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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

[X]      Annual  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934

                   For the fiscal year ended December 31, 2008

[_]      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 0-16075

                            PEOPLE'S LIBERATION, INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                              86-0449546
(State or Other Jurisdiction of                             (I.R.S. Employer
Incorporation or Organization)                             Identification No.)

                        1212 S. FLOWER STREET, 5TH FLOOR
                              LOS ANGELES, CA 90015
                    (Address of Principal Executive Offices)

                                 (213) 745-2123
              (Registrant's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                      NONE

         Securities registered under Section 12(g) of the Exchange Act:

                     COMMON STOCK, PAR VALUE $.001 PER SHARE

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.             Yes [_]     No [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act.    Yes [_]     No [X]

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained,  to the best of registrant's knowledge, in definitive proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]

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
the 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 smaller reporting company)

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act.)                                Yes [_]     No [X]

The  aggregate   market  value  of  the   registrant's   common  stock  held  by
non-affiliates  of the registrant on June 30, 2008, the last business day of the
registrant's most recently completed second fiscal quarter was $3,646,965 (based
on the closing sales price of the registrant's common stock on that date).

At March 26, 2009, the registrant had 36,002,563 shares of Common Stock,  $0.001
par value, issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

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                            PEOPLE'S LIBERATION, INC.
                               INDEX TO FORM 10-K

PART I                                                                      PAGE

Item 1.       Business .....................................................   3

Item 1A.      Risk Factors .................................................   8

Item 1B.      Unresolved Staff Comments ....................................  15

Item 2.       Properties ...................................................  15

Item 3.       Legal Proceedings ............................................  15

Item 4.       Submission of Matters to a Vote of Security Holders ..........  16


PART II

Item 5.       Market for Registrant's Common Equity, Related Stockholder
                 Matters and Issuer Purchases of Equity Securities .........  16

Item 6.       Selected Financial Data ......................................  16

Item 7.       Management's Discussion and Analysis of Financial Condition
                 and Results of Operations .................................  17

Item 7A.      Quantitative and Qualitative Disclosures about Market Risk....  27

Item 8.       Financial Statements and Supplementary Data ..................  28

Item 9.       Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure ..................................  66

Item 9A(T).   Controls and Procedures ......................................  66

Item 9B.      Other Information ............................................  67


PART III

Item 10.      Directors, Executive Officers and Corporate Governance .......  67

Item 11.      Executive Compensation .......................................  70

Item 12.      Security Ownership of Certain Beneficial Owners and
                 Management and Related Stockholder Matters ................  78

Item 13.      Certain Relationships and Related Transactions, and
                 Director Independence .....................................  81

Item 14.      Principal Accounting Fees and Services .......................  82


PART IV

Item 15.      Exhibits, Financial Statement Schedules ......................  83


                                       1
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                                     PART I

         This 2008 Annual Report on Form 10-K,  including the sections  entitled
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and  "Business,"  contains  "forward-looking  statements"
that  include   information   relating  to  future  events,   future   financial
performance, strategies,  expectations,  competitive environment, regulation and
availability of resources.  These  forward-looking  statements include,  without
limitation,  statements  regarding:  proposed  new  services;  our  expectations
concerning  litigation,  regulatory  developments  or other matters;  statements
concerning projections,  predictions,  expectations,  estimates or forecasts for
our business,  financial and operating results and future economic  performance;
statements of management's goals and objectives;  and other similar  expressions
concerning  matters that are not historical facts.  Words such as "may," "will,"
"should,"  "could," "would,"  "predicts,"  "potential,"  "continue,"  "expects,"
"anticipates,"  "future,"  "intends,"  "plans,"  "believes" and "estimates," and
similar   expressions,   as  well  as  statements  in  future  tense,   identify
forward-looking statements.

         Forward-looking  statements should not be read as a guarantee of future
performance or results,  and will not necessarily be accurate indications of the
times at, or by which,  that  performance  or those  results  will be  achieved.
Forward-looking  statements are based on information  available at the time they
are made and/or  management's  good faith belief as of that time with respect to
future  events,  and are  subject to risks and  uncertainties  that could  cause
actual  performance or results to differ  materially  from those expressed in or
suggested by the forward-looking statements.  Important factors that could cause
these differences include, but are not limited to:

         o        our failure to  implement  our  business  plan within the time
                  period we originally planned to accomplish;

         o        the risks of  expanding  the number of products  we offer,  as
                  well as the number of brands we market and distribute;

         o        our ability to locate manufacturers who can timely manufacture
                  our products;

         o        our ability to enter into distribution  agreements both in the
                  United States and internationally;

         o        the demand for high-end  jeans and other casual apparel in the
                  United States and internationally;

         o        the demand for collection apparel;

         o        a decline in the retail sales environment;

         o        a decrease  in the  availability  of  financial  resources  at
                  favorable terms;

         o        industry competition;

         o        general economic conditions; and

         o        other factors  discussed  under the headings  "Risk  Factors,"
                  "Management's  Discussion and Analysis of Financial  Condition
                  and Results of Operations" and "Description of Business."

         Forward-looking statements speak only as of the date they are made. You
should not put undue reliance on any  forward-looking  statements.  We assume no
obligation  to update  forward-looking  statements  to reflect  actual  results,
changes in  assumptions  or changes in other factors  affecting  forward-looking
information,  except to the extent required by applicable securities laws. If we
do update one or more forward-looking  statements,  no inference should be drawn
that  we  will  make   additional   updates  with  respect  to  those  or  other
forward-looking statements.


                                       2
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ITEM 1.  BUSINESS

CORPORATE OVERVIEW

         We design,  market and sell  high-end  casual  apparel  under the brand
names  "People's  Liberation,"  "William  Rast" and, in the United  States,  "J.
Lindeberg."  The majority of the merchandise we offer consists of premium denim,
knits,  wovens, golf wear and outerwear for men and women. In the United States,
we  distribute  our  merchandise  to  better  specialty  stores,  boutiques  and
department stores, such as Nordstrom,  Bloomingdales,  Saks Fifth Avenue, Neiman
Marcus and Fred Segal. We also market and sell J. Lindeberg  branded  collection
and golf  apparel  through  our  flagship  retail  store in New York City and J.
Lindeberg  golf wear to green  grass  golf  stores and  boutiques  in the United
States.  Internationally,  in select countries, we sell our William Rast branded
apparel products  directly and through  distributors to better department stores
and boutiques throughout the world.

         We commenced our William Rast  clothing  line in May 2005.  Our William
Rast clothing line is a collaboration  with Justin  Timberlake and his childhood
friend, Trace Ayala. In addition, our William Rast lifestyle collection is being
developed and designed in  collaboration  with Paris68,  the independent  design
consultancy of Johan and Marcella Lindeberg.

         We began  distributing  J. Lindeberg  branded  apparel  products in the
United States on an exclusive basis beginning July 2008 in collaboration with J.
Lindeberg AB in Sweden.  In addition to being sold in the United States  through
our  subsidiary,  J.  Lindeberg USA, LLC, J.  Lindeberg  branded  high-end men's
fashion  and  premium  golf  apparel is  marketed  and sold by J.  Lindeberg  AB
worldwide.

         We commenced our People's Liberation business in July 2004. On December
16, 2008, we entered into an agreement  with Charlotte  Russe Holding,  Inc. and
its wholly-owned subsidiary, Charlotte Russe Merchandising,  Inc. (collectively,
"Charlotte  Russe") pursuant to which we agreed to exclusively sell to Charlotte
Russe, in North America and Central  America,  People's  Liberation(TM)  branded
apparel,  apparel  accessories,   eyewear,  jewelry,   watches,   cosmetics  and
fragrances,  and to provide  Charlotte Russe with marketing and branding support
for People's Liberation branded apparel and apparel  accessories.  We will cease
to sell People's  Liberation  branded  merchandise  in North America and Central
America to parties other than Charlotte  Russe effective April 30, 2009. We will
continue   to  market  and  sell   People's   Liberation   branded   merchandise
internationally,  with  the  exception  of  Central  America.  Product  sales to
Charlotte Russe under the terms of this agreement are expected to begin shipping
in July 2009.

         We are headquartered in Los Angeles, California,  maintain showrooms in
New York,  Los Angeles and Atlanta,  and have sales  representatives  in Dallas,
Texas, and Orlando, Florida.

STRUCTURE OF OPERATIONS

         Our wholly-owned subsidiary Versatile Entertainment,  Inc. conducts our
People's Liberation brand business. Our William Rast brand business is conducted
through our wholly-owned  subsidiary Bella Rose, LLC. William Rast Sourcing, LLC
and William Rast Licensing,  LLC are consolidated  under Bella Rose and are each
owned 50% by Bella  Rose and 50% by William  Rast  Enterprises,  LLC,  an entity
owned in part by Justin Timberlake. Our J. Lindeberg brand business is conducted
through Bella Rose. J. Lindeberg USA, LLC is  consolidated  under Bella Rose and
is owned 50% by Bella Rose and 50% by J. Lindeberg USA, Corp. an entity owned by
J. Lindeberg AB, a Swedish corporation.


                                       3
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APPAREL INDUSTRY BACKGROUND

         We  operate  exclusively  in the  premium  contemporary  segment of the
apparel industry,  which is characterized by lower volume sales of higher margin
products.  Our  future  success  depends  in part  on the  continued  demand  by
consumers for high-end casual apparel,  which in recent years has contributed to
a proliferation of brands such as True Religion,  Seven For All Mankind, Diesel,
G-Star,  Theory, Rock & Republic and Joe's Jeans. We anticipate that the premium
contemporary   segment  of  the  apparel   industry  will  become   increasingly
competitive  because of the consumer demand for apparel in this segment, as well
as the high retail  prices  consumers  are  willing to spend for such goods.  An
increase in the number of brands competing in the premium  contemporary  segment
of the apparel  industry  could result in reduced  shelf space for our brands at
better department stores and boutiques, our primary customers.

CUSTOMERS

         We market our products to better  department  stores and boutiques that
cater to fashion forward clientele. Our products are sold to a limited number of
better  department stores and boutiques to maintain our premium brand status. In
the  United  States,  our  products  are  sold  in a  number  of  Nordstrom  and
Bloomingdales  store  locations.  We plan to continue  to develop  our  existing
relationships with our customers, and expand our domestic sales and distribution
to better  department  stores as the  visibility  of our brands  increase in the
marketplace.  Currently, in addition to Nordstrom and Bloomingdales,  we sell to
Saks Fifth  Avenue,  Neiman  Marcus and Fred Segal as well as  hundreds of other
boutiques and specialty retailers.  We also market and sell J. Lindeberg branded
collection and golf apparel  through our flagship  retail store in New York City
and we sell J.  Lindeberg  golf wear to green grass golf stores and boutiques in
the United States.  Internationally,  in select  countries,  we sell our William
Rast products directly and through  distributors to better department stores and
boutiques   throughout  the  world.  We  intend  to  expand  our   international
distribution  into additional  territories and increase our brand penetration in
the countries in which our apparel is currently being sold.

         Beginning May 1, 2009, we will exclusively sell our People's Liberation
branded apparel and apparel  accessories to Charlotte Russe in North America and
Central America and provide  Charlotte Russe with marketing and branding support
for People's  Liberation  branded  apparel.  We will continue to market and sell
People's Liberation branded merchandise  internationally,  with the exception of
Central  America.  Product  sales to  Charlotte  Russe  under  the terms of this
agreement are expected to begin shipping in July 2009.

         Our e-commerce  websites provide direct on-line sales of select William
Rast,  J.  Lindeberg  and  People's  Liberation  products  to our  customers  at
www.williamrast.com,  www.jlindebergusa.com and  www.peoplesliberation.com.  The
websites showcase each brand's men's and women's collections,  including premium
denim jeans, knits, wovens, golf wear and outerwear.

OUR PRODUCTS

         Our principal  products  consist of high-end  casual  apparel under the
brand names "William Rast," "People's Liberation" and, in the United States, "J.
Lindeberg."  The majority of the merchandise we offer consists of premium denim,
knits, wovens, golf wear and outerwear for men and women. Our principal products
are designed,  manufactured,  marketed, and distributed under our "William Rast"
and  "People's  Liberation"  labels  and we market and  distribute  under the J.
Lindeberg   label  in  the  United  States,   products  that  are  designed  and
manufactured  by J.  Lindeberg  AB. Our William  Rast brand is a  collection  of
denim,  knits,  wovens  and  outerwear  for both  men and  women,  our  People's
Liberation brand primarily includes denim for men and women and the J. Lindeberg
brand  primarily  consists  of golf wear and  collection  apparel  for men. As a
result of the fit, quality,  styles and successful marketing and branding of our
products,  we believe that our products will continue to command  premium prices
in the marketplace.


