expected sales, deferred catalog costs may be written off on an accelerated basis. Direct-response advertising expense for the three months ended October 26, 2013 and October 27, 2012 was $553,000 and $874,000, respectively.

·Property ~~estimation~~and ofEquipment ~~future~~– ~~cash~~Property ~~flows~~and ~~used~~equipment are stated at cost, less accumulated depreciation. The Company’s policy is to ~~assess~~capitalize expenditures that materially increase asset lives and expense ordinary repairs and maintenance as incurred. Depreciation is provided for on the ~~recoverability~~straight-line method over the estimated useful lives of ~~long-lived~~the assets, ~~including~~which ~~trademarks;~~is generally three years for computer software, five years for computer equipment, three to seven years for furniture and equipment, and the shorter of the remaining lease term or the estimated useful life for leasehold improvements.

·Impairment ~~estimation~~of Long-Lived Assets – We review long-lived assets, including property and equipment and our amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of ~~expected~~an ~~customer~~asset ~~merchandise~~may ~~returns;~~not be recoverable based on undiscounted cash flows. If long-lived assets are impaired, an impairment loss is recognized and is measured as the amount by which the carrying value exceeds the estimated fair value of the assets.

·The estimation of ~~the~~future ~~net~~undiscounted ~~deferred~~cash ~~income~~flows ~~tax~~from ~~asset~~operating ~~valuation~~activities ~~allowance~~requires significant estimates of factors that include future sales growth and gross margin performance. Management believes they have appropriately estimated future cash flows and operating performance; however, should actual results differ from those expected, additional impairment may be required. No impairment was recorded for the three months ended October 26, 2013 and October 27, 2012.

·Abandonment ~~capitalization~~of leases – We recorded a charge of ~~deferred~~$259,000 ~~catalog~~related ~~costs~~to ~~and~~a portion of our Hollywood corporate office space that was vacated during the ~~estimated~~three ~~amount~~months ended October 27, 2012 and subleased to a third party. In addition, we recorded a charge of ~~future~~$262,000 ~~benefit~~related to bea ~~derived~~portion ~~from~~of our Phoenix facility that housed our customer contact center. The customer contact center was outsourced to a third party during the ~~catalogs~~three months ended October 27, 2012.

~~Revenue~~Intangible ~~Recognition~~Assets – We ~~record~~have ~~revenue~~certain ~~for~~indefinite ~~Stores at~~lived ~~the~~intangible ~~point~~assets, atprincipally ~~which~~ the ~~customer~~Frederick’s ~~receives~~of ~~and~~Hollywood ~~pays~~trade ~~for~~name ~~the~~and ~~merchandise~~domain ~~at the register~~names. ~~For~~Applicable ~~Direct~~accounting ~~sales,~~guidance ~~goods~~requires ~~are~~us ~~shipped~~not to ~~the~~ ~~customer~~amortize ~~when~~indefinite ~~payment~~life isintangible ~~made~~assets, ~~and~~but weto ~~record~~test ~~the~~those ~~revenue~~intangible atassets ~~the~~for ~~time~~impairment ~~the~~annually ~~customer~~and ~~receives~~between ~~the~~annual ~~merchandise.~~tests Wewhen ~~estimate~~circumstances ~~and defer~~or ~~revenue~~events ~~and~~have ~~the~~occurred ~~related~~that ~~product~~may ~~costs~~indicate ~~for~~a ~~shipments~~potential ~~that~~impairment ~~are~~has inoccurred. No ~~transit~~impairment towas ~~the~~present ~~customer.~~and ~~Customers~~no ~~typically~~write-down ~~receive~~was ~~goods within~~required awhen ~~few~~the ~~days~~trademarks ofwere ~~shipment.~~reviewed ~~Outbound~~for ~~shipping~~impairment ~~charges~~in ~~billed~~connection towith ~~customers~~the ~~are~~annual ~~included~~impairment intest. The ~~net~~fair ~~sales.~~value Weof ~~record~~the antrademarks ~~allowance for~~was ~~estimated~~determined ~~returns~~using the relief-from-royalty ~~our~~method. The ~~customers~~relief-from-royalty inmethod estimates the ~~period~~royalty ofexpense ~~sale~~that ~~based~~could onbe ~~prior~~avoided ~~experience.~~in Atthe ~~April~~operating ~~27, 2013~~business ~~and~~as ~~July~~a ~~28,~~result ~~2012,~~of owning the ~~allowance~~respective ~~for~~asset ~~estimated~~or ~~returns~~technology. The ~~was~~royalty ~~$565~~savings are measured,~~000~~ tax-effected and, ~~$665~~thereafter,~~000,~~ ~~respectively. If~~converted ~~actual~~to ~~returns~~present ~~are~~value ~~greater~~with ~~than~~a ~~expected,~~discount ~~additional~~rate ~~sales~~that ~~returns~~considers ~~may~~the berisk ~~recorded~~associated inwith owning the ~~future~~intangible asset. No ~~Historically, management~~impairment ~~has~~was ~~found~~recorded ~~its~~for ~~return~~the ~~reserve~~three tomonths beended ~~appropriate~~October 26, 2013 and ~~actual~~October ~~results~~27, ~~generally~~2012 dorelated ~~not~~to ~~differ~~these ~~materially~~intangible ~~from those determined using necessary estimates~~assets.

~~Merchandise~~Income ~~Inventories~~Taxes – ~~Stores inventories~~Income taxes are ~~valued~~accounted atfor ~~the~~under ~~lower~~an ofasset ~~cost~~and orliability ~~market~~approach ~~using~~that requires the ~~retail~~recognition ~~inventory~~of ~~first-in,~~deferred ~~first-out~~income ~~(“FIFO”)~~tax ~~method,~~ assets and ~~Direct~~liabilities ~~inventories~~for ~~are~~the ~~valued~~expected atfuture ~~the~~consequences ~~lower~~ of ~~cost~~events orthat ~~market,~~have onbeen anrecognized ~~average~~in ~~cost~~our ~~basis~~financial ~~that~~statements ~~approximates~~and ~~the~~income ~~FIFO~~tax ~~method~~returns. We ~~Stores and~~provide ~~Direct~~a ~~inventories~~valuation ~~consist~~allowance ~~entirely~~for ofdeferred ~~finished~~income ~~goods.~~tax ~~Freight~~assets ~~costs~~when ~~are~~it ~~included~~is inconsidered ~~inventory~~more ~~and~~likely ~~vendor~~than ~~promotional~~not ~~allowances are~~that ~~recorded~~all asor a ~~reduction~~portion inof ~~inventory~~such ~~cost~~deferred income tax assets will not be realized.

These inventory methods inherently require management judgments and estimates, such as the amount and timing of permanent markdowns to clear unproductive or slow-moving inventory, which may impact the ending inventory valuations and gross margins. Markdowns are recorded when the sales value of the inventory has diminished. Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise, and fashion trends. The Company reserves for the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, market conditions, and the age of the inventory. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Markdown allowances received from vendors are reflected as reductions to cost of sales in the period they are received if these allowances are received after goods have been sold or marked down. When a markdown allowance is received prior to the sale or markdown, the allowance will be recognized as a reduction in the cost basis of the inventory. As of April 27, 2013, markdown allowances received from vendors and recorded as a reduction of the cost basis of the inventory were $1,474,000. There were no markdown allowances received from vendors that were recorded as a reduction of the cost basis of the inventory as of April 28, 2012. Historically, management has found its inventory reserves to be appropriate, and actual results generally do not differ materially from those determined using necessary estimates. Inventory reserves were $767,000 at April 27, 2013 and $628,000 at July 28, 2012. 17

17Supplemental Disclosure of Cash Flow Information – The Company had outstanding accounts payable and accrued expenses of $76,000 and $201,000 at October 26, 2013 and July 27, 2013, respectively, related to purchases of property and equipment. The Company had outstanding accounts payable and accrued expenses of $76,000 at October 26, 2013 related to deferred financing fees, which are classified as other assets on the consolidated balance sheets.

~~Deferred~~During ~~Catalog Costs – Deferred catalog costs represent direct-response advertising that is capitalized and amortized over its expected period of future benefit. The capitalized costs of~~ the ~~advertising are amortized over the expected revenue stream following the mailing of the respective catalog, which is generally less than~~ three months~~. The~~ ~~realizability~~ended ofOctober ~~the deferred catalog costs are also evaluated as of each balance sheet date by comparing the capitalized costs for each catalog~~26, ~~on a catalog by catalog basis~~2013, to the ~~probable remaining~~Company ~~future~~accrued ~~gross~~dividends ~~profit~~ of ~~the~~$115,000 ~~related~~on ~~revenue. Direct-response~~its ~~advertising~~Series ~~costs~~A ~~included~~Convertible inPreferred ~~prepaid expenses~~Stock and ~~other current assets in the accompanying consolidated balance sheets at April 27, 2013 and July 28, 2012 were~~ $~~218~~303,000 ~~and~~ ~~$564,000,~~on ~~respectively. We~~its ~~believe~~Series ~~that~~B weConvertible ~~have~~Preferred ~~appropriately determined the expected period of future benefit as of the date of our consolidated financial statements~~Stock. ~~However,~~ ~~should~~During ~~actual sales results differ from expected sales, deferred catalog costs may be written off on an accelerated basis. Direct-response advertising expense for~~ the three months ended ~~April~~ October 27, ~~2013 and April 28,~~ 2012 ~~was $786~~,~~000~~ ~~and $1,975,000, respectively. Direct-response advertising expense for~~ the ~~nine~~ ~~months~~Company ~~ended~~accrued ~~April~~dividends ~~27,~~of ~~2013 and April 28~~$116,000 ~~2012~~on ~~was~~its ~~$3,767,000~~Series ~~and~~A ~~$6,144,000,~~Convertible ~~respectively~~Preferred Stock.

