On August 11, 2008, we issued 5,900,000 shares of our common stock and Warrants to purchase an additional 1,500,000 shares in exchange for the shares of Model Reorg, which merged into our wholly-owned subsidiary, Model Reorg Acquisition
LLC. Because the shares issued to the Model Reorg shareholders amount to approximately 66% of our shares outstanding after the issuance, the transaction has been accounted for as a "reverse acquisition," and Model Reorg is being treated as the "accounting acquirer." Accordingly, our historical financial statements reflect the historical results of Model Reorg prior to the transaction date of August 11, 2008 and those of the combined companies beginning effective August 11, 2008. The Company is continuing to use the same fiscal year end, the Saturday closest to January 31, as E Com used before the Merger. Model Reorg's fiscal year end before the Merger was October 31. The audited consolidated financial statements of Model Reorg as of October 31, 2007 and 2006 and for the years ended October 31, 2007, 2006 and 2005 were previously filed with the SEC. The audited consolidated financial statements of Model Reorg as of and for the thirteen weeks ended February 2, 2008 and the unaudited financial statements of Model Reorg as of July 31, 2008 and for the three months and nine months ended July 31, 2008 and 2007 have been filed with the SEC as well.

Comparison of the Thirteen Weeks Ended November 1, 2008 with the Three Months
Ended October 31, 2007.

Net Sales



                      Thirteen Weeks     Percentage        Three Months      Percentage
                           Ended             of               Ended              of
                     November 1, 2008    Net Sales       October 31, 2007    Net Sales
                                                 ($ in thousands)
   Wholesale         $          65,221         51.6 %   $           77,291         83.3 %
   Retail                       61,178         48.4 %               15,536         16.7 %

   Total net sales   $         126,399        100.0 %   $           92,827        100.0 %

Net sales increased 36.2% from $92.8 million in the three months ended October 31, 2007 to $126.4 million in the thirteen weeks ended November 1, 2008. Excluding the sales from Perfumania's retail division which are included in the above sales information for the period from August 11, 2008 through November 1, 2008, net sales decreased by $11.9 million or 12.8%. Excluding Perfumania's results, the decrease in sales was primarily due to a decrease in wholesale sales of $12.1 million.

Approximately $8.3 million of the $12.1 million decrease in wholesale sales are represented by affiliate sales to Perfumania in the three months ended October 31, 2007. As a result of the Merger on August 11, 2008, wholesale sales to Perfumania became intercompany transactions and all intercompany sales occurring subsequent to the Merger date are therefore eliminated in consolidation. The remaining decrease in wholesale sales of $3.8 million is the result of the continuing tightening of credit resources generally, which decreases customers' ability to purchase. Also, the reduction in consumer spending and the weak global economy has caused wholesale customers to reduce their demand for fragrance for the 2008 holiday season.

As discussed above, because the Merger with Model is treated as a reverse acquisition for accounting purposes, Perfumania's retail sales are included in our condensed consolidated financial statements only for the period August 11, 2008 through November 1, 2008. Perfumania's retail sales for the thirteen weeks ended November 1, 2008 increased by 0.6% to $51.0 million versus the comparative period in 2007. Perfumania's comparable store sales decreased by 7.2% during the thirteen weeks ended November 1, 2008. Comparable store sales measure sales from stores that have been open for one year or more. We exclude stores that are closed for renovation from comparable store sales from the month during which renovation commences until the first full month after reopening. The average retail price per unit sold during the thirteen weeks ended November 1, 2008 increased 7% from the prior year's comparable period and the total number of units sold decreased by 6%. We attribute the increase in the average retail price per unit sold to changes in our product mix and promotions resulting in more sales of higher priced merchandise. The number of units sold was affected by softness in the United States economy, declining consumer confidence and the resulting weak mall traffic. The average number of stores operated was 320 in the thirteen week period ended 2008, versus 285 in the prior year's comparable period, which resulted in the increase in retail sales.

We expect the softness in wholesale and retail sales to continue for the foreseeable future until consumer confidence and the United States economy improve.