                                       4
<PAGE>


         Our denim is made from high  quality  fabrics  milled  primarily in the
United States, Japan and Italy and processed with various treatments, washes and
finishes,  including light,  medium,  dark, and destroyed washes,  some of which
include studs,  stones, and embroidered pockets as embellishments.  We introduce
new  versions of our major styles each season in  different  colors,  washes and
finishes.

         Our knits and woven  products  consist  of men's and  women's  tops and
bottoms. We sell knit and woven products which consist of cotton,  velour, terry
loop, fleece and nylon fabrications. Similar to our denim products, we introduce
new versions, bodies, styles, colors and graphics of our knit and woven products
each season.  We anticipate  expanding our products and  fabrications to include
other fashion forward materials.

         Our William Rast lifestyle  collection is being  developed and designed
in collaboration with Paris68,  the independent design consultancy firm of Johan
and Marcella  Lindeberg.  Johan  Lindeberg,  best known for his role as Creative
Director of the Swedish brand J. Lindeberg,  designs our men's  collection while
Marcella Lindeberg designs our women's collection. This collaboration results in
a partnership to develop the William Rast brand into full contemporary men's and
women's fashion  collections.  The initial collections were launched in February
of 2008.

         We began  distributing  J. Lindeberg  branded  apparel  products in the
United States on an exclusive basis beginning July 2008 in collaboration with J.
Lindeberg  AB in Sweden.  In  addition  to being sold in the United  States,  J.
Lindeberg  branded  high-end  men's fashion and premium golf apparel is marketed
and sold by J. Lindeberg AB worldwide.

         An  in-house  team of  designers  is  responsible  for the  design  and
development of our People's  Liberation  product line and our William Rast denim
product  line.  We do  not  currently  have  in  place  a  formal  research  and
development effort. Our design teams,  together with our in-house sales team and
our J. Lindeberg  outside sales  contractors,  shop stores,  travel and speak to
market and trend setters to help generate new product ideas.

SALES AND DISTRIBUTION

         US SALES AND DISTRIBUTION

         We sell our products  through our own sales force based in Los Angeles,
New York, Atlanta, Orlando and Dallas. Additionally, we operate showrooms in Los
Angeles,  New York and Atlanta with dedicated  salaried and  commissioned  sales
staff. We also employ customer service  representatives  who are assigned to key
customers and provide in-house customer service support. We ship products to and
invoice our United States customers  directly from warehouse  facilities located
in or around Los Angeles, California, and Somerset, New Jersey. Under agreements
with  third-party  warehouses,  we outsource all of our finished good  shipping,
receiving and warehouse functions.

         Currently,  our  products are sold in the United  States to  department
stores and boutiques.  While we do not depend on any individual department store
to sell  our  products,  for  the  years  ended  December  31,  2008  and  2007,
approximately 28.9% and 31.1% of our sales were to one customer.

         Beginning May 1, 2009, we will exclusively sell our People's Liberation
branded apparel and apparel  accessories to Charlotte Russe in North America and
Central America and provide  Charlotte Russe with marketing and branding support
for People's  Liberation  branded  apparel.  We will continue to market and sell
People's Liberation branded merchandise  internationally,  with the exception of
Central America.


                                       5
<PAGE>


         INTERNATIONAL SALES AND DISTRIBUTION

         Our William Rast branded apparel products are sold  internationally  in
select countries  directly and through  distributors to better department stores
and boutiques.  Our distributors  purchase  products at a discount for resale in
their respective  territories and market,  sell, warehouse and ship William Rast
branded  apparel   products  at  their  expense.   We  anticipate   growing  our
international distribution channels across new territories.

BRAND DEVELOPMENT

         Our William Rast, J. Lindeberg and People's  Liberation  brands already
have consumer  recognition in the high-end fashion denim,  knits,  golf wear and
casual wear markets. We plan to continue building and expanding this recognition
by target  marketing our lines to fashion  conscious  consumers who want to wear
and be seen in the latest, trendiest jeans and other apparel. To facilitate this
objective,  we plan to continue to limit distribution to exclusive boutiques and
major  retailers.  We also plan to use  celebrities  as a marketing  catalyst to
continue  to bring  attention  and  credibility  to our  brands.  Currently,  we
leverage the popular public images of Justin  Timberlake in the promotion of our
William Rast apparel line and Camilo  Villegas to promote our J.  Lindeberg golf
wear line.

         We anticipate  that our internal growth will be driven by (1) expansion
of our  product  lines by  introducing  new  styles  and  categories  of apparel
products,   (2)  entering  into  license  agreements  for  the  manufacture  and
distribution  of new  apparel  categories,  accessories,  fragrances  and  other
products,  (3) expansion of our wholesale  distribution,  both  domestically and
internationally  through  high-end  retailers,  and (4) operating a retail store
chain.  Our goal is to  employ a  multi-brand  strategy  which  diversifies  the
fashion and other risks associated with reliance on any single brand.

MANUFACTURING AND SUPPLY

         We use third  party  contract  manufacturers  to produce  our  People's
Liberation  and  William  Rast  denim  finished  goods from  facilities  located
primarily in Los Angeles, California. For the majority of our denim products, we
purchase fabric and trim from suppliers who deliver these components directly to
us to be cut, sewn, washed and finished by our contract  manufacturers.  For the
majority of our knits and other non-denim  products,  we source these goods from
international  suppliers. As our product offerings increase, we intend to expand
the  number  of  contract   manufacturers   we  use,   both   domestically   and
internationally,  to perform some or all of the manufacturing processes required
to produce  finished  products.  We currently  purchase all of our J.  Lindeberg
branded apparel products from J. Lindeberg AB in Sweden, the beneficial owner of
50% of our  subsidiary,  J.  Lindeberg  USA.  We intend to source  our  People's
Liberation  denim and knit products sold to Charlotte  Russe under our exclusive
distribution agreement from international suppliers of full package goods.

         We  believe  we  can  realize   additional   cost  savings  in  product
manufacturing  because of our strong  relationships with a diverse group of U.S.
and international manufacturers established by our management team. In addition,
the increase in production  volume as a result of our multi-brand  strategy will
give us greater  purchasing  power. We do not rely on any one  manufacturer  and
manufacturing  capacity  is readily  available  to meet our  current and planned
needs. We do not currently have any long-term agreements in place for the supply
of fabric, thread or other raw materials. Fabric, thread and other raw materials
are  available  from a large number of suppliers  worldwide.  Although we do not
depend  on any one  supplier,  for the  year  ended  December  31,  2008,  three
suppliers  provided for 34.5% of our total combined  purchases for the year. For
the year ended December 31, 2007, four suppliers provided for 52.4% of our total
combined purchases for the year.


                                       6
<PAGE>


COMPETITION

         The  premium  denim,  knits  and golf  wear  industries  are  intensely
competitive  and  fragmented,  and will continue to become more  competitive and
fragmented  as a  result  of  the  high  margins  that  are  achievable  in  the
industries.  Our competitors include other small companies like ours, as well as
companies that are much larger, with superior economic, marketing, distribution,
and  manufacturing  capabilities.  Our competitors in the denim and knit markets
include brands such as True  Religion,  Seven For All Mankind,  Diesel,  G-Star,
Theory, Rock & Republic and Joe's Jeans, as well as other premium denim brands.

         We compete in our ability to create  innovative  concepts  and designs,
develop  products with  extraordinary  fit, and produce high quality fabrics and
finishes, treatments and embellishments. At a retail price point of $150 to $280
for denim  jeans,  $20 to $125 for knits and  other  apparel  items,  and $60 to
$1,000 for collection  products,  we believe that we offer  competitively  value
priced products.

TRADEMARKS AND OTHER INTELLECTUAL PROPERTY

         We have filed  trademark  applications  for the following  marks in the
following territories:

         NAME OF MARK                          TERRITORY
         ------------                          ---------
         People's Liberation                   USA, European  Community,  Japan,
                                               Mexico,   People's   Republic  of
                                               China,  Republic  of Korea,  Hong
                                               Kong,  Israel,   Russia,  Taiwan,
                                               Singapore,  Turkey, Australia and
                                               Canada.

         William Rast                          USA, European  Community,  Japan,
                                               Mexico,   People's   Republic  of
                                               China, Hong Kong, Israel, Russia,
                                               Taiwan,    Singapore,     Turkey,
                                               Canada,  Australia,  Republic  of
                                               Korea,  Croatia  and United  Arab
                                               Emirates.

         William Rast & Design                 USA, European Community and Japan

         Rising Star                           USA, European  Community,  Japan,
                                               Mexico,   People's   Republic  of
                                               China,  Republic  of Korea,  Hong
                                               Kong,  Israel,   Russia,  Taiwan,
                                               Singapore,  Turkey, Australia and
                                               Canada

         Star Pocket                           USA,  Japan,   Mexico,   People's
                                               Republic  of China,  Republic  of
                                               Korea, Israel, Russia, Singapore,
                                               Turkey, Australia and Canada

         The Dub                               USA, European  Community,  Japan,
                                               Mexico,   People's   Republic  of
                                               China, Republic of Korea, Russia,
                                               Canada,  Croatia  and United Arab
                                               Emirates

         Dancing Star                          USA

         Mummy Star                            USA, Mexico, Canada

         People's Liberation & Design          USA
         (Dancing Star)

         People's Liberation & Design          USA, Mexico, Canada
         (Mummy Star)

         We plan to  continue  to  expand  our brand  names and our  proprietary
trademarks and designs worldwide.


                                        7
<PAGE>


GOVERNMENT REGULATION AND SUPERVISION

         Our operations are subject to the effects of international treaties and
regulations such as the North American Free Trade Agreement (NAFTA). We are also
subject to the  effects of  international  trade  agreements  and  embargoes  by
entities such as the World Trade  Organization.  Generally,  these international
trade agreements benefit our business rather than burden it because they tend to
reduce trade quotas, duties, taxes and similar impositions. However, these trade
agreements may also impose restrictions that could have an adverse impact on our
business,  by limiting  the  countries  from whom we can  purchase our fabric or
other component  materials,  or limiting the countries where we might market and
sell our products.

         Labeling and  advertising  of our products is subject to  regulation by
the Federal Trade  Commission.  We believe that we are in compliance  with these
regulations.

EMPLOYEES

         As of December 31, 2008, we had a total of 65 full time employees.  Our
full time employees  consist of four officers,  Colin Dyne, our Chief  Executive
Officer,  Thomas  Nields,  our  Chief  Operating  Officer,  Darryn  Barber,  our
President and Chief Financial Officer and Andrea Sobel, Executive Vice President
of Branding and Licensing.  Our production and design teams include 30 employees
consisting  of production  managers as well as sample  sewers,  pattern  makers,
technical  designers and product designers.  Our production and design teams are
responsible for the design,  development,  and  preparation of sample  products.
Additionally,  we  have 31  employees  who  handle  sales,  marketing,  customer
service, accounting and administration functions.

ITEM 1A. RISK FACTORS

         Several   of  the   matters   discussed   in  this   document   contain
forward-looking  statements  that  involve  risks  and  uncertainties.   Factors
associated with the  forward-looking  statements that could cause actual results
to differ  materially  from those  projected  or  forecast  are  included in the
statements  below.  In addition to other  information  contained in this report,
readers should carefully consider the following cautionary statements.

                          RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY AND HAVE EXPERIENCED OPERATING LOSSES MAKING
IT DIFFICULT TO EVALUATE WHETHER WE WILL OPERATE PROFITABLY.

         Certain of our subsidiaries,  Versatile  Entertainment,  Inc. and Bella
Rose, LLC, and Bella Rose's  subsidiaries,  William Rast Sourcing,  LLC, William
Rast Licensing,  LLC and J. Lindeberg USA, LLC, have limited operating  history.
Versatile  was  established  in April 2001 to  design,  market,  and  distribute
high-end  casual  apparel and  commenced  operation of its  People's  Liberation
business  in July 2004.  Versatile  began  shipping  its  products in the fourth
quarter of 2004.  Bella Rose was formed in May of 2005, to design,  market,  and
distribute  high-end  casual apparel under the brand name "William  Rast." Bella
Rose began shipping its products in the fourth quarter of 2005. J. Lindeberg USA
was formed in June 2008 and began  distributing  J.  Lindeberg  branded  apparel
products in the United  States on an exclusive  basis in July 2008.  Because our
subsidiaries only recently commenced their principal operations,  we do not have
a meaningful historical record of sales and revenues nor an established business
track record.  While we believe that we have the opportunity to be successful in
the  premium  contemporary  segment  of the  apparel  industry,  there can be no
assurance that we will be successful in accomplishing our business  initiatives,
or that we will be able to achieve  any  significant  levels of  revenues or net
income, from the sale of our products.