~~Property~~Results and Equipment – Property and equipment are stated at cost, less accumulated depreciation. Our policy is to capitalize expenditures that materially increase asset lives and expense ordinary repairs and maintenance as incurred. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets, which is generally three years for computer software, five years for computer equipment, three to seven years for furniture and equipment, and the shorter of the remaining lease term or the estimated useful life for leasehold improvements.Operations

~~Impairment~~ ofManagement ~~Long-Lived~~considers ~~Assets~~certain ~~– We~~key ~~review~~indicators ~~long-lived~~when ~~assets,~~reviewing ~~including~~our ~~property~~results ~~and~~of ~~equipment~~operations, liquidity and ~~its~~capital ~~amortizable~~resources. One ~~intangible~~key ~~assets,~~operating ~~for~~metric ~~impairment~~is ~~whenever~~the ~~events or~~performance ~~changes~~of incomparable ~~circumstances~~store ~~indicate~~sales, ~~that~~which are the ~~carrying~~net ~~value~~merchandise sales of anstores ~~asset~~that ~~may~~have ~~not~~been beopen ~~recoverable~~at ~~based~~least onone ~~undiscounted~~complete ~~cash flows~~year. If Because ~~long-lived~~our ~~assets~~results ~~are~~of ~~impaired,~~operations anare ~~impairment~~subject ~~loss~~to isseasonal ~~recognized~~variations, ~~and~~retail issales ~~measured~~are asreviewed ~~the~~against ~~amount~~comparable bystore ~~which~~sales ~~the~~for ~~carrying value exceeds~~ the ~~estimated~~similar ~~fair~~period ~~value~~in of the ~~assets~~prior year. A ~~The~~material ~~estimation~~factor ofthat ~~future~~we ~~undiscounted~~consider ~~cash~~when ~~flows~~reviewing ~~from operating activities requires significant estimates of factors that include future~~ sales ~~growth~~is ~~and~~the gross ~~margin~~profit ~~performance~~percentage. We ~~believe~~also ~~that~~consider weour ~~have~~selling, ~~appropriately determined~~general ~~future~~and ~~cash~~administrative ~~flows~~expenses ~~and~~as ~~operating~~a ~~performance;~~key ~~however,~~indicator ~~should~~in ~~actual~~evaluating ~~results~~our ~~differ~~financial ~~from~~performance. Inventory ~~those~~and ~~expected,~~our ~~additional~~outstanding ~~impairment may~~borrowings beare ~~required.~~the ~~For~~main ~~the~~indicators ~~nine~~we ~~months~~consider ~~ended~~when ~~April~~we ~~27,~~review ~~2013,~~our weliquidity ~~recorded~~and ~~impairment~~capital ~~charges~~resources, ~~for~~particularly ~~property~~the size and ~~equipment~~age of ~~$1,295,000~~the inventory. ~~There~~ ~~were~~We noreview ~~impairment~~all ~~charges~~of ~~recorded~~our ~~for~~key indicators against the ~~three~~prior ~~months~~year ~~ended~~and ~~April~~our ~~27,~~operating ~~2013~~projections ~~and~~in ~~for~~order ~~the~~to ~~three~~evaluate ~~and~~our ~~nine~~operating ~~months~~performance ~~ended~~and ~~April 28,~~financial ~~2012~~condition.

~~Abandonment of~~ ~~Leases~~The –following Wetable ~~recorded~~sets aforth ~~charge~~each ~~for~~specified ~~the~~item ~~nine~~as ~~months~~a ~~ended~~dollar ~~April~~amount ~~27,~~and ~~2013~~as ~~of $259,000 related to~~ a ~~portion~~percentage of ~~our~~net ~~Hollywood corporate~~sales ~~office~~in ~~space~~each ~~that~~fiscal ~~was vacated during the nine months ended April 27~~period, ~~2013~~ and ~~subleased~~should tobe aread ~~third~~in ~~party. In~~conjunction ~~addition, we~~with ~~recorded a charge for~~ the ~~three~~consolidated ~~and~~unaudited ~~nine~~financial ~~months~~statements ~~ended~~included ~~April~~earlier ~~27,~~in ~~2013~~this ofreport ~~$45,000~~(in ~~and $496~~thousands,~~000~~ ~~respectively,~~except ~~related~~for ~~to our Phoenix facility that housed our customer contact center~~percentages, ~~Stores~~which ~~distribution,~~percentages ~~Direct~~may ~~fulfillment~~not ~~and~~add ~~data~~due ~~center. During the nine months ended April 27, 2013, the customer contact center, Stores distribution and the data center were outsourced~~ to ~~third parties, and Direct fulfillment was relocated to a smaller area within the same building.~~rounding):

Intangible Assets – We have certain indefinite lived intangible assets, principally the Frederick’s of Hollywood trade name and domain names. Our intangible assets are comprised of $18,090,000 attributable to our trademarks and $169,000 attributable to our domain names as of April 27, 2013 and July 28, 2012. Applicable accounting guidance requires us not to amortize indefinite life intangible assets, but to test those intangible assets for impairment annually and between annual tests when circumstances or events have occurred that may indicate a potential impairment has occurred. No impairment was present and no write-down was required when the trademarks were reviewed for impairment in connection with the annual impairment test. The fair value of the trademarks was determined using the relief-from-royalty method. The relief-from-royalty method estimates the royalty expense that could be avoided in the operating business as a result of owning the respective asset or technology. The royalty savings are measured, tax-effected and, thereafter, converted to present value with a discount rate that considers the risk associated with owning the intangible asset. No impairment was recorded for the three and nine months ended April 27, 2013 and April 28, 2012 related to these intangible assets.

	Three Months Ended
	October 26, 2013				October 27, 2012
Net sales	$	19,736	100.0	%	$	22,455	100.0	%
Cost of goods sold, buying and occupancy		15,504	78.6	%		16,389	73.0	%
Gross profit		4,232	21.4	%		6,066	27.0	%
Selling, general and administrative expenses		9,877	50.0	%		10,076	44.9	%
Loss on abandonment		-	-			521	2.3	%
Operating loss		(5,645)	(28.6)	%		(4,531)	(20.2)	%
Other expense
Interest expense, net		792	4.0	%		531	2.4	%
Fair value loss on warrant		814	4.1	%		-	-
Loss before income tax provision		(7,251)	(36.7)	%		(5,062)	(22.5)	%
Income tax provision		25	0.1	%		25	0.1	%
Net loss		(7,276)	(36.9)	%		(5,087)	(22.7)	%
Less: Preferred stock dividends		418	2.1	%		116	0.5	%
Net loss applicable to common shareholders	$	(7,694)	(39.0)	%	$	(5,203)	(23.2)	%

	18

~~Income~~Net Taxes – Income taxes are accounted for under an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected future consequences of events that have been recognized in our financial statements and income tax returns. We provide a valuation allowance for deferred income tax assets when it is considered more likely than not that all or a portion of such deferred income tax assets will not be realized.Sales

~~Supplemental~~ ~~Disclosure~~Net ofsales ~~Cash~~for ~~Flow~~the ~~Information –~~three Wemonths ~~had~~ended ~~outstanding~~October ~~accounts payable and accrued expenses of $5~~26,~~000~~ ~~and $29,000 at April 27,~~ 2013 and ~~July~~October 2827, 2012, ~~respectively, related~~were ~~to purchases of property and equipment. We had outstanding accounts payable and accrued expenses of $233,000 at April 27, 2013 related to deferred financing fees, which are classified~~ as ~~other~~follows ~~assets~~(in ~~on the consolidated balance sheets.~~ thousands):

During the three and nine months ended April 27, 2013, we accrued dividends of $121,000 and $355,000 on our Series A Convertible Preferred Stock (“Series A Preferred Stock”) and $147,000 for three and nine months ended April 27, 2013 on our Series B Convertible Preferred Stock (“Series B Preferred Stock”).

	Three Months Ended
	October 26,		October 27,		Increase/
	2013		2012		(Decrease)
Stores	$	12,860	$	15,159	$	(2,299)
Direct (e-commerce and catalog)		6,499		6,493		6
Licensing revenue		8		5		3
Other revenue		369		798		(429)
Total net sales	$	19,736	$	22,455	$	(2,719)

~~Recently~~ ~~Issued~~Total ~~Accounting~~store ~~Updates~~sales –for ~~In February 2013,~~ the ~~Financial~~three ~~Accounting~~months ~~Standards~~ended ~~Board~~October ~~(“FASB”)~~26, ~~issued~~2013 ~~Accounting~~decreased ~~Standards~~by ~~Update~~$2,299,000, ~~(“ASU”)~~or No15. ~~2013-02~~2%, ~~Comprehensive~~as ~~Income~~compared ~~(Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU No. 2013-02”). ASU No. 2013-02 requires an entity~~ to ~~report~~ the ~~effect~~three ofmonths ~~significant~~ended ~~reclassifications~~October ~~out~~27, ~~of accumulated~~2012. Comparable ~~other~~store ~~comprehensive~~sales ~~income~~for on the ~~respective~~three ~~line~~months ~~items~~ended inOctober ~~net~~26, ~~income~~2013 ifdecreased ~~the~~by ~~amount~~$1,664,000, ~~being~~or ~~reclassified is required to be reclassified in its entirety to net income~~11.7%, ~~For~~as ~~other~~compared ~~amounts that are not required~~ to bethe ~~reclassified~~three inmonths ~~their~~ended ~~entirety to~~October ~~net income in the same reporting period~~27, ~~an entity is required to cross-reference other disclosures that provide additional detail about those amounts~~2012. Direct ~~The~~sales ~~amendments~~for ~~do not change~~ the ~~current~~three ~~requirements~~months ~~for~~ended ~~reporting~~October ~~net income or other comprehensive income in financial statements. For public entities~~26, ~~the amendments in ASU No.~~ 2013~~-02~~ ~~were~~increased ~~effective~~by ~~prospectively~~$6,000 ~~for~~as ~~interim and~~compared ~~annual~~to ~~reporting~~the ~~periods~~three ~~beginning~~months ~~after~~ended ~~December~~October 1527, 2012. The Wedecrease ~~adopted ASU No. 2013-02~~ in ~~the~~store ~~second~~sales ~~quarter~~was ofprimarily ~~fiscal~~due ~~year 2013. The adoption of ASU No. 2013-02 did not have an impact on our consolidated financial statements.~~to:

In July 2012, the Financial Accounting Standards Board issued Accounting Standards Update No. 2012-02, Intangibles – Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment (“ASU No. 2012-02”). ASU No. 2012-02 gives companies testing indefinite-lived intangible assets for impairment the option of performing · a ~~qualitative~~reduction ~~assessment before calculating the fair value of the indefinite-lived intangible asset~~ in ~~a quantitative impairment test. If companies determine, based on qualitative factors, that~~ the ~~fair~~number ~~value~~ of ~~the intangible~~stores ~~asset~~from is118 ~~more~~at ~~likely~~October ~~than not less than the carrying amount~~27, ~~the quantitative impairment test would be required. Otherwise, further testing would not be needed. ASU No.~~ 2012~~-02~~ isto ~~effective~~112 ~~for~~at ~~annual~~October ~~and interim impairment tests performed for fiscal years beginning after September 15~~26, 2012. Early adoption was permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012 if the financial statements for the most recent or interim period had not yet been issued. We adopted ASU No. 2012-02 in the fourth quarter of fiscal year 2012. The application of ASU 2012-02 did not have an impact on our consolidated financial statements.2013;

~~Results~~ · lower inventory levels in stores of ~~Operations~~core intimate apparel products (bras, lingerie and corsets), which resulted from late deliveries of products from our vendors due to slow payments; and

~~Management~~ · mailing ~~considers~~fewer ~~certain~~catalogs ~~key~~during ~~indicators when~~the ~~reviewing~~three ~~our~~months ~~results~~ended ofOctober ~~operations~~26, ~~liquidity~~2013 ~~and~~as ~~capital~~compared resources. One key operating metric is the performance of comparable store sales, which are the net merchandise sales of stores that have been open at least one complete year. Because our results of operations are subject to ~~seasonal variations, retail sales are reviewed against comparable store sales for~~ the ~~similar~~same period in the prior year. ~~A material factor that we consider when reviewing sales is the gross profit percentage. We also consider our selling, general and administrative expenses~~ as apart ~~key~~of ~~indicator in evaluating~~ our ~~financial~~efforts ~~performance.~~to ~~Inventory~~reduce ~~and~~costs ~~our outstanding borrowings are the main indicators we consider when we review our liquidity~~ and ~~capital~~allocate resources, ~~particularly~~to ~~the~~our ~~size~~digital ~~and~~marketing ~~age of the inventory~~initiatives. We ~~review~~are ~~all~~continuing ofto ~~our~~strategically ~~key~~review ~~indicators against the prior year and~~ our ~~operating~~marketing ~~projections~~strategy in order to ~~evaluate our~~find ~~operating~~ways ~~performance~~to ~~and~~drive ~~financial~~more ~~condition~~profitable sales.