Gross Profit



                                    Thirteen Weeks        Three Months
                                        Ended                Ended
                                   November 1, 2008     October 31, 2007
                                              (in thousands)
             Wholesale            $           15,656   $           16,796
             Retail                           28,768                6,298

             Total gross profit   $           44,424   $           23,094

Gross Profit Percentages



                                        Thirteen Weeks        Three Months
                                            Ended                Ended
                                       November 1, 2008     October 31, 2007
       Wholesale                                   24.0 %               21.7 %
       Retail                                      47.0 %               40.5 %
       Total gross profit percentage               35.1 %               24.9 %

Gross profit increased 92.4% from $23.1 million in the three months ended October 31, 2007 (24.9% of total net sales) to $44.4 million in the thirteen weeks ended November 1, 2008 (35.1% of total net sales). Excluding the gross profit from Perfumania's retail division which are included in the above gross profit information for the period from August 11, 2008 through November 1, 2008, gross profit decreased by $0.6 million. Excluding Perfumania's results, the decrease in gross profit was due to a decrease in wholesale sales volume as discussed above offset by an increase in retail gross profit due to sales of a larger ratio of higher margin products.

Perfumania's retail gross profit for the thirteen weeks ended November 1, 2008 increased by 1.7% to $23.9 million versus the comparative period in 2007. For these same periods, Perfumania's retail gross margins were 46.8% and 46.3%, respectively.

Selling, general and administrative expenses include payroll and related benefits for our distribution centers, sales, store operations, field management, purchasing and other corporate office and administrative personnel; rent, common area maintenance, real estate taxes and utilities for our stores, distribution centers and corporate office; advertising, consignment fees, sales promotion, insurance, supplies, freight out, and other administrative expenses. Selling, general and administrative expenses increased by $26.5 from $14.8 million in the three months ended October 31, 2007 to $41.3 million in the thirteen weeks ended November 1, 2008. Excluding the selling, general administrative expenses of Perfumania's retail division of $24.9, which are included for the period from August 11, 2008 through November 1, 2008, selling, general and administrative expenses increased by $1.6 million or 11.0%. This increase includes a reversal of a reserve on vendor advances of approximately $2.4 million in the three months ending October 31, 2007. Gross selling, general and administrative expenses, excluding the $2.4 million reversal, decreased $0.8 million or 4.7%. Included in selling, general and administrative expenses are expenses in connection with the service agreements with Quality King, which were $0.5 million for the thirteen weeks ended November 1, 2008 compared with $0.8 million for the three months ended October 31, 2007. See further discussion at Note 11 to these condensed consolidated financial statements.

Perfumania's selling, general and administrative expenses for the thirteen weeks ended November 1, 2008 increased by 15.6% to $27.2 million compared to $23.5 million in the same period of 2007. The increase was largely attributable to the additional payroll, occupancy and store opening expenses needed to operate the 47 net new stores opened over the past year.

Depreciation and amortization was approximately $2.7 million in the thirteen weeks ended November 1, 2008 compared to $0.3 million for the three months ended October 31, 2007. Approximately $1.7 million of the total increase is attributable to Perfumania's retail division. Of the remaining $1.0 million increase, $0.5 million relates to amortization of deferred financing costs and $0.5 million relates to depreciation of asset purchases for the new building.

Interest expense was approximately $3.1 million for the thirteen weeks ended November 1, 2008 compared with approximately $3.7 million in the comparable period of 2007. Excluding Perfumania's interest expense, which is included in interest expense for the period from August 11, 2008 through November 1, 2008, interest expense decreased by $2.3 million or 61.5%. The decrease in interest expense relates to a decrease in the interest rates on total variable interest debt of approximately 2.20% during the thirteen weeks ended November 1, 2008 as compared to the same period in the prior year.

An income tax benefit of $1.1 million was recorded as a result of the Company's net loss during the thirteen weeks ended November 1, 2008 compared with an income tax provision of $1.6 million during the comparable period of 2007. The Company's effective tax rate for the thirteen week period ended November 1, 2008 and the three month period ended October 31, 2007 was 40.2% and 38.0%, respectively.

As a result of the foregoing, we realized a net loss of approximately $1.6 million in the thirteen weeks ended November 1, 2008, of which $4.1 million is attributable to Perfumania for the period August 11, 2008 to November 1, 2008, compared to a net income of $2.7 million in the three months ended October 31, 2007.

Comparison of the Thirty-Nine Weeks Ended November 1, 2008 with the Nine Months
Ended October 31, 2007.