                                       8
<PAGE>


         Unanticipated problems,  expenses and delays are frequently encountered
in increasing  production and sales and  developing new products,  especially in
the current  stages of our  business.  Our  ability to continue to  successfully
develop,  produce and sell our  products and to generate  significant  operating
revenues will depend on our ability to, among other matters:

         -        successfully market, distribute and sell our products or enter
                  into  agreements with third parties to perform these functions
                  on our behalf; and

         -        obtain the financing required to implement our business plan.

         Given our limited  operating  history,  lack of long-term sales history
and other sources of revenue,  there can be no assurance that we will be able to
achieve any of our goals and develop a  sufficiently  large  customer base to be
profitable.

OUR WILLIAM RAST CLOTHING LINE IS ENDORSED BY JUSTIN TIMBERLAKE,  AND SHOULD OUR
RELATIONSHIP  WITH  MR.  TIMBERLAKE   DETERIORATE,   OUR  PROFITABILITY  MAY  BE
NEGATIVELY IMPACTED.

         Two of our  consolidated  subsidiaries,  which  we own  with an  entity
controlled  by Justin  Timberlake,  have the  exclusive  rights  to  manufacture
clothing and accessories  under the William Rast trade name. Mr.  Timberlake has
agreed to publicly promote and endorse the William Rast brand, and we manage the
companies and are responsible for funding the costs of their  operation.  In the
event that our relationship with Mr. Timberlake deteriorates, Mr. Timberlake may
refuse to directly or  indirectly  promote our William  Rast brand,  which could
reduce  the  acceptance  of  our  William  Rast  brand  in the  marketplace  and
consequently harm our sales and profitability.

WE RELY ON A DESIGN COMPANY TO DESIGN OUR WILLIAM RAST LIFESTYLE COLLECTION.

         We rely on Paris68,  the independent  design  consultancy firm of Johan
and  Marcella  Lindeberg to design our William Rast  lifestyle  collection.  Our
William  Rast brand is an integral  component of our business and accounts for a
significant portion of our sales. In the event that Paris68 fails to fulfill its
obligations  to us by, for  example,  failing to timely  deliver  products for a
particular  season, or if the reputation of our William Rast brand is negatively
impacted  as  a  result  of  our  relationship  with  Paris68,   our  sales  and
profitability could decline.

OUR J. LINDEBERG  CLOTHING LINE IS A COLLABORATION WITH J. LINDEBERG USA CORP, A
WHOLLY-OWNED  SUBSIDIARY OF J.  LINDEBERG AB. SHOULD OUR  RELATIONSHIP  WITH OUR
PARTNER DETERIORATE, OUR PROFITABILITY MAY BE NEGATIVELY IMPACTED.

         J.  Lindeberg  USA,  LLC,  which  is  50%  owned  by  our  wholly-owned
subsidiary,  Bella Rose,  and 50% owned by J. Lindeberg USA Corp, a wholly-owned
subsidiary of J. Lindeberg AB, has the exclusive rights to source,  market,  and
distribute J. Lindeberg(TM) branded apparel in the United States on an exclusive
basis.  We manage J.  Lindeberg  USA and will be required to  contribute up to a
maximum  of $1.5  million  in working  capital  or  related  guaranties  through
December 2010. J. Lindeberg AB is required to make available to J. Lindeberg USA
for  purchase all new  collections  of J.  Lindeberg(TM)  branded  apparel,  and
provide for the factory-direct  purchase by J. Lindeberg USA of J. Lindeberg(TM)
branded  apparel  on terms no less  favorable  to J.  Lindeberg  USA then  terms
received by J. Lindeberg AB or its affiliates for the same or substantially  the
same  merchandise.  In addition,  the agreements  establishing  the relationship
between the parties  provide for a license from J.  Lindeberg AB to J. Lindeberg
USA of the J.  Lindeberg(TM)  mark and other related marks for use in the United
States on an  exclusive  basis for a period of 25 years.  In the event  that our
relationship  with J. Lindeberg AB  deteriorates  or if J. Lindeberg AB fails to
fulfill its  contractual  obligations  to us by, for example,  failing to timely
deliver products for a particular season,  our sales and profitability  could be
negatively impacted.


                                       9
<PAGE>


WE RELY ON OUR INTERNATIONAL DISTRIBUTORS TO SELL OUR PRODUCTS

         Internationally,  we sell our products primarily through  distributors.
In the event our  international  distributors  fail to successfully  promote and
sell our brands outside the United States, the reputation of our brands could be
negatively impacted, and our sales and profitability would decline.

WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE.

         We may not be able to fund our  future  growth or react to  competitive
pressures if we lack sufficient  funds.  Currently,  we believe that our cash on
hand,  anticipated cash from operations,  and cash available  through our factor
should be  sufficient  to fund existing  operations  for the next 12 months.  We
anticipate  that the advance  payments we will  receive  under our  distribution
agreement  with Charlotte  Russe should be adequate to fund our working  capital
shortages, if any. The extent of our future capital  requirements will depend on
many factors,  including our results of operations.  If our cash from operations
is  less  than  anticipated  or our  working  capital  requirements  or  capital
expenditures  are  greater  than we  expect,  or if we expand  our  business  by
acquiring or investing in  additional  brands,  we may need to raise  additional
debt or  equity  financing  within  the  next  twelve  months.  There  can be no
assurance  that  additional  debt  or  equity  financing  will be  available  on
acceptable  terms or at all. In addition,  any additional  funding may result in
significant  dilution  to  existing  shareholders.  If  adequate  funds  are not
available,  we may be required to curtail our operations or obtain funds through
collaborative  partners  that may require us to release  material  rights to our
products.

FAILURE TO MANAGE OUR GROWTH AND EXPANSION COULD IMPAIR OUR BUSINESS.

         We believe that we are poised for growth in 2009.  No assurance  can be
given that we will be successful in  maintaining  or increasing our sales in the
future.  Any future growth in sales will require  additional working capital and
may  place  a  significant  strain  on our  management,  management  information
systems, inventory management, sourcing capability,  distribution facilities and
receivables credit management. Any disruption in our order processing,  sourcing
or  distribution  systems  could  cause  orders to be  shipped  late,  and under
industry  practices,  retailers  generally can cancel orders or refuse to accept
goods due to late  shipment.  Such  cancellations  and returns would result in a
reduction in revenue,  increased  administrative  and shipping  costs, a further
burden on our  distribution  facilities and also adversely  impact our relations
with retailers.

WE OPERATE IN A SEASONAL BUSINESS, AND OUR FAILURE TO TIMELY DELIVER PRODUCTS TO
MARKET WILL NEGATIVELY IMPACT OUR PROFITABILITY.

         The  apparel  industry is a seasonal  business  in which our  financial
success is largely determined by seasonal events such as the commencement of the
school year and holiday  seasons.  In the event that we are unable to supply our
products to the marketplace in a timely manner as a consequence of manufacturing
delays,   shipping  delays,   or  other  operational   delays,   our  sales  and
profitability will be negatively impacted.


                                       10
<PAGE>


OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

         Management  expects that we will experience  substantial  variations in
our net sales and operating results from quarter to quarter. We believe that the
factors which influence this variability of quarterly results include:

         -        the timing of our introduction of new product lines;

         -        the level of consumer acceptance of each new product line;

         -        general economic and industry  conditions that affect consumer
                  spending and retailer purchasing;

         -        the availability of manufacturing capacity;

         -        the timing of trade shows;

         -        the product mix of customer orders;

         -        the return of defective merchandise;

         -        the  timing  of the  placement  or  cancellation  of  customer
                  orders;

         -        transportation delays;

         -        quotas and other regulatory matters;

         -        the lack of credit approval of our customers from our factor;

         -        the occurrence of charge backs in excess of reserves; and

         -        the timing of  expenditures in anticipation of increased sales
                  and actions of competitors.

         As a result of fluctuations in our revenue and operating  expenses that
may occur, management believes that period-to-period  comparisons of our results
of  operations  are  not a good  indication  of our  future  performance.  It is
possible that in some future quarter or quarters,  our operating results will be
below the  expectations of securities  analysts or investors.  In that case, our
stock price could fluctuate significantly or decline.

THE FINANCIAL CONDITION OF OUR CUSTOMERS COULD AFFECT OUR RESULTS OF OPERATIONS.

         Certain retailers, including some of our customers, have experienced in
the past,  and may  experience  in the  future,  financial  difficulties,  which
increase  the risk of  extending  credit  to such  retailers  and the risk  that
financial  failure will  eliminate a customer  entirely.  These  retailers  have
attempted to improve their own operating  efficiencies  by  concentrating  their
purchasing  power among a narrowing group of vendors.  There can be no assurance
that we will remain a preferred vendor for our existing customers. A decrease in
business from or loss of a major  customer,  such as one customer that accounted
for 28.9% and 31.1% of our net sales for the years ended  December  31, 2008 and
2007,  respectively,  could have a material adverse effect on the results of our
operations. There can be no assurance that our factor will approve the extension
of credit to certain retail customers in the future.  If a customer's  credit is
not approved by the factor or sales to a customer  exceed the  factor's  imposed
limits, we could assume the collection risk on sales to the customer.

OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH IMPORTING PRODUCTS.

         A portion of our import  operations  are subject to tariffs  imposed on
imported  products and quotas  imposed by trade  agreements.  In  addition,  the
countries  into which our  products  are  imported  may from time to time impose
additional  new  duties,  tariffs  or other  restrictions  on their  imports  or
adversely  modify existing  restrictions.  Adverse changes in these import costs
and  restrictions,  or our suppliers'  failure to comply with customs or similar
laws,  could harm our business.  We cannot  assure that future trade  agreements
will not provide our  competitors  with an  advantage  over us, or increase  our
costs,  either  of which  could  have an  adverse  effect  on our  business  and
financial condition.

         Our operations are also subject to the effects of  international  trade
agreements and regulations such as the North American Free Trade Agreement,  and
the activities and regulations of the World Trade Organization. Generally, these
trade  agreements  benefit our  business by reducing or  eliminating  the duties
assessed on products or other materials  manufactured  in a particular  country.


                                       11
<PAGE>


However, trade agreements can also impose requirements that adversely affect our
business,  such as  limiting  the  countries  from  which  we can  purchase  raw
materials and setting  duties or  restrictions  on products that may be imported
into the United States from a particular country.

         Our  ability to import  raw  materials  in a timely and  cost-effective
manner may also be affected by problems at ports or issues that otherwise affect
transportation and warehousing providers, such as labor disputes. These problems
could require us to locate  alternative ports or warehousing  providers to avoid
disruption to our customers.  These  alternatives  may not be available on short
notice or could  result in higher  transit  costs,  which  could have an adverse
impact on our business and financial condition.

OUR  DEPENDENCE  ON  INDEPENDENT  MANUFACTURERS  AND  SUPPLIERS OF RAW MATERIALS
REDUCES OUR ABILITY TO CONTROL THE MANUFACTURING  PROCESS,  WHICH COULD HARM OUR
SALES, REPUTATION AND OVERALL PROFITABILITY.

         We depend on independent  contract  manufacturers  and suppliers of raw
materials to secure a sufficient supply of raw materials and maintain sufficient
manufacturing and shipping capacity in an environment characterized by declining
prices,  labor  shortage,  continuing  cost pressures and increased  demands for
product  innovation and  speed-to-market.  This  dependence  could subject us to
difficulty in obtaining  timely delivery of products of acceptable  quality.  In
addition,  a  contractor's  failure to ship products to us in a timely manner or
failure  to meet  the  required  quality  standards  could  cause us to miss the
delivery  date  requirements  of our  customers.  The  failure  to  make  timely
deliveries  may  cause  our  customers  to  cancel  orders,   refuse  to  accept
deliveries,  impose  non-compliance  charges through invoice deductions or other
charge-backs,  demand reduced prices or reduce future orders, any of which could
harm our sales, reputation and overall profitability.