19 Other revenue consists of shipping revenue, commissions earned on direct sell-through programs, breakage on gift cards, and product sales to our licensing partner in the Middle East. Other revenue for the three months ended October 26, 2013 decreased by $429,000, or 53.8%, as compared to three months ended October 27, 2012. This decrease is primarily attributable to a decrease in shipping revenue of $424,000 due to an increase in online promotional shipping offers to stimulate sales in a retail environment with competitors frequently offering free shipping.

~~The~~Gross following table sets forth each specified item as a dollar amount and as a percentage of net sales in each fiscal period, and should be read in conjunction with the consolidated unaudited financial statements included elsewhere in this report (in thousands, except for percentages, which percentages may not add due to rounding):Profit

	Three Months Ended										Nine Months Ended
	April 27, 2013					April 28, 2012					April 27, 2013					April 28, 2012
Net sales	$	23,293		100.0	%	$	30,181		100.0	%	$	70,036		100.0	%	$	91,064		100.0	%
Cost of goods sold, buying and occupancy		14,007		60.1	%		14,837		49.2	%		48,825		69.7	%		56,021		61.5	%
Gross profit		9,286		39.9	%		15,344		50.8	%		21,211		30.3	%		35,043		38.5	%
Selling, general and administrative expenses		10,082		43.3	%		11,568		38.3	%		33,860		48.3	%		36,251		39.8	%
Loss on abandonment		45		0.2	%		-		-			755		1.1	%		-		-
Impairment of long-lived assets		-		-			-		-			1,295		1.9	%		-		-
Operating (loss)/income		(841	)	(3.6	)%		3,776		12.5	%		(14,699	)	(21.0	)%		(1,208	)	(1.3	)%
Interest expense, net		(461	)	(2.0	)%		(447	)	(1.5	)%		(1,512	)	(2.2	)%		(1,299	)	(1.4	)%
Fair value gain on warrant		952		4.1	%		-		-			952		1.4	%		-		-
(Loss)/income before income tax provision		(350	)	(1.5	)%		3,329		11.0	%		(15,259	)	(21.8	)%		(2,507	)	(2.7	)%
Income tax provision		25		0.1	%		16		0.0	%		75		0.1	%		50		0.1	%
Net (loss)/income		(375	)	(1.6	)%		3,313		11.0	%		(15,334	)	(21.9	)%		(2,557	)	(2.8	)%
Less Preferred stock dividends		268		1.2	%		-		-			502		0.7	%		-		-
Net (loss)/income applicable to common Shareholders	$	(643	)	(2.8	)%	$	3,313		11.0	%	$	(15,836	)	(22.6	)%	$	(2,557	)	(2.8	)%

Gross margin (gross profit as a percentage of net sales) for the three months ended October 26, 2013 was 21.4% as compared to 27.0% for the three months ended October 27, 2012. This decrease was due to the following:

~~Net~~ · Product ~~Sales~~costs as a percentage of sales increased by 2.1 percentage points for the three months ended October 26, 2013 as compared to the three months ended October 27, 2012. This increase was due to a $279,000 decrease in vendor allowances during the three months ended October 26, 2013 as compared to the same period in the prior year and an increase in product and shipping promotional offers during the three months ended October 26, 2013.

~~Net~~ · All other costs included in cost of sales, including buying costs, store occupancy, store depreciation, freight and distribution costs, decreased by $293,000 for the three ~~and~~months ~~nine~~ended October 26, 2013 as compared to the three months ended ~~April~~October 27, ~~2013~~2012. This decrease was primarily attributable to lower occupancy and ~~April~~depreciation ~~28,~~costs ~~2012~~as a result of fewer stores and lower distribution costs as a result of the reduction in the size of our distribution center. These reductions were partially offset by an increase in the costs associated with our buying and merchandising departments. As a percentage of sales, these costs increased by 2.8 percentage points for the three months ended October 26, 2013 as ~~follows~~compared (to the same period in ~~thousands):~~the prior year. This percentage increase was due to lower sales during the three months ended October 26, 2013 as compared to the same period in the prior year.

	Three Months Ended							Nine Months Ended
	April 27, 2013		April 28, 2012		Increase/ (Decrease)			April 27, 2013		April 28, 2012		Increase/ (Decrease)
Stores	$	14,495	$	18,963	$	(4,468	)	$	45,107	$	57,184	$	(12,077	)
Direct (ecommerce & catalog)		7,966		9,562		(1,596	)		22,601		29,659		(7,058	)
Licensing revenue		28		28		-			35		53		(18	)
Other revenue		804		1,628		(824	)		2,293		4,168		(1,875	)
Total net sales	$	23,293	$	30,181	$	(6,888	)	$	70,036	$	91,064	$	(21,028	)

	19

~~Total~~ · Other ~~store~~revenue ~~sales for the three months ended April 27, 2013~~ decreased by $4429,~~468,~~000 ~~or 23.6%,~~ as ~~compared~~described ~~to the three months ended April 28~~above, ~~2012.~~which ~~Comparable~~had ~~store~~a ~~sales~~negative ~~for the~~impact ~~three~~on ~~months~~our ~~ended~~gross ~~April 27, 2013 decreased by $3,499,000 or 20~~margin.5%, as compared to the three months ended April 28, 2012. Total store sales for the nine months ended April 27, 2013 decreased by $12,077,000 or 21.1%, as compared to the nine months ended April 28, 2012. Comparable store sales for the nine months ended April 27, 2013 decreased by $8,992,000 or 17.7%, as compared to the nine months ended April 28, 2012. These decreases were primarily due to:

~~· lower consumer traffic at our stores~~Selling, ~~which~~General ~~is primarily attributable to lower promotional activity relating to core intimate apparel products (bras, lingerie~~ and ~~corsets)~~Administrative ~~during the nine months ended April 27, 2013 as compared to the same period in the prior year;~~Expenses

· aSelling, ~~reduction~~general inand administrative expenses for the ~~number~~three months ended October 26, 2013 decreased by $199,000 to $9,877,000, or 50% of ~~stores~~sales, from ~~117~~$10,076,000, ator ~~April~~44.9% 28of sales, ~~2012~~for tothe ~~112~~three atmonths ~~April~~ended October 27, ~~2013;~~2012. This decrease is primarily attributable to the following:

· Store ~~lower~~selling, ~~sales~~general ofand ~~core~~administrative ~~intimate~~expenses ~~apparel~~decreased ~~products~~by ~~(bras~~$400,000 ~~lingerie~~to ~~and corsets)~~$4,307,000 ~~which~~for isthe ~~primarily~~three ~~attributable~~months toended aOctober ~~reduction~~26, in2013 ~~inventory~~from ~~levels~~$4,707,000 for the same period in ~~these~~the ~~categories~~prior year. ~~Sales~~This ~~for~~decrease ~~these~~was ~~categories~~primarily ~~were~~due ~~also~~to ~~negatively~~having ~~impacted~~fewer bystores for the ~~late~~three ~~delivery~~months ofended ~~products~~October ~~from~~26, ~~our~~2013 ~~vendors~~as ~~due~~compared to ~~slower~~the ~~payments;~~same ~~and~~period in the prior year, partially offset by an increase in telephone expense.

20 · Brand marketing expenses decreased by $143,000 to $74,000 for the three months ended October 26, 2013 as compared to $217,000 for the same period in the prior year. The decrease was primarily due to a decrease in public promotional events and complimentary customer offerings.

· ~~the~~These ~~poor~~decreases ~~performance~~were ofpartially ~~our~~offset ~~expansion~~by into non-core product categories (dresses, sportswear and shoes) relating to our merchandising strategy to provide a fuller array of products across a broader assortment of merchandise and price points. This poor performance was primarily due to financial constraints, which limited our ability to successfully market the ~~new product categories.~~following:

~~Direct~~ · Expenses ~~sales~~related ~~for~~to ~~the~~corporate ~~three~~overhead ~~months~~increased ~~ended April~~by 27$132,000 ~~2013~~to ~~decreased by~~ $12,~~596~~563,000 orfor ~~16.7%, as compared to~~ the three months ended ~~April~~October 2826, ~~2012. Direct sales for the nine months ended April 27,~~ 2013 ~~decreased~~from by $72,~~058~~431,000 orfor ~~23.8%,~~the assame ~~compared~~period toin the ~~nine~~prior ~~months ended April 28, 2012~~year. This ~~These~~increase ~~decreases are~~was primarily ~~attributable~~due to ~~mailing~~an ~~fewer~~increase ~~catalogs during the three and nine months ended April 27, 2013 as compared to the same periods~~ in ~~the~~outside ~~prior~~consulting ~~year as part of our efforts to reduce catalog costs~~ and ~~reallocate~~computer ~~resources~~related ~~to our digital marketing initiatives~~costs, as ~~well~~partially asoffset aby ~~reduction~~lower insalary ~~the inventory levels of bras, lingerie~~ and ~~corsets,~~salary ~~and~~related ~~the late delivery of products from our vendors due to slower payments~~expenses.

~~Other~~ · Direct ~~revenue consists of shipping revenue~~selling, ~~commissions~~ ~~earned~~general ~~on direct sell-through programs, breakage on gift cards~~ and ~~product~~administrative ~~sales~~expenses toincreased ~~our licensing partner in the Middle East. Other revenue for the three months ended April 27, 2013 decreased~~ by $~~824~~212,000 ~~or 50.6%, as compared~~ to ~~the three months ended April 28~~$2,933,000 ~~2012. Other revenue~~ for the ~~nine~~three months ended ~~April~~October 2726, 2013 ~~decreased~~from by $12,~~875~~721,000 orfor ~~45.0%,~~the assame ~~compared~~period toin the ~~nine months~~prior ~~ended April 28, 2012~~year. This ~~decrease~~increase iswas primarily ~~attributable to a decrease in shipping revenue~~ due to an increase in ~~online promotional~~marketing ~~shipping~~expenses ~~offers~~related to ~~stimulate~~our ~~sales~~strategy ~~in a retail environment with competitors frequently offering free shipping, and lower Direct sales. In addition, we had $371,000 and $727,000 in product sales~~ to increase our ~~licensing~~digital ~~partner~~marketing ~~in the Middle East for the three and nine months ended April 28, 2012 and did not have similar product sales in the current year~~initiatives.