Net Sales



                     Thirty-Nine Weeks    Percentage        Nine Months      Percentage
                           Ended              of               Ended             of
                     November 1, 2008     Net Sales      October 31, 2007    Net Sales
                                             ($ in thousands)
  Wholesale         $           157,439         62.6 %   $         179,327         79.6 %
  Retail                         93,863         37.4 %              45,904         20.4 %

  Total net sales   $           251,302        100.0 %   $         225,231        100.0 %

Net sales increased 11.6% from $225.2 million in the nine months ended October 31, 2007 to $251.3 million in the thirty-nine weeks ended November 1, 2008. Excluding the sales from Perfumania's retail division, which are included in the above sales information for the period from August 11, 2008 through November 1, 2008, net sales decreased by $19.4 million or 8.6%. Excluding Perfumania's results, the decrease in sales was due to a decrease in wholesale sales of $21.9 million offset by an increase in retail sales of $2.5 million.

Included in wholesale sales are $15.4 million and $19.2 million of pre-merger affiliate sales to Perfumania in the thirty-nine weeks ended November 1, 2008 and the nine months ended October 31, 2007, respectively. The remaining decrease in wholesale sales of $6.5 million is the result of the continuing tightening of credit resources generally, which decreases wholesale customers' ability to purchase. Also, the reduction in consumer spending and the weak global economy has caused wholesale customers to reduce their demand for fragrance for the 2008 holiday season.

Perfumania's retail sales for the thirty-nine weeks ended November 1, 2008 increased by 6.9% or $10.0 million to $155.1 million versus the comparative period in 2007. Perfumania's comparable store sales decreased by 0.7% during the thirty-nine weeks ended November 1, 2008. The average number of stores operated was 320 in the thirty-nine week period ended 2008, versus 277 in the prior year's comparable period which resulted in the majority of the increase in retail sales. The average retail price per unit sold during the thirty-nine weeks ended November 1, 2008 increased 9% from the prior year's comparable period and the total number of units sold decreased by 2%. We attribute the increase in the average retail price per unit sold to changes in our product mix and promotions resulting in more sales of higher priced merchandise. The number of units sold was affected by softness in the United States economy, declining consumer confidence and the resulting weak mall traffic, all of which began to have a greater impact on Perfumania's retail business beginning in September 2008.

We expect the softness in wholesale and retail sales to continue for the foreseeable future until consumer confidence and the United States economy improves.

Gross Profit



                                  Thirty-Nine Weeks       Nine Months
                                        Ended                Ended
                                  November 1, 2008      October 31, 2007
                                              (in thousands)
            Wholesale            $            36,764   $           44,808
            Retail                            42,349               18,511

            Total gross profit   $            79,113   $           63,319

Gross Profit Percentage



                                 Thirty-Nine Weeks       Nine Months
                                       Ended                Ended
                                 November 1, 2008      October 31, 2007
            Wholesale                         23.4 %               25.0 %
            Retail                            45.1 %               40.3 %
            Total gross profit                31.5 %               28.1 %

Gross profit increased by $15.8 million from $63.3 million in the nine months ended October 31, 2007 (28.1% of total net sales) to $79.1 million in the thirty-nine weeks ended November 1, 2008 (31.5% of total net sales). Excluding the gross profit from Perfumania's retail division which is included in the above gross profit information for the period from August 11, 2008 through November 1, 2008, gross profit decreased by $6.2 million. Excluding Perfumania's results, the decrease in gross profit was due to a decrease in wholesale sales volume as discussed above offset by an increase in retail gross profit due to sales of a larger ratio of higher margin products.

Perfumania's retail gross for the thirty-nine weeks ended November 1, 2008 increased by 7.6% to $72.2 million versus the comparative period in 2007. For these same periods, Perfumania's retail gross margins were 46.5% and 46.2%, respectively.

Selling, general and administrative expenses increased by $26.0 million from $40.6 million in the nine months ended October 31, 2007 to $66.6 million in the thirty-nine weeks ended November 1, 2008. Excluding the selling, general administrative expenses of Perfumania's retail division of $24.9 million, which are included for the period from August 11, 2008 through November 1, 2008, selling, general and administrative expenses increased by $1.1 million or 2.8%. This increase includes a reversal

of a reserve on vendor advances of approximately $2.4 million in the nine months ending October 31, 2007. Gross selling, general and administrative expenses, excluding the $2.4 million reversal, decreased $1.3 million or 2.9%. Included in selling, general and administrative expenses are expenses in connection with the service agreements with Quality King, which were $2.4 million for the thirty-nine weeks ended November 1, 2008 compared with $2.2 million for the nine months ended October 31, 2007. See further discussion at Note 11 to these condensed consolidated financial statements.