         For the year ended December 31, 2008, three  contractors  accounted for
approximately  35% of our purchases.  For the year ended December 31, 2007, four
contractors  accounted for  approximately  52% of our purchases.  We do not have
long-term  contracts with any of our independent  contractors,  and any of these
contractors may unilaterally  terminate their  relationship with us at any time.
While management believes that there exists an adequate supply of contractors to
provide  products  and  services  to us, to the  extent  that we are not able to
secure or maintain  relationships with independent  contractors that are able to
fulfill our requirements, our business would be harmed.

         We do not  control  our  contractors  or  their  labor  practices.  The
violation  of  federal,  state or foreign  labor laws by one of our  contractors
could  subject  us to fines and  result in our goods  that are  manufactured  in
violation of such laws being seized or their sale in interstate  commerce  being
prohibited.   To  date,  we  have  not  been  subject  to  any  sanctions  that,
individually  or in the  aggregate,  have had a material  adverse  effect on our
business, and we are not aware of any facts on which any such sanctions could be
based.  There can be no  assurance,  however,  that in the future we will not be
subject to sanctions as a result of violations  of applicable  labor laws by our
contractors,  or that such sanctions will not have a material  adverse effect on
our business and results of operations.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

         The loss of or inability to enforce the  trademarks  "William Rast" and
"People's  Liberation"  and our other  proprietary  designs,  know-how and trade
secrets could adversely  affect our business.  If any third party  independently
develops similar products to ours or manufactures knock-offs of our products, it
may be costly to  enforce  our  rights  and we would not be able to  compete  as
effectively.  Additionally, the laws of foreign countries may provide inadequate
protection of intellectual  property rights, making it difficult to enforce such
rights in those countries.

         We  may  need  to  bring  legal   claims  to  enforce  or  protect  our
intellectual   property   rights.   Any   litigation,   whether   successful  or
unsuccessful,  could result in substantial costs and diversions of resources. In
addition,  notwithstanding  the  rights  we  have  secured  in our  intellectual
property,  third  parties  may bring  claims  against us  alleging  that we have
infringed  on  their  intellectual  property  rights  or that  our  intellectual


                                       12
<PAGE>


property  rights are not valid.  Any claims  against us, with or without  merit,
could be time  consuming  and costly to defend or litigate and  therefore  could
have an adverse affect on our business.

THE LOSS OF CHIEF EXECUTIVE OFFICER, COLIN DYNE, COULD HAVE AN ADVERSE EFFECT ON
OUR FUTURE DEVELOPMENT AND COULD SIGNIFICANTLY IMPAIR OUR ABILITY TO ACHIEVE OUR
BUSINESS OBJECTIVES.

         Our success is largely  dependent  upon the  expertise and knowledge of
our Chief  Executive  Officer,  Colin Dyne,  whom we rely upon to formulate  our
business strategy.  As a result of the unique skill set and  responsibilities of
Mr.  Dyne,  the loss of Mr.  Dyne could have a  material  adverse  effect on our
business,  development,  financial  condition,  and operating results. We do not
maintain  "key person" life  insurance on any of our  management,  including Mr.
Dyne.

THE  REQUIREMENTS  OF  THE  SARBANES-OXLEY   ACT,  INCLUDING  SECTION  404,  ARE
BURDENSOME,  AND OUR FAILURE TO COMPLY  WITH THEM COULD HAVE A MATERIAL  ADVERSE
AFFECT ON OUR BUSINESS AND STOCK PRICE.

         Effective internal control over financial reporting is necessary for us
to provide reliable financial reports and effectively prevent fraud. Section 404
of the  Sarbanes-Oxley  Act of 2002  required us to  evaluate  and report on our
internal  control over financial  reporting  beginning with our annual report on
Form  10-KSB for the fiscal  year  ending  December  31,  2007.  Currently,  our
independent  registered  public  accounting  firm will be  required  to annually
attest to our  evaluation,  and issue their own opinion on our internal  control
over  financial  reporting  beginning with our annual report for the fiscal year
ending  December 31, 2009. We have prepared for  compliance  with Section 404 by
strengthening,  assessing  and  testing  our  system of  internal  control  over
financial  reporting  to  provide  the  basis for our  report.  The  process  of
strengthening  our internal control over financial  reporting and complying with
Section  404  was  expensive  and  time  consuming,   and  required  significant
management attention.  We cannot be certain that the measures we have undertaken
will ensure that we will maintain adequate controls over our financial processes
and  reporting  in the future.  Furthermore,  if we are able to rapidly grow our
business,  the internal control over financial  reporting that we will need will
become more complex, and significantly more resources will be required to ensure
our internal  control over financial  reporting  remains  effective.  Failure to
implement   required   controls,   or   difficulties    encountered   in   their
implementation, could harm our operating results or cause us to fail to meet our
reporting obligations. If we or our auditors discover a material weakness in our
internal control over financial reporting,  the disclosure of that fact, even if
the weakness is quickly remedied,  could diminish  investors'  confidence in our
financial statements and harm our stock price. In addition,  non-compliance with
Section 404 could subject us to a variety of administrative sanctions, including
the suspension of trading,  ineligibility for listing on one of the Nasdaq Stock
Markets or  national  securities  exchanges,  and the  inability  of  registered
broker-dealers to make a market in our common stock,  which would further reduce
our stock price.

                          RISKS RELATED TO OUR INDUSTRY

OUR BUSINESS MAY BE NEGATIVELY  IMPACTED BY GENERAL ECONOMIC  CONDITIONS AND THE
CURRENT GLOBAL FINANCIAL CRISIS.

         Our performance is subject to worldwide  economic  conditions and their
impact  on  levels  of  consumer  spending  that  affect  not only the  ultimate
consumer,  but also retailers and  distributors,  our largest direct  customers.
Consumer  spending  recently  has  deteriorated  significantly  and  may  remain
depressed,  or be subject to further  deterioration for the foreseeable  future.
The worldwide apparel industry is heavily influenced by general economic cycles.
Purchases of high-end fashion apparel and accessories tend to decline in periods
of recession or uncertainty  regarding future economic prospects,  as disposable
income  declines.  Many  factors  affect the level of  consumer  spending in the
apparel industries,  including,  among others:  prevailing economic  conditions,
levels of employment, salaries and wage rates, energy costs, interest rates, the
availability  of consumer  credit,  taxation and consumer  confidence  in future
economic conditions. During periods of recession or economic uncertainty, we may
not be able to maintain or increase our sales to existing customers,  make sales


                                       13
<PAGE>


to new  customers  or maintain or increase  our  international  operations  on a
profitable  basis.  As a result,  our  operating  results may be  adversely  and
materially  affected by downward  trends in the United States or global economy,
including  the current  recession in the United  States.

WE OPERATE IN A HIGHLY  COMPETITIVE  INDUSTRY  AND THE  SUCCESS OF OUR  BUSINESS
DEPENDS ON OUR ABILITY TO OVERCOME A VARIETY OF COMPETITIVE CHALLENGES.

         We operate  our  business in the  premium  contemporary  segment of the
apparel industry.  Currently,  our competitors include companies and brands such
as True Religion, Seven For All Mankind, Diesel, G-Star, Theory, Rock & Republic
and Joe's Jeans. We face a variety of competitive challenges including:

         -        anticipating  and  quickly  responding  to  changing  consumer
                  demands that are dictated in part by fashion and season;

         -        developing  innovative,  high-quality  products  in sizes  and
                  styles that appeal to consumers;

         -        competitively  pricing our  products  and  achieving  customer
                  perception of value; and

         -        the need to provide strong and effective  marketing support to
                  maintain our brand image.

         Our ability to anticipate and effectively  respond to these competitive
challenges depends in part on our ability to attract and retain key personnel in
our design,  merchandising and marketing staff.  Competition for these personnel
is  intense,  and we cannot be sure that we will be able to attract and retain a
sufficient  number of qualified  personnel in future periods.  In addition,  our
competitors  may have greater  financial  resources than we do which could limit
our ability to respond quickly to market  demands.  In the event that we are not
successful  in  addressing  the  competitive  challenges  we face, we could lose
market  share to our  competitors  and  consequently  our stock  price  could be
negatively impacted.

                        RISKS RELATED TO OUR COMMON STOCK

SINCE TRADING ON THE OTC BULLETIN BOARD MAY BE SPORADIC, YOU MAY HAVE DIFFICULTY
RESELLING YOUR SHARES OF OUR COMMON STOCK.

         In the past,  our trading  price has  fluctuated  as the result of many
factors that may have little to do with our operations or business prospects. In
addition,  because the trading of securities on the OTC Bulletin  Board is often
more sporadic than the trading of securities listed on an exchange, you may have
difficulty reselling any of our common shares.

WE HAVE A LIMITED  TRADING  VOLUME AND SHARES  ELIGIBLE  FOR FUTURE  SALE BY OUR
CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE.

         To date, we have had a very limited trading volume in our common stock.
For instance,  for the year ended December 31, 2008,  approximately  2.5 million
shares of our common stock were traded and for the year ended December 31, 2007,
approximately  6.1 million  shares of our common stock were  traded.  As long as
this condition  continues,  the sale of a significant number of shares of common
stock at any particular  time could be difficult to achieve at the market prices
prevailing immediately before such shares are offered.


                                       14
<PAGE>


OUR COMMON STOCK PRICE IS HIGHLY VOLATILE.

         The market price of our common stock is likely to be highly volatile as
the stock market in general has been highly volatile.

         Factors  that could  cause  such  volatility  in our  common  stock may
include, among other things:

         -        actual or anticipated  fluctuations in our quarterly operating
                  results;

         -        changes in financial estimates by securities analysts;

         -        conditions  or trends in our  industry  or in the  economy  in
                  general; and

         -        changes  in  the  market   valuations   of  other   comparable
                  companies.

WE DO NOT FORESEE PAYING DIVIDENDS IN THE NEAR FUTURE.

         We have not paid  dividends on our common  stock and do not  anticipate
paying such dividends in the foreseeable future.

OUR OFFICERS AND DIRECTORS OWN A SIGNIFICANT  PORTION OF OUR COMMON STOCK, WHICH
COULD  LIMIT  OUR  STOCKHOLDERS'   ABILITY  TO  INFLUENCE  THE  OUTCOME  OF  KEY
TRANSACTIONS.

         Our  officers  and  directors  and their  affiliates  beneficially  own
approximately  26.4% of our  outstanding  voting  shares as of March 2, 2009. In
addition,  Gerard  Guez,  a relative of our founder and former  chief  executive
officer and director,  Daniel Guez, owns approximately  29.7% of our outstanding
voting shares. As a result,  our officers and directors,  and Mr. Guez, are able
to exert  influence  over the outcome of any matters  submitted to a vote of the
holders of our common  stock,  including the election of our Board of Directors.
The voting power of these stockholders could also discourage others from seeking
to acquire  control of us through the purchase of our common stock,  which might
depress the price of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

         Not applicable.

ITEM 2.  PROPERTIES

         We lease our principal  executive  office space under a lease agreement
that expires in March 2012.  The facility is  approximately  13,000 square feet,
and is located in Los  Angeles,  California.  It is from this  facility  that we
conduct all of our executive and administrative functions. We lease 7,500 square
feet of  warehouse  space  located in Los  Angeles,  California,  to conduct our
design  functions  and to store our trim and design  library  under a lease that
expires in  February  2010.  Our  finished  goods are shipped  from  third-party
warehouses  in Commerce,  California,  and  Somerset,  New Jersey.  Our internet
products are shipped from a third-party warehouse in Long Beach, California.  We
have showrooms  located in Los Angeles,  New York City and Atlanta.  Our William
Rast New York City showroom lease expires in April 2009 and our J. Lindeberg New
York City showroom lease expires in April 2011.  Our Los Angeles  showroom lease
expires in May 2013 and our  Atlanta  showroom  lease  expires in May 2009.  The
lease  agreement  for our J.  Lindeberg  retail  store  located in New York City
expires  in June 2010.  We  believe  that the  facilities  we  utilize  are well
maintained,  in good operating  condition,  and adequate to meet our current and
foreseeable needs.

ITEM 3.  LEGAL PROCEEDINGS

         We are  subject  to certain  legal  proceedings  and claims  arising in
connection with our business. In the opinion of management,  there are currently
no claims that will have a material adverse effect on our consolidated financial
position, results of operations or cash flows.