~~Gross~~Loss ~~Profit~~on Abandonment

~~Gross~~ ~~margin~~For ~~(gross~~the ~~profit~~three asmonths ended October 27, 2012, we recorded a ~~percentage~~ charge of ~~net~~$259,000 ~~sales)~~related ~~for~~to ~~the~~a ~~three~~portion ~~months~~of ~~ended~~our ~~April~~Hollywood ~~27,~~corporate ~~2013~~office ~~was~~space ~~39.9%~~that aswe ~~compared~~vacated during the period and subleased to 50a third party.8% In ~~for~~addition, ~~the~~we ~~three~~recorded ~~months~~a ~~ended~~charge ~~April~~of 28$262,000 ~~2012~~related to a portion of our Phoenix facility that housed our customer contact center. ~~This~~ ~~decrease~~The customer contact center was ~~due~~outsourced to a third party provider during the ~~following:~~three months ended October 27, 2012.

·Warrant Product costs as a percentage of sales increased by 7.1 percentage points for the three months ended April 27, 2013 as compared to the three months ended April 28, 2012. This increase was due to a decrease in vendor allowances of $2,104,000 during the three months ended April 27, 2013 as compared to the same period in the prior year.Liability

· ~~All~~The ~~other~~Company ~~costs~~estimates ~~included~~the invalue ~~cost~~ of ~~sales, including buying costs, store occupancy, store depreciation, freight and distribution center costs, decreased by $802,000 for~~ the ~~three~~warrant ~~months~~liability ~~ended~~at ~~April~~each ~~27,~~balance ~~2013~~sheet asdate ~~compared~~using to the ~~three~~binomial ~~months~~lattice ~~ended April 28, 2012~~model. ~~This~~The ~~decrease~~loss ~~was~~on ~~primarily attributable to lower occupancy and depreciation costs as a result of fewer stores, headcount reductions resulting from streamlining~~ the ~~buying~~warrant ~~and~~liability merchandising departments and lower freight costs due to lower sales in the three months ended April 27, 2013 as compared to the same period in the prior year. As a percentage of sales, these costs increased by 4.0 percentage points for the three months ended ~~April~~October 2726, 2013 ~~as compared to the same period in the prior year, which~~ was ~~due to lower sales~~$814,000.

·Interest ~~Other revenue decreased by $824~~Expense,~~000,~~ ~~as described above, which had a negative impact on our gross margin.~~Net

~~Gross~~ ~~margin~~For ~~(gross profit as a percentage of net sales) for~~ the ~~nine~~three months ended ~~April~~October 2726, 2013, net interest expense was ~~30.3%~~$792,000 as compared to ~~38.5%~~$531,000 for the ~~nine~~three months ended ~~April~~October 2827, 2012. This ~~decrease~~increase ~~was~~resulted ~~due~~primarily tofrom higher interest rates and higher overall borrowings under the ~~following:~~Salus Facility (described below under Liquidity and Capital Resources – Salus Credit and Security Agreement).

·Income ~~Product~~Tax costs as a percentage of sales increased by 4.2 percentage points for the nine months ended April 27, 2013 as compared to the nine months ended April 28, 2012. This increase was due to a decrease in vendor allowances of $1,668,000 during the nine months ended April 27, 2013 as compared to the same period in the prior year.Provision

· ~~All~~Our ~~other~~income ~~costs~~tax ~~included~~provision ~~in cost of sales, including buying costs, store occupancy, store depreciation, freight and distribution center costs, decreased by $2,794,000~~ for the ~~nine~~three months ended ~~April~~October 2726, 2013 asand ~~compared~~October ~~to the nine months ended April 28~~27, 2012. ~~This decrease was~~ primarily ~~attributable~~represents tominimum ~~lower occupancy~~ and ~~depreciation~~net ~~costs~~worth astaxes adue ~~result~~in ofvarious ~~fewer~~states. Due ~~stores,~~to ~~headcount reductions resulting from streamlining~~ the ~~buying~~uncertainty ~~and~~of ~~merchandising~~realization ~~departments~~in ~~and~~future ~~lower~~periods, ~~freight~~no ~~costs~~tax ~~due~~benefit tohas ~~lower~~been ~~sales~~recognized inon the ~~nine~~net ~~months~~losses ~~ended~~for ~~April~~these 27periods. Accordingly, ~~2013~~a asfull ~~compared~~valuation toallowance ~~the~~has ~~same~~been ~~period~~established inon the ~~prior~~current ~~year.~~loss Asand aall ~~percentage~~net ofdeferred ~~sales,~~tax ~~these~~assets ~~costs~~existing ~~increased~~at bythe ~~4.0~~end ~~percentage~~of ~~points for~~ the ~~nine months ended April 27~~period, ~~2013~~excluding ~~as compared to~~ the ~~same~~deferred ~~period~~tax inliability ~~the~~related ~~prior~~to ~~year~~intangible assets, which ~~was~~have ~~due~~an toindefinite ~~lower sales~~life.

2120

·Liquidity ~~Other~~and ~~revenue~~Capital ~~decreased by $1,875,000, as described above, which had a negative impact on our gross margin.~~Resources

~~Selling,~~Cash ~~General~~Used ~~and~~in ~~Administrative Expenses~~Operations

~~Selling,~~ ~~general~~Cash ~~and~~used ~~administrative~~in ~~expenses~~ operating activities for the three months ended ~~April~~October 2726, 2013 ~~decreased~~was by $14,~~486~~491,000 ~~to $10~~,~~082,000,~~ orresulting ~~43.3%~~primarily ~~of sales,~~ from ~~$11,568,000, or 38.3% of sales, for~~ the ~~three months ended April 28, 2012. This decrease is primarily attributable to the~~ following:

· net ~~Expenses~~losses ~~related to corporate overhead decreased by $111,000 to $2,469,000~~ for ~~the~~ three months ended ~~April~~October 2726, 2013 ~~from $2,580,000 for the same period in the prior year. This decrease was primarily due to an overall decrease in expenses, partially offset by $203,000 in severance costs related to the termination~~ of ~~our past president and~~ $~~110~~7,~~000 in costs associated with outsourcing our customer contact center~~276, ~~Stores distribution and data center to third party service providers and relocating Direct fulfillment to a smaller area within the same building.~~000;

· a ~~Stores~~seasonal ~~selling,~~increase ~~general~~in ~~and~~inventory ~~administrative~~of ~~expenses decreased by~~ $~~789~~2,~~000 to $4~~098,~~406,~~000 for the three months ended April 27, 2013 from $5,195,000 for the same period in the prior year. This decrease was primarily due to having fewer stores for the three months ended April 27, 2013 as compared to the prior year.;

· an ~~Direct~~increase ~~selling,~~in ~~general~~credit ~~and~~card ~~administrative~~receivables ~~expenses~~of ~~decreased by~~ $~~569~~549,000 ~~to $3~~,~~167,000~~ ~~for~~which ~~the~~resulted ~~three months ended April 27, 2013~~ from ~~$3,736,000~~higher sales for the ~~same~~week ~~period~~preceding inOctober ~~the prior year. This decrease was primarily due to a $1~~26,~~197,000~~ ~~decrease~~2013 inas ~~catalog~~compared ~~and related expenses, partially offset by a $366,000 increase in other marketing expenses related~~ to ~~our~~the ~~strategy~~week topreceding ~~increase~~July ~~our digital marketing initiatives and a net increase of $151~~27,~~000~~ in2013; ~~third party service provider fees related to outsourcing our customer contact center.~~and

~~Selling,~~ · an ~~general~~increase ~~and~~in ~~administrative~~other ~~expenses for~~assets ~~the~~of ~~nine months ended April 27, 2013 decreased by~~ $2504,~~391,~~000 ~~to $33~~,~~860,000,~~ orwhich ~~48.3%~~resulted ~~of sales,~~ from ~~$36,251,000,~~an orincrease ~~39.8% of~~in ~~sales,~~our ~~for~~security ~~the~~deposit ~~nine~~requirement ~~months~~with ~~ended~~our ~~April~~credit ~~28,~~card ~~2012.~~processor ~~This~~as ~~decrease~~a isresult ~~primarily~~of ~~attributable~~our tofinancial ~~the following:~~condition.

·These ~~Expenses~~decreases ~~related to corporate overhead decreased by $79,000 to $8,235,000 for the nine months ended April 27, 2013 from $8,314,000 for the same period~~ in ~~the~~cash ~~prior~~flow ~~year.~~were ~~This decrease was primarily due to an overall decrease in expenses,~~ partially offset by ~~$203,000 in severance costs related to~~ the termination of our past president, $309,000 in costs associated with outsourcing our customer contact center, Stores distribution and data center to third party service providers and relocating Direct fulfillment to a smaller area within the same building, and an accrual for legal fees and related expenses in connection with the defense of class action lawsuits.following:

· an ~~Stores~~increase ~~selling,~~in ~~general~~accounts payable and ~~administrative~~other accrued expenses ~~decreased~~of by $14,~~679~~319,000 ~~to $14~~,~~420,000~~ ~~for~~which ~~the~~resulted ~~nine months ended April 27, 2013~~ from ~~$16,099,000~~slower ~~for~~payments ~~the same period in the prior year. This decrease was primarily due~~ to ~~having fewer stores for the nine months ended April 27, 2013 as compared to the prior year.~~vendors;

· a ~~Direct~~loss ~~selling,~~related ~~general and administrative expenses decreased by $679,000~~ to ~~$10,875,000~~a ~~for~~change ~~the nine months ended April 27, 2013 from $11,554,000 for the same period~~ in the ~~prior~~fair ~~year.~~value ~~This decrease was primarily due to a $2,515,000 decrease in catalog and related expenses and lower credit card fees~~ of ~~$192,000 resulting from lower sales. This decrease was partially offset by~~ a ~~$1,392,000~~warrant ~~increase~~recorded ~~in other marketing expenses related to our strategy to increase our digital marketing initiatives,~~ as ~~well as~~ a ~~net~~warrant ~~increase~~liability of $~~560~~814,000; ~~in third party service provider fees related to outsourcing our customer contact center.~~and

· non-cash ~~Brand marketing~~ expenses ~~increased~~of by $~~165~~296,000 ~~to $325,000~~ for ~~the~~depreciation ~~nine months ended April 27, 2013 as compared to $160,000 for the same period in the prior year. This increase was primarily due to an increase in public promotional events~~ and ~~complimentary customer offerings~~amortization.

22Cash Used in Investing Activities

~~Impairment~~ ofNet ~~Long-lived~~cash ~~Assets~~used in investing activities for the three months ended October 26, 2013 was $18,000.

