NOTE 13.  COMMITMENTS AND CONTINGENCIES 

The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business.  Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows.  It is possible that, as additional information becomes available, the impact on the Company could have a different effect. 

The Company leases office, warehouse and distribution space under non-cancelable operating leases.  As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced.  Certain lease agreements include escalating rents over the lease terms.  The Company expenses rent on a straight-line basis over the lease term which commences on the date the Company has the right to control the property.  The cumulative expense recognized on a straight-line basis in excess of the cumulative payments is included in accounts payable and accrued liabilities and other long-term liabilities in the accompanying consolidated balance sheets. 

Total rent expense of the Company for the three months ended September 30, 2012 and 2011 was $546 and $357, respectively, and for the nine months ended September 30, 2012 and 2011 was $1,373 and $1,156, respectively. 

On September 28, 2012, Gregory, a wholly owned subsidiary of the Company, entered into a definitive agreement (the “A&F Agreement”) to acquire Gregory’s Japanese distribution assets from Kabushiki Kaisha A&F (“A&F”). 

As part of the terms of the A&F Agreement, the parties agreed to terminate their prior agreement and commencing on January 1, 2013, Gregory will acquire from A&F all responsibilities relating to the sale, marketing and distribution of Gregory’s products in Japan in exchange for the payment of $750 to A&F, of which $500 is payable on or before January 1, 2013, and $250 on or before December 31, 2013. Gregory has also agreed to purchase 100% of A&F’s then existing “in-line” inventory of Gregory products as of December 31, 2012, which is expected to be in the range of $650 to $750. The A&F Agreement also provides for certain other agreements and arrangements between the parties relating to the transition of the sales, marketing and distribution responsibilities to Gregory as well as certain understandings concerning A&F’s and Gregory’s relationship in the future. 

The Company has not recognized revenue of $604 on inventory shipped during the three and nine months ended September 30, 2012 related to the agreement to purchase 100% of A&F’s then existing “in-line” inventory of Gregory products as of December 31, 2012.