         We are not involved in any legal proceedings that require disclosure in
this report.


                                       15
<PAGE>


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of 2008.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES

COMMON STOCK

         Our common stock is quoted on the Over-The-Counter Bulletin Board under
the symbol "PPLB.OB" The following table sets forth, for the periods  indicated,
the high and low bid  information  for the  common  stock,  as  determined  from
quotations on the  Over-the-Counter  Bulletin Board, as well as the total number
of shares of common stock traded  during the periods  indicated.  The  following
quotations reflect  inter-dealer  prices,  without retail mark-up,  mark-down or
commission and may not represent actual transactions.

                                            HIGH           LOW        VOLUME
                                            ----           ---        ------
YEAR ENDED DECEMBER 31, 2008
     First Quarter....................      $0.51         $0.35       643,400
     Second Quarter...................      $0.45         $0.30       526,200
     Third Quarter....................      $0.54         $0.26       898,800
     Fourth Quarter...................      $0.42         $0.17       476,400

YEAR ENDED DECEMBER 31, 2007
     First Quarter....................      $1.12         $0.65       406,766
     Second Quarter...................      $0.80         $0.38     4,118,881
     Third Quarter....................      $0.70         $0.29       768,726
     Fourth Quarter...................      $0.50         $0.32       849,800


         On March 27,  2009,  the  closing  sales  price of our common  stock as
reported on the Over-The-Counter Bulletin Board was $0.14 per share. As of March
27, 2009, there were  approximately  460 record holders of our common stock. Our
transfer agent is Stalt, Inc., Menlo Park, CA.

DIVIDENDS

         Since January 1, 2006, we have not paid or declared cash  distributions
or dividends on our common stock.  We do not intend to pay cash dividends on our
common stock in the near future. We currently intend to retain all earnings,  if
and when generated, to finance our operations. The declaration of cash dividends
in the  future  will be  determined  by the board of  directors  based  upon our
earnings, financial condition, capital requirements and other relevant factors.

ITEM 6.  SELECTED FINANCIAL DATA

         Not applicable.


                                       16
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The following  discussion and analysis should be read together with the
Consolidated Financial Statements of People's Liberation, Inc. and the "Notes to
Consolidated  Financial  Statements"  included  elsewhere in this  report.  This
discussion   summarizes  the  significant  factors  affecting  the  consolidated
operating results,  financial condition and liquidity and cash flows of People's
Liberation,  Inc. for the fiscal years ended December 31, 2008 and 2007.  Except
for  historical   information,   the  matters  discussed  in  this  Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations  are
forward-looking  statements that involve risks and  uncertainties  and are based
upon judgments concerning various factors that are beyond our control.

OVERVIEW

         We design,  market and sell  high-end  casual  apparel  under the brand
names  "People's  Liberation,"  "William  Rast" and, in the United  States,  "J.
Lindeberg."  The majority of the merchandise we offer consists of premium denim,
knits,  wovens, golf wear and outerwear for men and women. In the United States,
we  distribute  our  merchandise  to  better  specialty  stores,  boutiques  and
department stores, such as Nordstrom,  Bloomingdales,  Saks Fifth Avenue, Neiman
Marcus and Fred Segal. We also market and sell J. Lindeberg  branded  collection
and golf  apparel  through  our  flagship  retail  store in New York City and J.
Lindeberg  golf wear to green  grass  golf  stores and  boutiques  in the United
States.  Internationally,  in select countries, we sell our William Rast branded
apparel products  directly and through  distributors to better department stores
and boutiques throughout the world.

         We commenced our William Rast  clothing  line in May 2005.  Our William
Rast clothing line is a collaboration  with Justin  Timberlake and his childhood
friend, Trace Ayala. In addition, our William Rast lifestyle collection is being
developed and designed in  collaboration  with Paris68,  the independent  design
consultancy of Johan and Marcella Lindeberg.

         We began  distributing  J. Lindeberg  branded  apparel  products in the
United States on an exclusive basis beginning July 2008 in collaboration with J.
Lindeberg AB in Sweden.  In addition to being sold in the United States  through
our  subsidiary,  J.  Lindeberg USA, LLC, J.  Lindeberg  branded  high-end men's
fashion  and  premium  golf  apparel is  marketed  and sold by J.  Lindeberg  AB
worldwide.

         We commenced our People's Liberation business in July 2004. On December
16, 2008, we entered into an agreement with Charlotte Russe pursuant to which we
agreed to  exclusively  sell to Charlotte  Russe,  in North  America and Central
America, People's Liberation(TM) branded apparel, apparel accessories,  eyewear,
jewelry, watches,  cosmetics and fragrances, and to provide Charlotte Russe with
marketing  and branding  support for  People's  Liberation  branded  apparel and
apparel  accessories.   We  will  cease  to  sell  People's  Liberation  branded
merchandise in North America and Central America to parties other than Charlotte
Russe  effective  April 30, 2009.  We will  continue to market and sell People's
Liberation branded  merchandise  internationally,  with the exception of Central
America.  Product sales to Charlotte Russe under the terms of this agreement are
expected to begin shipping in July 2009.

         We are headquartered in Los Angeles, California,  maintain showrooms in
New York,  Los Angeles and Atlanta,  and have sales  representatives  in Dallas,
Texas, and Orlando, Florida.

INTERNATIONAL DISTRIBUTION

         Our William Rast branded apparel products are sold  internationally  in
select countries  directly and through  distributors to better department stores
and boutiques.  Our distributors  purchase  products at a discount for resale in
their respective  territories and market,  sell, warehouse and ship William Rast
branded  apparel   products  at  their  expense.   We  anticipate   growing  our
international distribution channels across new territories.


                                       17
<PAGE>


MANUFACTURING AND SUPPLY

         We use third  party  contract  manufacturers  to produce  our  People's
Liberation  and  William  Rast  denim  finished  goods from  facilities  located
primarily in Los Angeles, California. For the majority of our denim products, we
purchase fabric and trim from suppliers who deliver these components directly to
us to be cut, sewn, washed and finished by our contract  manufacturers.  For the
majority of our knits and other non-denim  products,  we source these goods from
international  suppliers. As our product offerings increase, we intend to expand
the  number  of  contract   manufacturers   we  use,   both   domestically   and
internationally,  to perform some or all of the manufacturing processes required
to produce  finished  products.  We currently  purchase all of our J.  Lindeberg
branded apparel products from J. Lindeberg AB, the beneficial owner of 50% of J.
Lindeberg USA, LLC. We intend to source our People's  Liberation  denim and knit
products sold to Charlotte Russe under our exclusive distribution agreement from
international suppliers of full package goods.

STRUCTURE OF OPERATIONS

         Our wholly-owned subsidiary Versatile Entertainment,  Inc. conducts our
People's Liberation brand business. Our William Rast brand business is conducted
through our wholly-owned  subsidiary Bella Rose, LLC. William Rast Sourcing, LLC
and William Rast Licensing,  LLC are consolidated  under Bella Rose and are each
owned 50% by Bella  Rose and 50% by William  Rast  Enterprises,  LLC,  an entity
owned in part by Justin Timberlake. Our J. Lindeberg brand business is conducted
through Bella Rose. J. Lindeberg USA, LLC is  consolidated  under Bella Rose and
is owned 50% by Bella Rose and 50% by J. Lindeberg USA, Corp. an entity owned by
J. Lindeberg AB, a Swedish corporation.

RECENT DEVELOPMENT

         On December 16, 2008, we entered into an agreement with Charlotte Russe
pursuant to which we agreed to exclusively sell to Charlotte Russe Holding, Inc.
and  its   wholly-owned   subsidiary,   Charlotte  Russe   Merchandising,   Inc.
(collectively,  "Charlotte  Russe"),  in  North  America  and  Central  America,
People's Liberation(TM) branded apparel, apparel accessories,  eyewear, jewelry,
watches, cosmetics and fragrances, and to provide Charlotte Russe with marketing
and  branding  support  for  People's  Liberation  branded  apparel  and apparel
accessories.  We will  continue to design,  source,  sample,  fit and deliver an
assortment  of  finished  goods  selected  by  Charlotte  Russe  and  sell  such
merchandise  to Charlotte  Russe at wholesale  prices.  Charlotte  Russe has the
exclusive  right to market,  distribute,  and sell People's  Liberation  branded
merchandise  purchased  from us in North  America  and Central  America  through
Charlotte  Russe(TM)  branded retail stores and related  distribution  channels,
including outlet locations and  direct-to-consumer  sales. We will cease to sell
People's  Liberation  branded  merchandise in such  territories to parties other
than Charlotte  Russe  effective  April 30, 2009. We will continue to market and
sell People's Liberation branded merchandise internationally, with the exception
of Central  America.  Product  sales to Charlotte  Russe under the terms of this
agreement are expected to begin shipping in July 2009.

         In  consideration  for the exclusive  rights granted to Charlotte Russe
under the  Agreement,  Charlotte  Russe has agreed to purchase from us a minimum
amount of People's Liberation branded merchandise during each contract year. The
aggregate  minimum  purchase  obligation  for the period from  inception  of the
Agreement  through  the end of its  initial  term on  December  31,  2012 is $65
million.  The amount of the minimum purchase obligation varies by contract year,
and may be less than or greater than $65 million if the  Agreement is terminated
prior to expiration of the initial term or is renewed for one or more additional
renewal periods.

         Effective  December 1, 2008, the design services agreement with Paris68
LLC and  Johan  and  Marcella  Lindeberg  was  terminated  and the  parties  are
currently negotiating the final terms of a new design consulting  agreement.  We
currently  have a verbal  agreement  with  Paris68  LLC and Johan  and  Marcella
Lindeberg which provides for the payment of design fees at a rate of $97,000 per
month in addition to travel and other expenses incurred by the design team. As a


                                       18
<PAGE>


result of the  termination  of the design  services  agreement  dated  effective
November  15,  2007,  prepaid  design  fees  incurred  through  December 1, 2008
amounting to $1,630,704 were expensed to selling,  design and production expense
during the fourth quarter of 2008.

         Effective July 1, 2008, our subsidiary, Bella Rose, and J. Lindeberg AB
in Sweden entered into an operating  agreement and other related  agreements for
our new subsidiary,  J. Lindeberg USA, LLC ("J. Lindeberg USA"). Pursuant to the
agreements,  J. Lindeberg USA will source,  market,  and distribute J. Lindeberg
branded  apparel in the United  States on an  exclusive  basis.  The  agreements
provide that Bella Rose and J.  Lindeberg  each hold a 50% interest in JLUS with
the business of JLUS being operated by us. Under the terms of the agreements, J.
Lindeberg  AB was  required  to  contribute  to JLUS  $20,000 in cash as well as
certain assets  consisting  primarily of accounts  receivable and inventory.  We
were  required  to  contribute  to JLUS  $20,000 in cash and will be required to
contribute  up to a maximum  of $1.5  million  in  working  capital  or  related
guaranties  through December 2010. The agreements also provide that J. Lindeberg
AB will,  among  other  things,  make  available  to JLUS for  purchase  all new
collections of J. Lindeberg branded apparel,  and provide for the factory-direct
purchase by us of J. Lindeberg  branded  apparel on terms no less favorable than
terms   received  by  J.  Lindeberg  AB  or  its  affiliates  for  the  same  or
substantially the same merchandise.  In addition,  the agreements  provide for a
license  from J.  Lindeberg  AB to JLUS of the J.  Lindeberg(TM)  mark and other
related marks for use in the United States on an exclusive basis for a period of
25 years. The operating  agreement  provides that J. Lindeberg AB has the option
to purchase our share of JLUS at a negotiated  purchase price as outlined in the
agreement.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

         Our discussion  and analysis of our financial  condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities.  On an on-going basis,  we evaluate our estimates,  including those
related to our valuation of  inventories  and our  allowance  for  uncollectible
house  accounts   receivable,   recourse   factored   accounts   receivable  and
chargebacks. We base our estimates on historical experience and on various other
assumptions  that are believed to be  reasonable  under the  circumstances,  the
results of which form the basis for making  judgments  about the carrying values
of assets and  liabilities  that are not readily  apparent  from other  sources.
Actual results may differ from these estimates  under  different  assumptions or
conditions.  We believe the following  critical  accounting  policies affect our
more  significant  judgments  and  estimates  used  in  the  preparation  of our
consolidated financial statements:

         INVENTORIES. Inventories are evaluated on a continual basis and reserve
adjustments,  if any,  are made based on  management's  estimate of future sales
value  of  specific  inventory  items.  Reserve  adjustments  are  made  for the
difference  between the cost of the inventory and the estimated market value, if
lower, and charged to operations in the period in which the facts that give rise
to the  adjustments  become  known.  Inventories,  consisting of piece goods and
trim,  work-in-process  and  finished  goods,  are  stated  at the lower of cost
(first-in, first-out method) or market.