WeCash ~~record~~Provided ~~impairment~~by ~~charges~~Financing whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted cash flows. We believe that we appropriately determined future cash flows and operating performance; however, should actual results differ from those expected, additional impairment may be required. For the nine months ended April 27, 2013, we recorded impairment charges for property and equipment of $1,295,000. There were no impairment charges recorded for the three months ended April 27, 2013 and for the three and nine months ended April 28, 2012. Activities

~~Loss on~~ ~~Abandonment~~Net cash provided by financing activities for the three months ended October 26, 2013 was $4,561,000, which resulted from proceeds of $5,000,000 from the increase in the FILO Advance under the Salus Facility, partially offset by net repayments under the Salus Facility of $311,000 and the payment of deferred financing costs of $128,000.

WeSalus ~~recorded~~Credit ~~a charge for the nine months ended April 27, 2013 of $259,000 related to a portion of our Hollywood corporate office space that was vacated during the nine months ended April 27, 2013~~ and ~~subleased~~Security to a third party. In addition, we recorded a charge for the three and nine months ended April 27, 2013 of $45,000 and $496,000, respectively, related to our Phoenix facility that housed our customer contact center, Stores distribution, Direct fulfillment and data center. During the nine months ended April 27, 2013, the customer contact center, Stores distribution and the data center were outsourced to third parties, and Direct fulfillment was relocated to a smaller area within the same building.Agreement

~~Interest~~ ~~Expense~~On May 31, ~~Net~~2012, we and our subsidiaries (collectively, the “Borrowers”) entered into a Credit and Security Agreement (“Credit Agreement”) with Salus Capital Partners, LLC (“Salus”), which originally provided the Borrowers with a $24,000,000 revolving line of credit through May 31, 2015 (the “Salus Facility”). On October 10, 2013, the Borrowers entered into a fourth amendment to the Credit Agreement to, among other things, increase the Salus Facility by $11,000,000 to $35,000,000. The fourth amendment is described in further detail below.

~~For~~ ~~the~~The ~~three~~Salus ~~and~~Facility ~~nine~~includes ~~months~~a ~~ended~~“first ~~April 27~~in last out” tranche, ~~2013~~or FILO Advance, ~~net~~which ~~interest~~consists ~~expense~~of ~~was~~the ~~$461,000~~first advances made under the Salus Facility and $1which will be the last amounts repaid. On May 23,~~512~~ 2013,~~000~~ asthe ~~compared~~Borrowers entered into a second amendment to the Credit Agreement to increase the principal balance of the FILO Advance from $~~447~~9,000,000 ~~and~~to $114,~~299~~000,000, ~~for~~which represents the ~~three~~“Tranche ~~and~~A-1 ~~nine~~Advance” ~~months ended~~of ~~April~~the ~~28,~~FILO ~~2012~~Advance. On ~~This~~October ~~increase~~10, ~~resulted~~2013, ~~primarily~~the ~~from~~Borrowers ~~higher~~entered ~~borrowings~~into ~~under~~a ~~the~~fourth ~~Salus~~amendment ~~Facility~~to ~~(described~~the ~~below~~Credit ~~under~~Agreement ~~Salus Credit~~to ~~and~~include ~~Security~~a ~~Agreement)~~“Tranche ~~and~~A-2 anAdvance” ~~overall~~of ~~higher~~the ~~interest~~FILO ~~rate~~Advance, onwhich ~~our~~is ~~borrowings~~described below.

~~Income Tax~~ ~~Provision~~The maximum amount of the FILO Advance and the total Salus Facility will be reduced by certain mandatory and voluntary prepayments. The Borrowers may periodically borrow, repay in whole or in part, and reborrow under the Salus Facility, except that amounts repaid on account of the FILO Advance may not be reborrowed. The actual amount of credit available under the Salus Facility is determined using measurements based on the Borrowers’ receivables, inventory, intellectual property and other measures.

~~Our~~ ~~income~~The ~~tax~~unpaid ~~provision~~principal ~~for~~of the ~~three~~Tranche ~~and nine~~A-1 ~~months~~Advance ~~ended~~bears ~~April 27~~interest, ~~2013~~payable ~~and~~monthly, ~~April~~in 28arrears, ~~2012~~at ~~primarily~~the ~~represents~~30-day ~~minimum~~LIBOR ~~and~~rate ~~net~~plus ~~worth~~11.5%, ~~taxes~~but ~~due~~not inless ~~various~~than ~~states~~12.0% ~~Due to~~regardless of fluctuations in the ~~uncertainty~~LIBOR ofrate ~~realization~~(12.0% inat ~~future~~October ~~periods~~26, no2013). ~~tax~~Up ~~benefit~~to ~~has~~2.5% ~~been~~of ~~recognized~~the interest payable on the ~~net~~Tranche ~~losses~~A-1 ~~for~~Advance ~~these~~will ~~periods.~~be ~~Accordingly~~capitalized, a ~~full~~compounded ~~valuation~~and ~~allowance~~added ~~has~~to ~~been~~the ~~established~~unpaid onamount of the ~~current~~obligations ~~loss~~each ~~and~~month, ~~all~~will ~~net~~accrue ~~deferred~~interest ~~tax~~at ~~assets~~the ~~existing~~rate atapplicable to the ~~end~~Tranche ofA-1 Advance and will be due and payable in cash upon the ~~period,~~ ~~excluding~~expiration or other termination of the ~~deferred~~Salus ~~tax~~Facility. ~~liability~~At ~~related~~October to26, ~~intangible~~2013, ~~assets~~$14,158,000 ~~which~~was ~~have~~outstanding anunder ~~indefinite~~the ~~life~~Tranche A-1 Advance.

~~Liquidity and Capital Resources~~21

~~Cash~~ ~~Used~~The unpaid principal of advances other than the FILO Advance bears interest, payable monthly, in ~~Operations~~arrears, at the Prime rate plus 4.0%, but not less than 7.0%, regardless of fluctuations in the Prime rate (7.25% at October 26, 2013). On July 25, 2013, the Borrowers entered into a third amendment to the Credit Agreement to remove the minimum excess availability requirement until October 31, 2013. The third amendment also provided that through October 31, 2013, the initial $1,500,000 of the outstanding balance of advances other than the FILO Advance would bear interest at 20.0% per annum, and thereafter at no less than 7.0% per annum. As described below, on October 10, 2013, the Borrowers entered into a fourth amendment to the Credit Agreement which, among other things, reinstated the $1,500,000 minimum excess availability requirement effective October 10, 2013. At October 26, 2013, $5,767,000 of advances other than the FILO Advance was outstanding.

~~Net~~ ~~cash~~The ~~used~~obligations inof ~~operating activities for~~ the ~~nine~~Borrowers ~~months~~under ~~ended~~the ~~April~~Credit ~~27,~~Agreement ~~2013~~are ~~was~~secured ~~$7,246,000,~~by ~~resulting~~first ~~primarily~~priority ~~from~~security ~~net~~interests ~~losses~~in ~~for~~all of the ~~nine~~Borrowers’ ~~months~~tangible ~~ended~~and ~~April~~intangible 27property, ~~2013 of~~including ~~$15,334,000,~~intellectual ~~which~~property ~~includes~~such aas ~~gain~~trademarks ~~related~~and tocopyrights, aas ~~change~~well ~~in the fair value of a warrant recorded~~ as ashares ~~warrant~~and ~~liability~~membership interests of ~~$952,000, partially~~our ~~offset by the following:~~subsidiaries.

· aIn ~~decrease~~connection inwith ~~inventory~~the closing of the Salus Facility, the Borrowers paid Salus an origination fee of $1465,~~896,~~000, 50% of which ~~primarily~~was ~~resulted~~paid ~~from~~at ~~vendor~~the ~~allowances~~closing and 50% of which was paid on the first anniversary of the closing. The Credit Agreement also provides for ~~unsold~~certain ~~inventory~~customary fees to be paid to Salus, including: (i) a monthly fee on the unused portion of the Salus Facility; (ii) a monthly collateral monitoring fee; and (iii) an annual FILO facility fee based on the then-outstanding FILO Advance.

· anThe ~~increase~~Credit Agreement and other loan documents contain customary representations and warranties, affirmative and negative covenants and events of default, including covenants that restrict the Borrowers’ ability to create certain liens, make certain types of borrowings and investments, liquidate or dissolve, engage in ~~accounts~~mergers, ~~payable~~consolidations, significant asset sales and ~~other~~affiliate ~~accrued~~transactions, ~~expenses~~incur certain lease obligations, pay cash dividends, redeem or repurchase outstanding equity and issue capital stock. In lieu of financial covenants, fixed charge coverage and overall debt ratios, the Salus Facility has a $21,~~964~~500,000 minimum availability reserve requirement, which ~~resulted~~was ~~from~~waived ~~slower~~effective ~~payments~~July to25, ~~vendors;~~2013 and reinstated effective October 10, 2013. At October 26, 2013, the Borrowers were in compliance with the Salus Facility’s affirmative and restrictive covenants and minimum availability reserve requirement.

· On October 10, 2013, the Borrowers entered into a ~~non-cash~~fourth ~~impairment~~amendment ofto ~~long~~the Credit Agreement to, among other things, increase the Salus Facility by $11,000,000 to $35,000,000. The $11,000,000 represents the Tranche A-~~lived~~2 ~~assets~~Advance of the FILO Advance, with $15,~~295~~000,000 having been advanced on October 10, ~~which~~2013 ~~was~~and ~~due~~the remaining $6,000,000 to ~~the~~be ~~impairment~~advanced ofupon the ~~property~~consummation ~~and~~of ~~equipment~~a ~~related~~proposed merger to ~~nine~~be effected as part of a going private transaction that, if consummated, will result in our ~~underperforming~~becoming ~~stores;~~wholly owned by the Consortium Members (see Note 9 – Going Private Proposal). The $5,000,000 advance is to be repaid on April 10, 2014 if the merger is not consummated by that date, or on May 31, 2015 if the merger is consummated on or before April 10, 2014. The $6,000,000 advance, if made, plus any additional amount that Salus may elect to advance in its sole discretion, is to be repaid on May 31, 2015.

· ~~non~~The unpaid principal of the Tranche A-2 Advance bears interest, payable monthly, in arrears, at the 30-day LIBOR rate plus 13.5%, but not less than 14.0% regardless of fluctuations in the LIBOR Rate. Following the consummation of the proposed merger described above, so long as no event of default has occurred and is continuing, an amount equal to 6.0% of the interest payable on the Tranche A-2 Advance (or such lesser amount as the Borrowers elect) will be capitalized, compounded and added to the unpaid amount of the obligations each month, will accrue interest at the rate applicable to the Tranche A-2 Advance and will be due and payable in cash ~~expenses~~upon the expiration or other termination of the Salus Facility. The initial $15,~~319~~000,000 advance will be used for ~~depreciation~~general corporate purposes and ~~amortization;~~the $6,000,000 advance, if made, is to be used for fees, expenses, costs and obligations incurred by Borrowers in connection with the merger.