Perfumania's selling, general and administrative expenses for the thirty-nine weeks ended November 1, 2008 increased by 16.8% to $78.9 million compared to $67.5 million in the same period of 2007. The increase was largely attributable to the additional payroll, occupancy and store opening expenses needed to operate the 47 net new stores opened over the past year.

Depreciation and amortization was approximately $3.6 million in the thirty-nine weeks ended November 1, 2008 compared to $1.0 million for the nine months ended October 31, 2007. Approximately $1.7 million of the total increase is attributable to Perfumania's retail division. Of the remaining $0.9 million increase, $0.5 million relates to amortization of deferred financing costs and the remainder relates to depreciation of asset purchases for the new building.

Interest expense was approximately $8.3 million for the thirty-nine weeks ended November 1, 2008 compared with approximately $9.4 million in the comparable period of 2007. Excluding the Perfumania's interest expense, which is included in interest expense for the period from August 11, 2008 through November 1, 2008, interest expense decreased by $2.8 million or 30.1%. The decrease in interest expense relates to a decrease in the interest rates on total variable interest debt of approximately 2.50% during the thirty-nine weeks ended November 1, 2008 as compared to the same period in the prior year.

Income tax expense of $0.3 million was recorded as a result of the Company's net income during the thirty-nine weeks ended November 1, 2008 compared with an income tax expense of $4.8 million during the comparable period of 2007. The Company's effective tax rate for the thirty-nine week period ended November 1, 2008 and the nine months ended October 31, 2007 was 43.9% and 39.3%, respectively.

As a result of the foregoing, we realized a net income of approximately $0.3 million in the thirty-nine weeks ended November 1, 2008 compared to a net income of $7.5 million in the nine months ended October 31, 2007. Included in the net income of $0.3 million in the thirty-nine weeks ended November 1, 2008 is a net loss of approximately $4.1 million attributable to Perfumania for the period August 11, 2008 to November 1, 2008. Net income per share for the thirty-nine weeks ended November 1, 2008 was $0.05 compared to net income per share of $1.27 per share for the nine months ended October 31, 2007.

LIQUIDITY AND CAPITAL RESOURCES

Our principal funding requirements are for inventory purchases, financing extended terms on accounts payable, paying down accounts payable and debt, opening new stores and renovation of existing stores. Prior to the Merger, Model Reorg also financed extended terms on accounts receivable from E Com. For the first thirty-nine weeks of fiscal 2008, these capital requirements generally were satisfied through borrowings under the respective revolving credit facilities and notes payable to affiliate.

On August 11, 2008, in conjunction with the Merger with Model Reorg, the Company and certain of its subsidiaries entered into a new $250 million revolving credit facility with a syndicate of banks for which General Electric Capital Corporation serves as Agent, Collateral Agent and Lender, GE Capital Markets, Inc. serves as Joint Lead Arranger and Book Runner and Wachovia Capital Markets serves as Joint Lead Arranger (the "Senior Credit Facility"). The Senior Credit Facility is used for the Company's general corporate purposes and those of its subsidiaries, including working capital. The Company and certain of its subsidiaries are co-borrowers under the Senior Credit Facility, and the Company's other subsidiaries have guaranteed all of their obligations thereunder.

The Senior Credit Facility is scheduled to expire on August 11, 2011, when all amounts will be due and payable in full. The Senior Credit Facility does not require amortization of principal and may be paid before maturity in whole or in part at the Company's option without penalty or premium; provided that, if the Company permanently reduces the revolving commitment in connection with a prepayment, on or before August 11, 2009, it must pay a prepayment fee equal to 1% of the amount of such reduction, or after such date and on or before August 11, 2010, it must pay a prepayment fee equal to 0.5% of the prepayment.

The initial proceeds of the Senior Credit Facility were used to pay amounts incurred in connection with the Merger and to satisfy amounts outstanding under the Company's and Model Reorg's previous senior credit facilities.

Revolving loans under the Senior Credit Facility may be drawn, repaid and reborrowed up to the amount available under a borrowing base calculated with reference to a specified percentage of the borrowers' eligible accounts and a specified percentage of the borrowers' eligible inventory from time to time. The Senior Credit Facility also includes a sub-limit of $25 million for letters of credit and a sub-limit of $12.5 million for swing line loans (that is, same-day loans from the lead or agent bank).