         ACCOUNTS   RECEIVABLE.   Factored  accounts  receivable  balances  with
recourse,  chargeback and other  receivables  are evaluated on a continual basis
and  allowances  are provided for  potentially  uncollectible  accounts based on
management's  estimate  of the  collectability  of customer  accounts.  Factored
accounts receivable without recourse are also evaluated on a continual basis and
allowances are provided for anticipated returns, discounts and chargebacks based
on  management's  estimate  of  the  collectability  of  customer  accounts  and
historical  return,  discount  and  other  chargeback  rates.  If the  financial
condition of a customer were to  deteriorate,  resulting in an impairment of its
ability to make  payments,  an additional  allowance may be required.  Allowance
adjustments are charged to operations in the period in which the facts that give
rise to the adjustments become known.


                                       19
<PAGE>


         INTANGIBLE ASSETS. Intangible assets are evaluated on a continual basis
and impairment  adjustments are made based on  management's  reassessment of the
useful lives related to intangible assets with definite useful lives. Intangible
assets with  indefinite  lives are evaluated on a continual basis and impairment
adjustments are made based on management's  comparison of the carrying amount of
an asset to future  undiscounted  net cash flows expected to be generated by the
asset.  Impairment  adjustments are made for the difference between the carrying
value of the  intangible  asset  and the  estimated  valuation  and  charged  to
operations  in the period in which the facts  that give rise to the  adjustments
become known.

         REVENUE  RECOGNITION.  Wholesale revenue is recognized when merchandise
is shipped to a customer,  at which point title  transfers to the customer,  and
when collection is reasonably assured. Customers are not given extended terms or
dating or return rights without proper prior authorization.  Revenue is recorded
net of estimated  returns,  charge backs and markdowns  based upon  management's
estimates  and  historical  experience.   Website  revenue  is  recognized  when
merchandise is shipped to a customer and when collection is reasonably  assured.
Retail revenue is recognized on the date of purchase from our retail store.

         DEFERRED TAX ASSETS. We may record a valuation  allowance to reduce our
deferred  tax assets to an amount  that we believe is more likely than not to be
realized.  We consider  estimated  future taxable income and ongoing prudent and
feasible  tax  planning  strategies  in  assessing  the  need  for  a  valuation
allowance.  If we determine  that we may not realize all or part of our deferred
tax assets in the future,  we will make an adjustment  to the carrying  value of
the  deferred  tax asset,  which would be  reflected  as an income tax  expense.
Conversely,  if we determine  that we will  realize a deferred tax asset,  which
currently  has a  valuation  allowance,  we would be  required  to  reverse  the
valuation  allowance,  which  would  be  reflected  as an  income  tax  benefit.
Valuation  allowance  adjustments are made in the period in which the facts that
give rise to the adjustments become known.

         STOCK  BASED   COMPENSATION.   Stock-based   compensation   expense  is
recognized  based  on  awards  ultimately  expected  to vest on a  straight-line
prorated  basis.  The fair value of options  is  estimated  on the date of grant
using the  Black-Scholes  option pricing model. The valuation  determined by the
Black-Scholes  pricing  model  is  affected  by  our  stock  price  as  well  as
assumptions regarding a number of highly complex and subjective variables. These
variables  include,  but are not limited to our expected stock price  volatility
over the term of the awards,  and actual and  projected  employee  stock  option
exercise  behaviors.  Stock price volatility was estimated based on a peer group
of public  companies and the expected term was estimated using the "safe harbor"
provisions provided in SAB 107.

RECENT ACCOUNTING PRONOUNCEMENTS

         See Note 2 to Notes to  Consolidated  Financial  Statements  for a full
description  of  recent  accounting   pronouncements  including  the  respective
expected  dates of adoption and effects on results of  operations  and financial
condition.


                                       20
<PAGE>


RESULTS OF OPERATIONS

         The following table presents consolidated  statement of operations data
for each of the years indicated as a percentage of revenues.


                                                  YEAR ENDED       YEAR ENDED
                                                 DECEMBER 31,     DECEMBER 31,
                                                     2008             2007
                                                 ------------     ------------

Net sales ..................................            100.0%           100.0%
Cost of goods sold .........................             51.7             51.4
                                                 ------------     ------------
Gross profit ...............................             48.3             48.6
Selling, design and production expense .....             36.6             28.5
General and administrative expense .........             21.1             23.1
                                                 ------------     ------------
Operating loss .............................             (9.4)%           (3.0)%
                                                 ============     ============

         NET SALES

                                            YEARS ENDED
                                            DECEMBER 31,
                                   ----------------------------       PERCENT
                                       2008            2007            CHANGE
                                   ------------    ------------     ------------

Net sales .....................    $ 32,190,093    $ 20,267,377            58.8%


         The increase in net sales for the year ended  December 31, 2008 was due
primarily to a significant  increase in sales volume of our William Rast apparel
line and sales of our new product  line, J.  Lindeberg,  offset by a decrease in
sales volume of our People's  Liberation product line. The increase in net sales
also  includes a  significant  increase of  approximately  $2.7 million in sales
volume to our international  distributors during the year. We began distributing
J. Lindeberg brand products in the United States on an exclusive basis beginning
July 2008. We anticipate  that the addition of this new product line will have a
significant impact on our future sales.

         On December 16, 2008, we entered into an agreement with Charlotte Russe
pursuant to which we agreed to  exclusively  sell to Charlotte  Russe,  in North
America  and Central  America,  People's  Liberation  branded  apparel,  apparel
accessories, eyewear, jewelry, watches, cosmetics and fragrances, and to provide
Charlotte  Russe with  marketing  and branding  support for People's  Liberation
branded  apparel and apparel  accessories.  We will continue to design,  source,
sample,  fit and deliver an assortment of finished  goods  selected by Charlotte
Russe  and  sell  such  merchandise  to  Charlotte  Russe at  wholesale  prices.
Charlotte Russe has the exclusive right to market, distribute, and sell People's
Liberation  branded  merchandise  purchased from us in North America and Central
America  through   Charlotte   Russe(TM)   branded  retail  stores  and  related
distribution channels,  including outlet locations and direct-to-consumer sales.
We  will  cease  to  sell  People's   Liberation  branded  merchandise  in  such
territories to parties other than Charlotte  Russe  effective April 30, 2009. We
will  continue  to  market  and sell  People's  Liberation  branded  merchandise
internationally,  with  the  exception  of  Central  America.  Product  sales to
Charlotte Russe under the terms of this agreement are expected to begin shipping
in July 2009.

         In  consideration  for the exclusive  rights granted to Charlotte Russe
under the  Agreement,  Charlotte  Russe has agreed to purchase from us a minimum
amount of People's Liberation branded merchandise during each contract year. The
aggregate  minimum  purchase  obligation  for the period from  inception  of the
Agreement  through  the end of its  initial  term on  December  31,  2012 is $65
million.  The amount of the minimum purchase obligation varies by contract year,
and may be less than or greater than $65 million if the  Agreement is terminated
prior to expiration of the initial term or is renewed for one or more additional
renewal periods.


                                       21
<PAGE>


         GROSS PROFIT

                                            YEARS ENDED
                                            DECEMBER 31,
                                   ----------------------------       PERCENT
                                       2008            2007            CHANGE
                                   ------------    ------------     ------------

Gross profit ..................    $ 15,547,678    $  9,858,218            57.7%

         Gross  profit  consists of net sales less cost of goods  sold.  Cost of
goods sold  includes  expenses  primarily  related to  inventory  purchases  and
contract labor, freight, duty and overhead expenses. Overhead expenses primarily
consist of third party warehouse and shipping costs.  Our gross margin decreased
slightly to 48.3% for the year ended  December  31, 2008 from 48.6% for the year
ended  December  31, 2007.  The decrease in gross profit as a percentage  of net
sales was due to increased sales to our international  distributors at a reduced
margin and increased off-price sales, offset by additional sales of J. Lindeberg
brand products with higher gross margins.

         SELLING, DESIGN AND PRODUCTION EXPENSES

                                            YEARS ENDED
                                            DECEMBER 31,
                                   ----------------------------       PERCENT
                                       2008            2007            CHANGE
                                   ------------    ------------     ------------

Selling, design and production
   expense ....................    $ 11,784,062    $  5,791,072           103.5%

         Selling, design and production expense for the years ended December 31,
2008 and 2007  primarily  related to tradeshow,  salaries,  design fee payments,
advertising,  marketing and promotion, samples, travel and showroom expenses. As
a percentage of net sales,  selling,  design and production expense increased to
36.6% for the year ended  December 31, 2008 compared to 28.5% for the year ended
December 31, 2007. The increase in selling,  design and  production  expense for
the year ended December 31, 2008 is attributable to our increased  promotion and
marketing of our brands,  including our William Rast apparel collection designed
by Paris68 and Johan and  Marcella  Lindeberg,  the  sponsorship  of an Indy car
bearing the William  Rast brand name,  our  William  Rast  fashion  show and the
launch  of our  William  Rast  video and  marketing  campaign  featuring  Justin
Timberlake  as William  Rast.  The  increase in  expenses  during the year ended
December 31, 2008 was also due to the hiring of additional  salaried sales staff
in Los Angeles and New York, offset by a reduction in sales  commissions  during
the period.  We also  incurred  additional  design fees and sample costs for our
William  Rast  apparel  line,  including  our William  Rast  apparel  collection
designed by Paris68 and Johan and Marcella  Lindeberg,  and our new J. Lindeberg
apparel line.  Effective December 1, 2008, the design services agreement entered
into  effective  November  15,  2007 with  Paris68  LLC and  Johan and  Marcella
Lindeberg was  terminated  and the parties are currently  negotiating  the final
terms of a new design consulting arrangement.  As a result of the termination of
the design services  agreement dated effective November 15, 2007, prepaid design
fees incurred through  December 1, 2008 amounting to approximately  $1.6 million
were  expensed  in  selling,  design and  production  expense  during the fourth
quarter of 2008. Total design fees paid to Paris68 pursuant to the contract from
November 15, 2007 through November 30, 2008 amounted to $2.3 million,  including
the  $1.6  million  expensed  in the  fourth  quarter  of 2008.  The new  design
consulting  arrangement  will  provide  for a  reduction  in the  fees  paid for
services and a reduction  in the  percentage  of royalty  payments due under the
prior agreement.


                                       22
<PAGE>


         GENERAL AND ADMINISTRATIVE EXPENSES

                                            YEARS ENDED
                                            DECEMBER 31,
                                   ----------------------------       PERCENT
                                       2008            2007            CHANGE
                                   ------------    ------------     ------------

General and administrative
   expenses ...................    $  6,796,234    $  4,681,425            45.2%


         General and  administrative  expenses for the years ended  December 31,
2008 and 2007 primarily related to salaries,  professional fees, facility costs,
travel and  entertainment,  depreciation  and  amortization  expense,  and other
general  corporate  expenses.   As  a  percentage  of  net  sales,  general  and
administrative  expenses decreased to 21.1% for the year ended December 31, 2008
compared to 23.1% for the year ended  December 31, 2007. The increase in general
and  administrative  expenses  during the year ended  December  31, 2008 was due
primarily to increased  professional  fees related to the  acquisition of our J.
Lindeberg  branded apparel line,  rent related to our J. Lindeberg  retail store
and showroom in New York City,  increased factor fees,  travel and entertainment
costs,  bank  charges,  depreciation  and  amortization,  loss  on  disposal  of
leaseholds  and other fixed assets  related to the  relocation  of our corporate
office,  and a net increase in officers'  salaries.  The decrease in general and
administrative expenses as a percentage of sales for the year ended December 31,
2008  was a result  of net  sales  increasing  more  rapidly  than  general  and
administrative expenses during the year.