· The fourth amendment also provides that, at the Borrowers’ request, the Salus Facility may be permanently increased by up to $4,000,000, either in two $2,000,000 advances or one $4,000,000 advance, subject to Salus’ prior written consent, which may be given or denied in Salus’ sole discretion, and conditioned upon (A) Salus’ receipt and approval of a ~~charge~~revised ~~for~~business plan, (B) the ~~abandonment~~absence of ~~leases~~any default or event of default under the Credit Agreement, (C) payment of an accordion fee to Salus equal to 1.0% of such increase in the Salus Facility and (D) the execution of documents necessary to evidence any such increase in form and substance acceptable to Salus. On November 1, 2013, at the Borrowers’ request, the Salus Facility was permanently increased by $~~755~~4,000,000.

~~Cash Used in Investing Activities~~22

~~Net~~ ~~cash~~In ~~used in~~connection ~~investing~~with ~~activities~~the fourth amendment, the Borrowers and Salus entered into a Supplemental Fee Letter that provides for the ~~nine~~accordion ~~months~~fee ~~ended~~described ~~April~~above, 27as well as a Tranche A-2 origination fee in an amount equal to the greater of (i) $110,000, ~~2013~~or (ii) 1.0% of the aggregate portion of the $11,000,000 increase funded by Salus, of which $50,000 was accrued on October 10, 2013 and the balance ($~~481~~60,000 plus 1.0% of any incremental amount elected to be advanced by Salus in its sole discretion) to be due and payable on the earliest of (A) the date on which Salus funds the balance of the advances to Borrowers in connection with the consummation of the merger, (B) an event of default under the Credit Agreement, or (C) April 10, 2014 if the merger has not occurred by such date.

23 Amounts repaid on account of the principal balance of the Salus Facility shall be applied first, to reduce the principal balance of the advances other than the FILO Advance until paid in full, second, to reduce the principal balance of the Tranche A-1 Advance of the FILO Advance until paid in full, and third, against the Tranche A-2 Advance of the FILO Advance.

~~Cash~~Future ~~Provided by~~ Financing ~~Activities~~Requirements

~~Net~~ ~~cash~~We ~~provided~~had bynet ~~financing~~losses ~~activities~~ of $23,455,000 and $6,516,000 for the ~~nine~~years ~~months~~ ended ~~April~~July 27, 2013 ~~was~~and July 28, 2012 and had a net loss of $7,~~191~~694,000 for the three months ended October 26, ~~which~~2013. As ~~resulted~~of ~~primarily~~October ~~from~~26, ~~proceeds~~2013, we had a working capital deficiency of $1019,~~000~~258,000 ~~from~~and ~~the~~a ~~issuance~~ shareholders’ deficiency of ~~our~~$24,641,000. We ~~Series~~used Bcash ~~Preferred~~of ~~Stock~~$13,126,000 ~~partially~~and ~~offset~~$6,571,000 byin operating activities for the ~~net~~years ~~repayments~~ended ~~under~~July ~~the~~27, ~~Salus~~2013 ~~Facility~~and ofJuly $228,~~173,000~~ 2012 and ~~issuance~~used ~~costs~~ cash of $~~626~~4,491,000 in operating activities for the three months ended October 26, 2013. These conditions raise substantial doubt about our ability to continue as a going concern.

~~Series~~ BOn ~~Preferred~~September ~~Stock~~26, ~~Transaction~~2013, our board of directors received a non-binding proposal letter from the Consortium Members, pursuant to which the Consortium Members proposed to acquire all of the outstanding shares of our common stock not currently owned by them at a proposed price of $0.23 per share as part of a going private transaction, subject to certain conditions (see Note 9 – Going Private Proposal).

On ~~March~~October 1510, 2013, weour ~~sold~~Credit ~~$10,000,000~~Agreement ofwith ~~Series~~Salus Bwas ~~Preferred~~amended ~~Stock~~ to ~~Five~~increase ~~Island~~the ~~Asset~~Salus ~~Management~~Facility ~~LLC~~by ~~(“Purchaser”)~~$11, ~~a subsidiary of Harbinger Group Inc. The Series B Preferred Stock is convertible into an aggregate of 40,~~000,000, ~~shares~~from ~~of common stock at an initial conversion price of~~ $~~0.25 per share~~24,000,000 ~~subject~~ to ~~adjustment. Dividends on the Series B Preferred Stock are payable in cash at an annual rate of 9%~~$35, or000,000, atwith ~~our discretion~~$5,000,000 ~~payable~~having inbeen ~~additional~~advanced ~~shares~~on ofOctober ~~Series B Preferred Stock at an annual rate of 12%. We also issued to the Purchaser six separate warrants to purchase up to an aggregate of~~ 10,~~246,477~~ ~~shares~~2013 ofand ~~common stock. Five of~~ the ~~warrants~~remaining ~~may be exercised to purchase up to an aggregate of 4~~$6,~~778~~000,~~350~~000 ~~shares of common stock at exercise prices ranging from $0.67~~ to ~~$1.21~~be ~~per~~advanced ~~share~~upon ~~and~~the ~~one~~consummation of ~~the~~a ~~warrants~~proposed ~~may~~merger ~~be exercised~~ to ~~purchase~~be upeffected toas ~~5,468,127~~part ~~shares~~ of ~~common~~the ~~stock~~going atprivate antransaction ~~exercise~~referenced ~~price of $0~~above.01 ~~per share.~~ The ~~warrants are exercisable by the Purchaser only upon a corresponding exercise or conversion of specified outstanding securities~~$5,000,000 asadvance ~~set~~is ~~forth in the warrants. The Series B Preferred Stock ranks senior~~ to ~~our~~be ~~Series~~repaid Aon ~~Preferred~~April ~~Stock.~~10, ~~The~~2014 ~~holder~~if of the ~~outstanding~~merger ~~shares of Series A Preferred Stock waived its anti-dilution adjustment otherwise applicable as a result of this transaction. The Purchaser~~ is ~~entitled~~not toconsummated ~~appoint~~by ~~35%~~that date, or ~~not less than two individuals to serve~~ on ~~our~~May ~~board of directors. Upon full conversion and exercise of all preferred stock~~31, ~~the~~2015 ~~Purchaser~~if ~~would own a majority of our common stock and be entitled to appoint a majority of our board of directors. For a detailed description of~~ the ~~terms~~merger ~~of the~~is ~~Series~~consummated Bon ~~Preferred~~or ~~Stock~~before ~~and~~April ~~warrants~~10, ~~see Note 5 included in the notes to the consolidated unaudited financial statements appearing elsewhere in this report~~2014.

~~Salus~~ ~~Credit~~If we are unsuccessful in consummating the going private transaction with the Consortium Members, we will need to raise additional capital through debt or equity financings, strategic relationships or other arrangements. Additional financing may not be available in amounts or on terms acceptable to us or at all, and ~~Security~~if ~~Agreement~~available, may be at prices and on terms that may not be as favorable as they would be without a going concern qualification. The foregoing could negatively impact our results of operations.

On ~~May~~We ~~31,~~expect ~~2012, we and~~ our ~~subsidiaries (collectively,~~capital ~~the~~expenditures ~~“Borrowers”)~~for ~~entered~~fiscal ~~into~~year a2014 ~~Credit~~to ~~and~~be ~~Security~~less ~~Agreement~~than ~~(“Credit Agreement”) with Salus Capital Partners, LLC (“Salus”), which provides the Borrowers with a~~ $241,000,000 ~~revolving line of credit through May 31~~, ~~2015~~primarily ~~(the~~for ~~“Salus~~improvements ~~Facility”).~~to Oninformation ~~May~~technology 23systems, ~~2013,~~expenditures ~~the~~to ~~Borrowers~~support ~~entered~~website ~~into~~initiatives, astore ~~Second~~refurbishment ~~Amendment to Credit Agreement (“Second Amendment”)~~costs, ~~which~~and isother ~~described~~general ~~below~~corporate expenditures.

~~The~~Off ~~Salus~~Balance ~~Facility~~Sheet includes a “first in last out” tranche (“FILO Advance”) of up to $9,000,000 that consists of the first advances made under the Salus Facility and will be the last amounts repaid. Pursuant to the Second Amendment, the amount of the FILO Advance was increased from $9,000,000 to $14,000,000. The maximum amount of the FILO Advance and the total Salus Facility will be reduced by certain mandatory and voluntary prepayments. The Borrowers may periodically borrow, repay in whole or in part, and reborrow under the Salus Facility, except that amounts repaid on account of the FILO Advance may not be reborrowed. The actual amount of credit available under the Salus Facility is determined using measurements based on the Borrowers’ receivables, inventory, intellectual property and other measures.Arrangements

~~The~~ ~~unpaid~~We ~~principal of~~are ~~the FILO Advance bears interest, payable monthly, in arrears, at the 30-day LIBOR rate plus 11.5%, but~~ not ~~less~~a ~~than~~party ~~12.0% regardless of fluctuations in the LIBOR rate (12.0% at April 27, 2013). Up~~ to ~~2.5%~~any ofmaterial the interest payable on the FILO Advance will be capitalized, compounded and added to the unpaid amount of the obligations each month, will accrue interest at the rate applicable to the FILO Advance and will be due and payable in cash upon the expiration or other termination of the Salus Facility. At April 27, 2013, $9,212,000 was outstanding under the FILO Advance. Concurrently with the execution of the Second Amendment, the Borrowers paid to Salus in cash the outstanding off-balance ofsheet ~~interest~~financing ~~under the FILO Advance in the amount of $226,000~~arrangements.

~~The~~Effect ~~unpaid principal~~ of ~~advances~~New ~~other~~Accounting than the FILO Advance bears interest, payable monthly, in arrears, at the Prime rate plus 4.0%, but not less than 7.0%, regardless of fluctuations in the Prime rate (7.25% at April 27, 2013). At April 27, 2013, $5,183,000 of advances other than the FILO Advance were outstanding.Standards

~~The~~ ~~obligations~~See Note 2, “Summary of ~~the~~Significant ~~Borrowers~~Accounting ~~under~~Policies,” included in the ~~Credit~~ ~~Agreement~~notes ~~are~~to ~~secured~~the byconsolidated ~~first~~unaudited ~~priority~~financial ~~security~~statements ~~interests~~appearing earlier in ~~all~~this report for a discussion of ~~the~~recent ~~Borrowers’~~accounting ~~tangible~~developments and ~~intangible~~their ~~property, including~~impact ~~intellectual~~on ~~property~~our ~~such~~consolidated asunaudited ~~trademarks~~financial ~~and~~statements. There ~~copyrights,~~has asbeen ~~well~~no asrecently ~~shares~~issued ~~and~~accounting ~~membership~~updates ~~interests~~that ofhad a material impact on our ~~subsidiaries~~consolidated unaudited financial statements for the three months ended October 26, 2013 or are expected to have an impact in the future.