Interest under the Senior Credit Facility is, at the Company's election unless an Event of Default exists, at either (i) the higher of The Wall Street Journal corporate "base rate" or the federal funds rate plus 0.50% (the "Base Rate") or
(ii) the applicable London interbank offered rate ("LIBOR"), plus in each case, specified margins. These margins are determined based upon the Company's excess availability (that is, at any time, an amount equal to (a) the lesser of the aggregate revolving commitments and the borrowing base at such time minus
(b) the revolving exposure of all lenders) from time to time. Interest rate margins have initially been set at 2.50% per annum for LIBOR borrowings and 1.25% for Base Rate borrowings. Following the first fiscal quarter ending at least six months after the closing of the Senior Credit Facility, the interest rate margins will range from 2.25% to 2.75% for LIBOR borrowings and from 1.00% to 1.50% for Base Rate borrowings. The Company is also required to pay fees equal to 0.375% of the unused amount of the Senior Credit Facility and the outstanding amount of letters of credit under that facility.

All obligations of the Company under the Senior Credit Facility and under any interest rate protection or other hedging arrangements entered into in connection with the Senior Credit Facility are secured by a first priority perfected security interest in all existing and after-acquired personal property and owned real property owned by the Company and its subsidiaries, which are co-borrowers or guarantors, including, without limitation, 100% (or, in the case of excluded foreign subsidiaries, 66%) of the outstanding equity interests in their subsidiaries.

The Senior Credit Facility limits the Company's and its subsidiaries' ability to, among other things: incur additional indebtedness; incur liens or guarantee obligations; pay dividends and make other distributions; make investments and enter into joint ventures; dispose of assets; and engage in transactions with affiliates, except for certain existing arrangements under which the Company leases space and obtains certain business services from affiliated companies and other arrangements in the ordinary course of business.

The Senior Credit Facility provides that advances to suppliers by the Company and its subsidiaries may not exceed $8 million with respect to all suppliers or $5 million with respect to any one supplier (together with its affiliates). In addition, under the Senior Credit Facility, the Company and its subsidiaries must maintain certain financial ratios, as specified in the agreement. As of November 1, 2008, the Company was not in compliance with the Maximum Leverage Ratio under the terms of the Senior Credit Facility. Such noncompliance permits the lenders to accelerate the indebtedness and terminate the credit facility which would result in all amounts outstanding, including all accrued interest and unpaid fees, becoming immediately due and payable. Management has requested a waiver of non-compliance from the lenders and while Management believes that it will receive such waiver, there can be no assurance that the waiver will be received or that there will not be a material cost for a waiver. Failure to receive the waiver could result in our having to refinance the Senior Credit Facility and obtain an alternative source of financing. Due to the current weakness in the credit markets, there is no assurance that such financing would be obtained, or if such refinancing is obtained, that the terms of a new facility would be on terms comparable to the current Senior Credit Facility. If the Company is unable to obtain alternative financing, its operations and financial condition would be materially adversely impacted and it would be forced to seek an alternative source of liquidity, such as by selling additional securities, to continue operations.

The Senior Credit Facility also includes other customary events of default that would permit the lenders to accelerate the indebtedness and terminate the credit facility.

At the closing of the Merger, six estate planning trusts established by Glenn, Stephen and Arlene Nussdorf (the "Nussdorf Trusts") loaned an aggregate of approximately $55 million to Model Acquisition contemporaneously with the consummation of the

Merger pursuant to unsecured subordinated promissory notes executed by Model Acquisition in favor of the Nussdorf Trusts. At the same time, Model Acquisition issued an unsecured subordinated promissory note in the principal amount of $35 million to Quality King Distributors, Inc. ("Quality King"). Glenn, Stephen and Arlene Nussdorf are principal stockholders of the Company, and Quality King is wholly owned by them.

All of the subordinated promissory notes issued to the Nussdorf Trusts and Quality King are subordinated to the Senior Credit Facility. The maturity date of the subordinated promissory notes payable to the Nussdorf Trusts is February 8, 2012 and the subordinated promissory note payable to Quality King debt will amortize quarterly beginning in January 2009 at the rate of $2.5 million per quarter, with the balance due June 30, 2012. The subordinated promissory notes payable to the Nussdorf Trusts bear interest at a rate equal to 2% over the rate in effect from time to time on the revolving loans under the Senior Credit Facility, and the subordinated promissory note payable to Quality King bears interest at a rate equal to 1% over the rate in effect from time to time on the revolving loans under the Senior Credit Facility. No interest . . .