         INTEREST EXPENSE, NET

                                            YEARS ENDED
                                            DECEMBER 31,
                                   ----------------------------       PERCENT
                                       2008            2007            CHANGE
                                   ------------    ------------     ------------

Interest expense, net .........    $    141,844    $     80,706            75.8%


         Under  our  factoring  arrangements,  we  may  borrow  up to 85% on our
factored  accounts  receivable  and  50% on our  eligible  inventories.  Maximum
borrowings under our People's Liberation and William Rast inventory facility are
not to exceed $1.3 million of eligible inventory. Maximum borrowings,  including
borrowings related to factored accounts receivable and inventory, related to our
J. Lindeberg  facility are not to exceed $1.5 million.  Outstanding  borrowings,
net of matured funds, under our factoring arrangements amounted to approximately
$3.5  million  and  $649,000 at December  31, 2008 and 2007,  respectively.  The
increase  in  interest  expense  is due to the  increased  borrowing  under  our
factoring arrangements during the year ended December 31, 2008.

         (BENEFIT) PROVISION FOR INCOME TAXES

                                            YEARS ENDED
                                            DECEMBER 31,
                                   ----------------------------       PERCENT
                                       2008            2007            CHANGE
                                   ------------    ------------     ------------

(Benefit) provision for income
   taxes ......................    $   (35,250)    $    80,939          (143.6)%


         The current provision for income taxes for the years ended December 31,
2008 and 2007 represents minimum tax payments due for state purposes,  including
gross  receipts  tax on sales  generated  by our  limited  liability  companies,
William Rast  Sourcing,  LLC and J.  Lindeberg  USA,  LLC.  Also included in the
current  provision for income taxes for the year ended  December 31, 2007 is the
write-down of  refundable  income taxes to the amount  recovered and  additional


                                       23
<PAGE>


expense  related  to the under  accrual  of the prior  year's  income  taxes.  A
provision  for Federal  income  taxes has not been  recorded for the years ended
December 31, 2008 and 2007, as we had net losses during the years.  The deferred
tax assets at December 31, 2008 and 2007  represent the amounts that  management
believes  are more likely than not to be  realized.  As of December  31, 2008, a
valuation allowance has been provided for our deferred income tax assets related
to net operating loss carryforwards, bad debt and other reserves. As of December
31,  2008,  total net  operating  losses  available  to carry  forward to future
periods  amounted  to  approximately  $4.5  million.  At this  time,  we  cannot
determine that it is more likely than not that we will realize the future income
tax benefits related to our net operating losses and other deferred tax assets.

         MINORITY INTEREST

                                            YEARS ENDED
                                            DECEMBER 31,
                                   ----------------------------       PERCENT
                                       2008            2007            CHANGE
                                   ------------    ------------     ------------

Minority interest...........       $  1,337,317    $    113,017          *
* not meaningful

         Minority  interest  recorded  for the  year  ended  December  31,  2008
represents  minimum  distributions  accrued  for  the  calendar  quarters  ended
December  31, 2008 due to William  Rast  Enterprises,  a member of William  Rast
Sourcing,  and profit allocations due to J. Lindeberg USA, Corp., a member of J.
Lindeberg USA, LLC.  Minority  interest recorded for the year ended December 31,
2007 represents  distributions for the calendar quarter ended March 31, 2007 due
to William Rast Enterprises.  Effective  January 1, 2007,  William Rast Sourcing
was to pay its member,  William Rast Enterprises,  a minimum quarterly  minority
interest  distribution  of 6% of applicable net sales  generated by William Rast
Sourcing  during  the  quarterly  periods.  On  November  9, 2007,  the  limited
liability company operating agreement of William Rast Sourcing,  LLC was further
amended  to  reflect  a  modification  of  the  distributions  to  William  Rast
Enterprises.  For the calendar quarters ending June 30, 2007, September 30, 2007
and December 31, 2007, all cash  distributions  William Rast  Sourcing,  LLC was
required to pay to William Rast Enterprises pursuant to the amended and restated
operating  agreement were not paid or accrued for future payment with respect to
such calendar  quarters.  Beginning July 1, 2008, the operations of J. Lindeberg
USA, LLC are included in the consolidated  financial  statements of the Company.
Profit and loss allocations to its member, J. Lindeberg USA, Corp., are recorded
as minority interest in the consolidated financial statements of the Company.

         NET LOSS

                                            YEARS ENDED
                                            DECEMBER 31,
                                   ----------------------------       PERCENT
                                       2008            2007            CHANGE
                                   ------------    ------------     ------------

Net loss.......................    $ (4,460,257)   $   (768,497)          480.4%


         The  increase  in net loss  during the year  ended  December  31,  2008
compared to the year ended  December  31,  2007 is due  primarily  to  increased
operating  expenses  incurred during the year and increased  minority  interest,
offset by increased net sales and gross profit, as discussed above.

RELATED PARTY TRANSACTIONS

         See  "Certain  Relationships  and Related  Transactions,  and  Director
Independence" included under Item 13 of this report.


                                       24
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         As  of  December  31,  2008,  we  had  cash  and  cash  equivalents  of
approximately  $1.9 million,  a working  capital balance of  approximately  $1.6
million,  and  approximately  $895,000 of  availability  from our factor.  As of
December 31, 2008, advances from our factor totaled  approximately $3.5 million.
As of December  31,  2007,  we had cash and cash  equivalents  of  approximately
$363,000,   a  working  capital  balance  of  approximately  $4.3  million,  and
approximately  $2.8 million of availability  from our factor. As of December 31,
2007,  advances from our factor totaled  approximately  $649,000.  Pursuant to a
private  placement  transaction with various  investors that closed on September
28, 2007 and  November 2, 2007,  we sold shares of our common stock and received
approximately $483,000 in net proceeds after legal and other expenses, including
approximately  $13,000 in legal and accounting  fees incurred in 2008 related to
the registration of the shares.

         We are currently  evaluating various financing strategies to be used to
expand our business and fund future  growth.  We believe that our existing  cash
and cash  equivalents and anticipated  cash flows from our operating  activities
and pursuant to our factoring  arrangements,  including  availability  under our
inventory  facilities,  should be sufficient to fund our minimum working capital
and  capital  expenditure  needs for the next  twelve  months  under our current
operating  strategy.  We  anticipate  that the advance  payments we will receive
under our distribution agreement with Charlotte Russe should be adequate to fund
our working capital shortages, if any. The aggregate minimum purchase obligation
under our  distribution  agreement  with  Charlotte  Russe for the  period  from
inception of the  agreement  through the end of its initial term on December 31,
2012 is $65 million.  The amount of the minimum  purchase  obligation  varies by
contract year, and may be less than or greater than $65 million if the Agreement
is  terminated  prior to expiration of the initial term or is renewed for one or
more additional renewal periods.  The extent of our future capital  requirements
will depend on many factors,  including our results of  operations.  If our cash
from operations is less than anticipated or our working capital  requirements or
capital expenditures are greater than we expect, or if we expand our business by
acquiring or investing in  additional  brands,  we may need to raise  additional
debt or  equity  financing  within  the  next  twelve  months.  There  can be no
assurance  that  additional  debt  or  equity  financing  will be  available  on
acceptable terms or at all. Pursuant to the operating  agreement we entered into
with J. Lindeberg USA Corp and J.  Lindeberg AB, we contributed  $20,000 in cash
to our 50% owned  subsidiary,  J.  Lindeberg  USA,  LLC, and will be required to
contribute  up to a maximum  of $1.5  million  in  working  capital  or  related
guaranties   through  December  2010.  Our  J.  Lindeberg  USA,  LLC,  factoring
agreements currently provide for corporate guaranties from our related entities,
People's Liberation, Inc., Bella Rose, LLC, and Versatile Entertainment, Inc. At
this point in time, the cash amount in excess of $20,000 that we may be required
to contribute to J. Lindeberg USA, LLC, if any, is uncertain and our future cash
position may be adversely impacted.  Notwithstanding the foregoing,  although we
currently do not have any material commitments for capital expenditures, we have
contractual obligations that may reduce our working capital in the future.


                                       25
<PAGE>


     CASH FLOWS

         We currently satisfy our working capital requirements primarily through
borrowings from our factor and cash flows generated from operations.  Cash flows
from operating,  financing and investing activities for the years ended December
31, 2008 and 2007 are summarized in the following table:

                                                         YEARS ENDED
                                                         DECEMBER 31,
                                               --------------------------------
                                                   2008                 2007
                                               -----------          -----------

Operating activities .................         $ 2,366,047          $   153,418
Investing activities .................            (846,781)            (349,290)
Financing activities .................               6,947              495,988
                                               -----------          -----------
   Net increase in cash ..............         $ 1,526,213          $   300,116
                                               ===========          ===========


         CASH PROVIDED BY OPERATING ACTIVITIES

         Net cash provided by operating activities was approximately  $2,366,000
and  $153,000  for the years ended  December  31,  2008 and 2007,  respectively.
Although we  experienced a net loss of $4.5 million during our fiscal year ended
December  31,  2008,  cash  provided  from  operating  activities  was  positive
primarily as a result of decreased receivables and inventories, the receipt of a
$1 million  deposit from Charlotte  Russe in December 2008 upon execution of the
distribution  agreement,  and increased  payables,  including  minority interest
payable,  accounts payable and accrued expenses.  In 2007, although we had a net
loss of $768,000,  our cash provided by operating  activities  was $153,000 as a
result  of  decreased  receivables,   increased  accounts  payable  and  accrued
expenses,  and non-cash stock based compensation  expenses,  offset by increased
inventories and other assets.

         Going  forward,  we believe that we will continue to generate  positive
cash flow from our  operating  activities,  in part because of our  distribution
agreement  with  Charlotte  Russe.  In  consideration  for the exclusive  rights
granted to Charlotte Russe under the distribution agreement, Charlotte Russe has
agreed to  purchase  from us a minimum  amount of  People's  Liberation  branded
merchandise during each contract year. The aggregate minimum purchase obligation
for the period from  inception of the  agreement  through the end of its initial
term on December  31, 2012 is $65  million.  The amount of the minimum  purchase
obligation  varies by contract  year,  and may be less than or greater  than $65
million if the Agreement is  terminated  prior to expiration of the initial term
or is renewed for one or more additional renewal periods.

         CASH USED IN INVESTING ACTIVITIES

         Net cash used in investing  activities was  approximately  $847,000 and
$349,000 for the years ended December 31, 2008 and 2007, respectively.  Net cash
used in investing  activities  for the year ended December 31, 2008 consisted of
capital  expenditures  primarily for property and equipment and trademark costs.
Net cash used in  investing  activities  for the year ended  December  31,  2007
consisted of capital expenditures  primarily for computer equipment and software
and trademark costs.

         CASH PROVIDED BY FINANCING ACTIVITIES

         Net cash provided by financing  activities for the years ended December
31, 2008 and 2007 amounted to approximately  $7,000 and $496,000,  respectively.
Cash  provided by  financing  activities  for the year ended  December  31, 2008
reflects the capital investment of $20,000 received from J. Lindeberg AB, offset
by  approximately  $13,000 in legal and accounting fees incurred in 2008 related
to the  registration  of the 2007 private  placement  shares.  Effective July 1,
2008,  approximately  $2.2  million of net assets were  received  into our newly
formed  subsidiary,  J.  Lindeberg USA, LLC in addition to $40,000 cash received
from its  members.  This is presented  as a non-cash  financing  activity in our
statement of cash flows for the year ended  December 31, 2008.  Cash provided by
financing   activities  for  the  year  ended  December  31,  2007  amounted  to


                                       26
<PAGE>


approximately  $496,000 and reflects  proceeds  from a private  placement of our
common stock.  On September 28, 2007 and November 2, 2007, we sold shares of our
common stock and received approximately $483,000 in net proceeds after legal and
other  expenses  pursuant  to  a  private  placement  transaction  with  various
investors, including approximately $13,000 in legal and accounting fees incurred
in 2008 related to the registration of the shares.