2423

~~The~~ ~~Credit~~Seasonality ~~Agreement provides for the Borrowers to pay Salus an origination fee of $465,000, 50% of which was paid at the closing~~ and on the first anniversary of the closing. The Credit Agreement also provides for certain customary fees to be paid to Salus, including: (i) a monthly fee on the unused portion of the Salus Facility; (ii) a monthly collateral monitoring fee; and (iii) an annual FILO facility fee based on the then-outstanding FILO Advance. Concurrently with the execution of the Second Amendment, the Borrowers paid a one-time fee of $50,000 in consideration for Salus’s agreement to enter into the Second Amendment.Inflation

~~The~~ ~~Credit~~Our ~~Agreement~~business ~~and~~experiences ~~other~~seasonal ~~loan~~sales ~~documents contain~~patterns. Sales ~~customary representations~~ and ~~warranties,~~earnings ~~affirmative~~typically ~~and~~peak ~~negative~~during ~~covenants and events of default, including covenants that restrict~~ the ~~Borrowers’~~second ~~ability to create certain liens, make certain types of borrowings~~ and ~~investments,~~third ~~liquidate or~~fiscal ~~dissolve,~~quarters ~~engage~~(November inthrough ~~mergers~~April), ~~consolidations,~~primarily ~~significant~~during ~~asset~~the ~~sales~~holiday ~~and~~season ~~affiliate~~in ~~transactions,~~November ~~incur certain lease obligations, pay cash dividends, redeem or repurchase outstanding equity~~ and ~~issue capital stock. In lieu of financial covenants~~December, ~~fixed~~as ~~charge coverage~~well ~~and~~as ~~overall debt ratios,~~ the ~~Salus~~Valentine’s ~~Facility~~Day ~~has~~holiday ain ~~$1.5~~the ~~million~~month ~~minimum~~of ~~availability reserve requirement~~February. As Ata ~~April 27~~result, ~~2013,~~ we ~~were~~maintain inhigher ~~compliance~~inventory ~~with~~levels ~~the~~during ~~Salus~~these ~~Facility’s~~peak ~~affirmative~~selling ~~and restrictive covenants and minimum availability reserve requirement~~periods.

~~Future~~ ~~Financing~~Inflationary ~~Requirements~~factors such as increases in the cost of our products and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenue if the selling prices of our products do not increase with these increased costs.

As ofITEM ~~April 27, 2013, our working capital deficiency increased by $4,592,000 to $10,918,000 from $6,326,000 at July 28, 2012~~3. As– weQUANTITATIVE ~~have~~AND ~~been~~QUALITATIVE ~~unable~~DISCLOSURES toABOUT ~~achieve~~MARKET our fiscal 2013 business plan through April 27, 2013, our business continues to be effected by limited working capital. Management plans to carefully manage working capital and believes that our completion of the Series B Preferred Stock transaction, the increase in our ability to borrow under the Salus Facility along with projected operating cash flows, will allow us to maintain sufficient working capital through fiscal year 2013. We expect our capital expenditures for fiscal year 2013 to be less than $500,000, primarily for improvements to our information technology systems, expenditures to support our digital marketing initiatives, store refurbishment costs, and other general corporate expenditures.RISK

~~Off~~Interest ~~Balance~~Rate ~~Sheet Arrangements~~Risks

We are exposed to interest rate risk associated with the Salus Facility. Interest accrues on the outstanding borrowings under the Salus Facility at rates per annum equal to (A) with respect to unpaid principal of advances other than the FILO Advance, (i) the Prime Rate plus (ii) an applicable margin of 4.0%, but not aless ~~party~~than 7.0% per annum regardless of fluctuations in the Prime Rate, (B) with respect to ~~any~~unpaid ~~material~~principal ~~off~~of the Tranche A-~~balance sheet~~1 ~~financing~~portion ~~arrangements~~of the FILO Advance, (i) the LIBOR Rate plus (ii) an applicable margin of 11.5%, but not less than 12.0% per annum regardless of fluctuations in the LIBOR Rate and (C) with respect to unpaid principal of the Tranche A-2 portion of the FILO Advance, (i) the LIBOR Rate plus (ii) an applicable margin of 13.5%, but not less than 14.0% per annum regardless of fluctuations in the LIBOR Rate.

~~Effect~~ Borrowings under the Salus Facility (excluding the FILO advance) for the three months ended October 26, 2013 peaked at $9,449,000 and the average borrowing during the period was approximately $7,566,000. As of ~~New~~October ~~Accounting~~26, ~~Standards~~2013, the total amount outstanding under the Salus Facility (excluding the FILO advance) was $5,767,000. An increase or decrease in the interest rate by 100 basis points from the total loan balance of the Salus Facility (excluding the FILO advance) at October 26, 2013 would have increased or decreased annual interest expenses by approximately $58,000. Borrowings under the Tranche A-1 and Tranche A-2 portions of the FILO Advance for the three months ended October 26, 2013 peaked at $19,158,000 and the average borrowing during the period was approximately $15,350,000. As of October 26, 2013, the total amount outstanding under the FILO Advance was $19,158,000. An increase or decrease in the interest rate by 100 basis points from the total loan balance of the FILO Advance at October 26, 2013 would have increased or decreased annual interest expenses by approximately $192,000.

~~See~~Foreign ~~Note~~Currency 2, Summary of Significant Accounting Policies, included in the notes to the consolidated unaudited financial statements appearing elsewhere in this report for a discussion of recent accounting developments and their impact on our consolidated unaudited financial statements. There has been no recently issued accounting updates that had a material impact on our consolidated unaudited financial statements for the three and nine months ended April 27, 2013 or are expected to have an impact in the future.Risks

~~Seasonality~~ We buy products from a significant number of domestic vendors who enter into purchase obligations outside of the U.S. All of our product purchase orders are negotiated and ~~Inflation~~settled in U.S. dollars. Therefore, we have no exposure to foreign currency exchange risks. However, fluctuations in foreign currency rates could have an impact on our future purchases.

~~Our~~ITEM ~~business experiences seasonal sales patterns~~4. ~~Sales~~– ~~and~~CONTROLS ~~earnings~~AND typically peak during the second and third fiscal quarters (November through April), primarily during the holiday season in November and December, as well as the Valentine’s Day holiday in the month of February. As a result, we maintain higher inventory levels during these peak selling periods.PROCEDURES

~~Inflationary~~ ~~factors~~Evaluation ~~such as increases in the cost~~ of ~~our~~Disclosure ~~products~~Controls and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenue if the selling prices of our products do not increase with these increased costs.Procedures

25 Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

~~ITEM~~ 3As required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive officer and chief financial officer performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of October 26, 2013. Based –upon ~~QUANTITATIVE~~their ~~AND~~evaluation, ~~QUALITATIVE DISCLOSURES~~they ~~ABOUT~~concluded ~~MARKET~~that ~~RISK~~our disclosure controls and procedures were effective.

~~Interest Rate Risks~~24

We ~~are~~Internal ~~exposed~~Control toOver ~~interest~~Financial rate risk associated with the Salus Facility. Interest accrues on the outstanding borrowings under the Salus Facility at rates per annum equal to (A) with respect to unpaid principal of advances other than the FILO Advance, (i) the Prime Rate plus (ii) an applicable margin of 4.0%, but not less than 7.0% per annum regardless of fluctuations in the Prime Rate and (B) with respect to unpaid principal of the FILO Advance, (i) the LIBOR Rate plus (ii) an applicable margin of 11.5%, but not less than 12.0% per annum regardless of fluctuations in the LIBOR Rate. Reporting

~~Borrowings~~ ~~under~~Our ~~the~~internal ~~Salus~~control ~~Facility~~over ~~(excluding the~~financial ~~FILO~~reporting ~~advance)~~is ~~for~~a ~~the~~process ~~nine~~designed ~~months~~by, ~~ended~~or ~~April~~under 27the supervision of, ~~2013~~our ~~peaked~~chief atexecutive ~~$10,034,000~~officer and ~~the~~chief ~~average~~financial ~~borrowing~~officer ~~during~~and ~~the~~effected ~~period~~by ~~was approximately~~our ~~$7,226,000. As~~board of ~~April 27~~directors, ~~2013~~management and other personnel, ~~the~~to ~~total~~provide ~~amount~~reasonable ~~outstanding~~assurance ~~under~~regarding the ~~Salus~~reliability ~~Facility~~of ~~(excluding~~our ~~the~~financial ~~FILO advance)~~reporting ~~was~~and ~~$5,183,000. An~~the ~~increase~~preparation orof ~~decrease~~our infinancial ~~the~~statements ~~interest~~for ~~rate~~external bypurposes ~~100~~in ~~basis~~accordance ~~points~~with ~~from~~generally ~~the~~accepted ~~total~~accounting ~~loan~~principles ~~balance~~in of the ~~Salus~~United ~~Facility~~States. Internal ~~(excluding~~control ~~the~~over ~~FILO~~financial ~~advance)~~reporting atincludes ~~April~~policies ~~27,~~and ~~2013~~procedures ~~would~~that ~~have~~pertain ~~increased~~to orthe ~~decreased~~maintenance ~~annual~~of ~~interest~~records ~~expenses~~that ~~by approximately~~in ~~$52,000. Borrowings~~reasonable ~~under~~detail ~~the~~accurately ~~FILO~~and ~~Advance~~fairly ~~for~~reflect the ~~nine~~transactions ~~months~~and ~~ended~~dispositions ~~April~~of ~~27,~~our ~~2013~~assets; ~~peaked~~provide atreasonable ~~$9,212,000~~assurance ~~and the~~that ~~average~~transactions ~~borrowing~~are ~~during~~recorded ~~the~~as ~~period~~necessary ~~was~~to ~~approximately~~permit ~~$9,135,000. As~~preparation of ~~April~~our ~~27,~~financial ~~2013,~~statements ~~the~~in ~~total~~accordance ~~amount~~with ~~outstanding under~~generally ~~the~~accepted ~~FILO~~accounting ~~Advance~~principles ~~was~~in $9the United States,~~212,000. An~~ ~~increase~~and orthat ~~decrease~~our inreceipts ~~the~~and ~~interest~~expenditures ~~rate~~are bybeing ~~100~~made ~~basis~~only ~~points~~in ~~from~~accordance with the ~~total~~authorization ~~loan balance~~of our board of ~~the~~directors ~~FILO~~and ~~Advance~~management; atand ~~April~~provide ~~27,~~reasonable ~~2013~~assurance ~~would~~regarding ~~have~~prevention ~~increased~~or timely detection of unauthorized acquisition, use or ~~decreased~~disposition ~~annual~~of ~~interest~~our ~~expenses~~assets bythat ~~approximately~~could ~~$92,000~~have a material effect on our financial statements.

~~Foreign~~ ~~Currency~~Changes ~~Risks~~in Internal Control Over Financial Reporting

We ~~buy~~During ~~products~~the ~~from~~three amonths ~~significant~~ended ~~number of~~October ~~domestic~~26, ~~vendors~~2013, ~~who~~there ~~enter~~were ~~into~~no ~~purchase~~changes ~~obligations~~made ~~outside~~in ofour ~~the~~internal ~~U.S.~~control ~~All~~over offinancial ~~our~~reporting ~~product~~(as ~~purchase~~such ~~orders~~term ~~are~~is ~~negotiated~~defined ~~and settled~~ in ~~U.S.~~Rule ~~dollars.~~13a-15(f) ~~Therefore,~~under wethe ~~have~~Exchange noAct) ~~exposure~~that tohave ~~foreign~~materially ~~currency exchange risks. However~~effected, ~~fluctuations~~or inare ~~foreign~~reasonably ~~currency rates~~likely ~~could~~to ~~have~~materially aneffect, ~~impact~~our oninternal ~~our~~control ~~future~~over ~~purchases~~financial reporting.

~~ITEM~~PART 4.II OTHER ~~– CONTROLS AND PROCEDURES~~INFORMATION

~~Evaluation~~ITEM of1 ~~Disclosure~~– ~~Controls and~~LEGAL ~~Procedures~~PROCEEDINGS

~~Disclosure~~ ~~controls~~ On December 18, 2012, a former California store employee filed a purported class action lawsuit in the California Superior Court, County of Los Angeles, against the Company, Frederick’s of Hollywood, Inc. and ~~procedures~~Frederick’s ~~are~~of ~~controls~~Hollywood Stores, Inc. (Kassandra Harvey-Smith, on behalf of herself and all others similarly situated v. Frederick’s of Hollywood Group Inc. et al, Case No. BC497673). The complaint alleges, among other ~~procedures~~things, ~~that~~violations ~~are~~of ~~designed~~the toCalifornia ~~ensure~~Labor ~~that~~Code, ~~information~~failure ~~required~~to pay overtime, failure to beprovide ~~disclosed~~meal inand ~~company reports~~rest ~~filed~~periods orand ~~submitted~~termination ~~under~~compensation, ~~the~~various ~~Securities~~additional ~~Exchange~~wage ~~Act~~violations and violations of ~~1934~~California’s ~~(“Exchange~~Unfair ~~Act”)~~Competition isLaw. ~~recorded~~The first amended complaint seeks, ~~processed~~among other relief, ~~summarized~~ collective and ~~reported~~class ~~within~~certification of the lawsuit (the class being defined as all California part-time ~~periods~~sales ~~specified~~associates), inunspecified ~~the~~damages, ~~Securities~~costs and ~~Exchange~~expenses, ~~Commission~~including attorneys’s ~~rules~~fees, and ~~forms.~~such ~~Disclosure~~other ~~controls~~ relief as the Court might find just and ~~procedures~~proper. The ~~include~~parties agreed to stay discovery proceedings, ~~without~~engaged ~~limitation~~in mediation, ~~controls~~and on September 25, 2013, the parties entered into a Joint Stipulation of Settlement and ~~procedures~~Release, ~~designed~~which was later modified to ~~ensure~~change ~~that~~the ~~information~~administrator ~~required~~and the amount. Without admitting or denying liability, the Company has agreed to bepay ~~disclosed in~~a ~~company~~gross ~~reports~~settlement ~~filed~~amount orof ~~submitted~~$95,000. The ~~under~~hearing for the ~~Exchange~~Court’s ~~Act~~preliminary approval of the settlement has not yet been scheduled, but is ~~accumulated~~expected ~~and~~to ~~communicated~~occur within the next 60 to ~~management~~90 days, ~~including~~after ~~our~~which ~~chief executive~~a ~~officer~~final ~~and~~approval ~~chief~~hearing ~~financial~~date ~~officer~~will be set. After preliminary approval, asclass ~~appropriate~~members will receive notice of the settlement and will have an opportunity to ~~allow~~elect ~~timely~~not ~~decisions~~to ~~regarding~~participate ~~required~~or ~~disclosure~~file objections to the settlement. The Company expects that funding of payment of the settlement will occur in the second half of fiscal year 2014.

As ~~required~~We ~~by Rules~~also ~~13a-15~~are ~~and~~involved ~~15d-15~~from ~~under~~time ~~the~~to ~~Exchange~~time ~~Act,~~in ~~our~~litigation ~~chief~~incidental ~~executive~~to ~~officer~~our ~~and~~business. We ~~chief~~believe ~~financial~~that ~~officer performed an evaluation of~~ the ~~effectiveness~~outcome of ~~the~~such ~~design~~litigation ~~and~~will ~~operation~~not ofhave ~~our~~a ~~disclosure~~material ~~controls~~adverse ~~and~~effect ~~procedures~~on ~~as of April 27, 2013. Based upon their evaluation, they concluded that~~ our ~~disclosure~~results ~~controls~~of ~~and~~operations ~~procedures~~or ~~were~~financial ~~effective~~condition.

~~Internal~~ITEM ~~Control~~1A ~~Over~~– ~~Financial Reporting~~RISK FACTORS

~~Our~~ ~~internal~~There ~~control over~~are ~~financial~~no ~~reporting~~material ischanges afrom ~~process designed by, or under~~ the ~~supervision~~risk ~~of,~~factors ~~our~~set ~~chief~~forth ~~executive~~in ~~officer and chief financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding~~ the ~~reliability of~~“Risk ~~our~~Factors” ~~financial~~section ~~reporting and the preparation~~ of our ~~financial~~Annual ~~statements~~Report ~~for~~on ~~external~~Form ~~purposes~~10-K infiled ~~accordance~~ with ~~generally~~the ~~accepted accounting~~SEC ~~principles~~on inOctober ~~the~~25, ~~United States~~2013. Please ~~Internal~~refer ~~control over financial reporting includes policies and procedures that pertain~~ to ~~the~~this ~~maintenance~~section offor ~~records~~disclosures ~~that~~regarding ~~in reasonable detail accurately and fairly reflect~~ the ~~transactions~~risks and ~~dispositions~~uncertainties ~~of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements~~ in ~~accordance with generally accepted accounting principles in the United States, and that~~ our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statementsbusiness.

2625

~~Changes~~ITEM in6 ~~Internal~~– ~~Control Over Financial Reporting~~EXHIBITS

During the three months ended April 27, 2013, there were no changes made in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that have materially effected, or are reasonably likely to materially effect, our internal control over financial reporting.

Exhibit No.		Description

31.1		Certification by Chief Executive Officer and Principal Executive Officer

31.2		Certification by Chief Financial Officer and Principal Accounting Officer

32		Section 1350 Certification

101		Financial statements from the Quarterly Report on Form 10-Q of the Company for the three months ended October 26, 2013, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations (Unaudited), (iii) Consolidated Statements of Cash Flows (Unaudited) and (v) Notes to Consolidated Unaudited Financial Statements, as blocks of text and in detail.*

101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema Document *

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB		XBRL Taxonomy Extension Label Linkbase Document*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *

~~PART~~ II* As ~~OTHER~~provided ~~INFORMATION~~in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

~~ITEM 1 – LEGAL PROCEEDINGS~~26

On February 2, 2012, a former California store employee filed a purported class action lawsuit in the California Superior Court, County of San Francisco, naming Frederick’s of Hollywood, Inc., one of our subsidiaries, as a defendant (Michelle Weber, on behalf of herself and all others similarly situated v. Frederick’s of Hollywood, Inc., Case No. CGC-12-517909). The complaint alleges, among other things, violations of the California Labor Code, failure to pay overtime, failure to provide meal and rest periods and termination compensation and violations of California’s Unfair Competition Law. The complaint seeks, among other relief, collective and class certification of the lawsuit (the class being defined as all California retail store hourly employees), unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the Court might find just and proper. We contest these allegations and deny any liability with respect to the lawsuit. On April 2, 2012, we answered the Plaintiff’s first amended complaint. The parties agreed to stay discovery proceedings, engaged in mediation, and on May 23, 2013, the parties entered into a Joint Stipulation of Settlement and Release, which was filed with the Court on May 31, 2013. Without admitting or denying liability, we have agreed to pay a gross settlement amount of $365,000 in connection with the settlement. The hearing for the Court’s preliminary approval of the settlement is scheduled for June 26, 2013, at which time a final approval hearing date will be set. After preliminary approval, class members will receive notice of the settlement and will have an opportunity to elect not to participate or file objections to the settlement. We expect that funding of payment of the settlement will occur in the second quarter of fiscal year 2014.SIGNATURES

On ~~December~~Pursuant ~~18,~~to ~~2012, a former California store employee filed a purported class action lawsuit in~~ the ~~California~~requirements ~~Superior Court, County~~ of ~~Los Angeles, against~~ the ~~Company, Frederick’s~~Securities ofExchange ~~Hollywood,~~Act ~~Inc. and Frederick’s~~ of ~~Hollywood Stores~~1934, Inc. (Kassandra Harvey-Smith, on behalf of herself and all others similarly situated v. Frederick’s of Hollywood Group Inc. et al, Case No. BC497673). The complaint alleges, among other things, violations of the ~~California~~Registrant ~~Labor~~has ~~Code,~~duly ~~failure~~caused tothis ~~pay~~report ~~overtime, failure~~ to ~~provide~~be ~~meal~~signed ~~and~~on rest periods and termination compensation, various additional wage violations and violations of California’s Unfair Competition Law. The complaint seeks, among other relief, collective and class certification of the lawsuit (the class being defined as all California retail store hourly employees), unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the Court might find just and proper. We contest these allegations and intend to vigorously defend the lawsuit. This lawsuit is in its ~~early~~behalf ~~stages~~by ~~and~~ the ~~Court~~undersigned ~~has~~hereunto ~~ordered~~duly ~~a 90-day stay while the parties discuss the possibility of settlement~~authorized. ~~Accordingly, we are unable to estimate our potential liability in the event of an unfavorable outcome with respect to these allegations.~~

We also are involved from time to time in litigation incidental to our business. We believe that the outcome of such litigation will not have a material adverse effect on our results of operations or financial condition.

	FREDERICK’S OF HOLLYWOOD GROUP INC.


Date: December 10, 2013	By:	/s/ Thomas J. Lynch
		THOMAS J. LYNCH
		Chief Executive Officer and
		Principal Executive Officer

Date: December 10, 2013	By:	/s/ Thomas Rende
		THOMAS RENDE
		Chief Financial Officer and
		Principal Accounting Officer

~~ITEM 1A – RISK FACTORS~~27

There are no material changes from the risk factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on October 26, 2012. Please refer to this section for disclosures regarding the risks and uncertainties in our business.

ITEM 6 – EXHIBITS

Exhibit No.		Description
31.1		Certification by Chief Executive Officer and Principal Executive Officer
31.2		Certification by Chief Financial Officer and Principal Accounting Officer
32		Section 1350 Certification
101		Financial statements from the Quarterly Report on Form 10-Q of the Company for the three months ended April 27, 2013, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations (Unaudited), (iii) Consolidated Statements of Cash Flows (Unaudited) and (v) Notes to Consolidated Unaudited Financial Statements, as blocks of text and in detail.*
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document *
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *

* As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	FREDERICK’S OF HOLLYWOOD GROUP INC.
Date: June 11, 2013	By:	/s/ Thomas J. Lynch
		THOMAS J. LYNCH
		Chief Executive Officer and
		Principal Executive Officer

Date: June 11, 2013	By:	/s/ Thomas Rende
		THOMAS RENDE
		Chief Financial Officer and
		Principal Accounting Officer

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