     FACTORING AGREEMENTS

         Pursuant to the terms of our factoring agreements, the factor purchases
our  eligible  accounts  receivable  and assumes the credit risk with respect to
those accounts for which the factor has given its prior approval.  If the factor
does not assume the credit risk for a receivable, the collection risk associated
with the  receivable  remains  with us. We pay a fixed  commission  rate and may
borrow  up to  85% of  eligible  accounts  receivable  and  50% of our  eligible
inventory.  Maximum  borrowings  under our People's  Liberation and William Rast
inventory facility are not to exceed $1.3 million of eligible inventory. Maximum
borrowings,  including  borrowings  related to factored accounts  receivable and
inventory,  related to our J. Lindeberg facility are not to exceed $1.5 million.
Interest  is charged at prime plus 1%. As of December  31, 2008 and 2007,  total
factored  accounts  receivable  included  in due (to) from  factor  amounted  to
approximately  $4,116,000 and  $2,552,000,  respectively.  Outstanding  advances
amounted to  approximately  $3,520,000  and $649,000 as of December 31, 2008 and
2007, respectively, and are included in the due (to) from factor balance.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

         The following  summarizes our  contractual  obligations at December 31,
2008 and the effects such obligations are expected to have on liquidity and cash
flows in future periods:

<TABLE>
<CAPTION>
                                                   Payments Due by Period
                              --------------------------------------------------------------
                                            Less than       1-3          4-5        After
  Contractual Obligations        Total       1 Year        Years        Years      5 Years
---------------------------   ----------   ----------   ----------   ----------   ----------
<S>                           <C>          <C>          <C>          <C>          <C>
Operating leases ..........   $2,780,327   $1,085,277   $1,653,110   $   41,940   $     --
Design consulting agreement      388,000      388,000         --           --           --
                              ----------   ----------   ----------   ----------   ----------
    Total .................   $3,168,327   $1,473,277   $1,653,110   $   41,940   $     --
                              ==========   ==========   ==========   ==========   ==========
</TABLE>

         Effective  December 1, 2008, the design services agreement with Paris68
LLC and  Johan  and  Marcella  Lindeberg  was  terminated  and the  parties  are
currently negotiating the final terms of a new design consulting  agreement.  We
currently  have a verbal  agreement  with  Paris68  LLC and Johan  and  Marcella
Lindeberg which provides for the payment of design fees at a rate of $97,000 per
month in addition to travel and other expenses incurred by the design team.

         At December 31, 2008 and 2007, we did not have any  relationships  with
unconsolidated  entities  or  financial  partnerships,  such as  entities  often
referred to as structured finance or special purpose entities,  which would have
been established for the purpose of facilitating  off-balance sheet arrangements
or other contractually  narrow or limited purposes.  As such, we are not exposed
to any  financing,  liquidity,  market or credit risk that could arise if we had
engaged in such relationships.

         Factored accounts  receivable may subject us to off-balance sheet risk.
We sell the  majority  of our  trade  accounts  receivable  to a factor  and are
contingently  liable to the  factor for  merchandise  disputes,  other  customer
claims and  invoices  that are not credit  approved by the factor.  From time to
time,  our factor also  issues  letters of credit and vendor  guarantees  on our
behalf.   Outstanding   letters  of  credit  and   vendor   guarantees   totaled
approximately $91,000 as of December 31, 2008. There were no outstanding letters
of credit or vendor guarantees as of December 31, 2007.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.


                                       27
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

AUDITED FINANCIAL STATEMENTS:

   Reports of Independent Registered Public Accounting Firms .............    29

   Consolidated Balance Sheets at December 31, 2008 and 2007 .............    31

   Consolidated Statements of Operations for the Years Ended
      December 31, 2008 and 2007 .........................................    32

   Consolidated Statements of Cash Flows for the Years Ended
      December 31, 2008 and 2007 .........................................    33

   Consolidated Statement of Changes in Stockholders' Equity from
      January 1, 2007 to December 31, 2008 ...............................    34

   Notes to the Consolidated Financial Statements ........................    35


                                       28
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders:
People's Liberation, Inc. and Subsidiaries

      We have audited the  accompanying  consolidated  balance sheet of People's
Liberation,  Inc. and  Subsidiaries  (the "Company") as of December 31, 2008 and
the related  consolidated  statements of  operations,  changes in  stockholders'
equity  and cash flows for the year then  ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

     We  conducted  our audit in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audit included  consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

      In our opinion,  the consolidated  financial  statements referred to above
present fairly, in all material respects, the consolidated financial position of
People's  Liberation,  Inc.  and  Subsidiaries,  as of December 31, 2008 and the
results  of their  operations  and their  cash  flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Crowe Horwath LLP
-------------------------------
Sherman Oaks, California
March 27, 2009


                                       29
<PAGE>

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders:
People's Liberation, Inc. and Subsidiaries

      We have audited the  accompanying  consolidated  balance sheet of People's
Liberation,  Inc. and  Subsidiaries  (the "Company") as of December 31, 2007 and
the related  consolidated  statements of  operations,  changes in  stockholders'
equity  and cash flows for the year then  ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

     We  conducted  our audit in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audit included  consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

      In our opinion,  the consolidated  financial  statements referred to above
present fairly, in all material respects, the consolidated financial position of
People's  Liberation,  Inc.  and  Subsidiaries,  as of December 31, 2007 and the
results  of their  operations  and their  cash  flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Grobstein, Horwath & Company LLP
------------------------------------
Sherman Oaks, California
March 20, 2008


                                       30
<PAGE>

<PAGE>


<TABLE>
                            PEOPLE'S LIBERATION, INC.

                           CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                     December 31,    December 31,
                                                         2008            2007
                                                     ------------    ------------
<S>                                                  <C>             <C>
                     Assets
Current Assets:
   Cash and cash equivalents .....................   $  1,888,718    $    362,505
   Due from factor ...............................           --         1,517,029
   Accounts receivable, net of allowance for
     doubtful accounts ...........................      1,307,922       1,029,510
   Inventories ...................................      4,925,438       3,833,170
   Refundable income taxes .......................           --            11,500
   Prepaid expenses and other current assets .....        247,672         196,730
   Deferred income taxes .........................           --            38,000
                                                     ------------    ------------
     Total current assets ........................      8,369,750       6,988,444

Property and equipment, net of accumulated
   depreciation and amortization .................        837,351         612,264
Trademarks, net of accumulated amortization ......        600,609         363,359
Intangible asset .................................        428,572         428,572
Other assets .....................................        444,266         265,020
                                                     ------------    ------------
Total assets .....................................   $ 10,680,548    $  8,657,659
                                                     ============    ============

      Liabilities and Stockholders' Equity
Current Liabilities:
   Accounts payable and accrued expenses .........   $  3,801,080    $  2,628,906
   Due to factor .................................        170,369            --
   Customer deposit ..............................      1,000,000            --
   Minority interest payable .....................      1,326,293            --
   Due to member .................................        427,623            --
   Income taxes payable ..........................         17,789          13,390
                                                     ------------    ------------
     Total current liabilities ...................      6,743,154       2,642,296

Deferred tax liabilities .........................           --            93,000
                                                     ------------    ------------
     Total liabilities ...........................      6,743,154       2,735,296
                                                     ------------    ------------

Commitments and contingencies

Minority interest ................................      2,298,583            --

Stockholders' equity:
   Common stock, $0.001 par value, 150,000,000
     shares authorized; 36,002,563 shares issued
     and outstanding at December 31, 2008 and 2007         36,002          36,002
   Additional paid-in capital ....................      7,951,960       7,775,255
   Accumulated Deficit ...........................     (6,349,151)     (1,888,894)
                                                     ------------    ------------
Total stockholders' equity .......................      1,638,811       5,922,363
                                                     ------------    ------------
Total liabilities and stockholders' equity .......   $ 10,680,548    $  8,657,659
                                                     ============    ============
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                       31
<PAGE>


                            PEOPLE'S LIBERATION, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      Year Ended December 31,
                                                   ----------------------------
                                                       2008            2007
                                                   ------------    ------------

Net sales ......................................   $ 32,190,093    $ 20,267,377
Cost of goods sold .............................     16,642,415      10,409,159
                                                   ------------    ------------
  Gross profit .................................     15,547,678       9,858,218
                                                   ------------    ------------

Selling, design and production expenses ........     11,784,062       5,791,072
General and administrative .....................      6,796,234       4,681,425
                                                   ------------    ------------

  Total operating expenses .....................     18,580,296      10,472,497
                                                   ------------    ------------

Loss from operations ...........................     (3,032,618)       (614,279)

Interest expense, net ..........................        141,844          80,706
Other income ...................................        (16,272)       (120,444)
                                                   ------------    ------------
  Total other expense (income) .................        125,572         (39,738)
                                                   ------------    ------------

Loss before income taxes and minority interest .     (3,158,190)       (574,541)

(Benefit) provision for income taxes ...........        (35,250)         80,939
                                                   ------------    ------------
Loss before minority interest ..................     (3,122,940)       (655,480)
                                                   ------------    ------------

Minority interest ..............................      1,337,317         113,017
                                                   ------------    ------------

Net loss .......................................   $ (4,460,257)   $   (768,497)
                                                   ============    ============

Basic and diluted weighted average loss per
  common share .................................   $      (0.12)   $      (0.02)
                                                   ============    ============

Basic and diluted weighted average common
  shares outstanding ...........................     36,002,563      35,200,207
                                                   ============    ============


                 See Notes to Consolidated Financial Statements.


                                       32
<PAGE>


<TABLE>
                            PEOPLE'S LIBERATION, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                               Year Ended December 31,
                                                                           ----------------------------
                                                                                2008            2007
                                                                           ------------    ------------
<S>                                                                        <C>             <C>
Cash flows from operating activities:
  Net loss .............................................................   $ (4,460,257)   $   (768,497)
  Adjustments to reconcile net loss to net cash provided by operating
  activities:
     Depreciation and amortization .....................................        291,297         170,791
     Allowance for doubtful accounts ...................................        150,000          18,000
     Deferred income taxes .............................................        (55,000)         46,000
     Impairment of long-lived asset ....................................           --             7,955
     Stock based compensation ..........................................        183,058         261,133
     Warrants issued for services ......................................          6,700          27,000
       Minority interest ...............................................         11,023            --
       Loss on disposal of fixed assets ................................        143,148            --
     Changes in operating assets and liabilities:
       Receivables .....................................................      1,985,177       1,226,118
       Inventories .....................................................        399,101        (986,989)
       Refundable income taxes .........................................         11,500           5,000
       Prepaid expenses and other current assets .......................        (50,942)          5,756
       Other assets ....................................................        205,894        (200,050)
       Accounts payable and accrued expenses ...........................      1,172,173         331,011
           Customer deposit ............................................      1,000,000            --
           Minority interest payable ...................................      1,326,293            --
           Due to member ...............................................         42,483            --
       Income taxes payable ............................................          4,399          10,190
                                                                           ------------    ------------
         Net cash flows provided by operating activities ...............      2,366,047         153,418
                                                                           ------------    ------------

Cash flows from investing activities:
  Acquisition of trademarks ............................................       (270,999)       (164,220)
  Acquisition of property and equipment ................................       (575,782)       (185,070)
                                                                           ------------    ------------
             Net cash flows used in investing activities ...............       (846,781)       (349,290)
                                                                           ------------    ------------

Cash flows from financing activities:
   Capital investment received from minority interest member ...........         20,000            --
  Net proceeds from private placement of common stock ..................        (13,053)        495,988
                                                                           ------------    ------------
               Net cash flows provided by financing activities .........          6,947         495,988
                                                                           ------------    ------------

Net increase in cash and cash equivalents ..............................      1,526,213         300,116
Cash and cash equivalents, beginning of year ...........................        362,505          62,389
                                                                           ------------    ------------
Cash and cash equivalents, end of year .................................   $  1,888,718    $    362,505
                                                                           ============    ============

Supplemental disclosures of cash flow information: Cash paid (received)
during The year for:
  Interest .............................................................   $    144,064    $     80,717
  Income taxes paid ....................................................         18,222          19,749
  Income taxes received ................................................        (14,578)           --
  Non-cash financing transactions:
       Warrant issued in exchange for services .........................           --            62,000
       Net assets and liabilities received in acquisition of subsidiary:
          Receivables ..................................................        726,191            --
          Inventory ....................................................      1,491,369            --
          Property and equipment .......................................         50,000            --
          Deposits .....................................................        385,140            --
          Due to member ................................................       (385,140)           --
       Minority interest, net of cash received from member .............     (2,267,560)           --
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                       33
<PAGE>


<TABLE>
                            PEOPLE'S LIBERATION, INC.

                      CONSOLIDATED STATEMENT OF CHANGES IN
                              STOCKHOLDERS' EQUITY

<CAPTION>
                                                 Common Stock          Additional
                                          -------------------------     Paid-in      Accumulated
                                             Shares        Amount       Capital        Deficit         Total
                                          -----------   -----------   -----------    -----------    -----------
<S>                                        <C>          <C>           <C>            <C>            <C>
Balance at January 1, 2007 ............    34,942,563   $    34,942   $ 6,930,194    $(1,120,397)   $ 5,844,739

Private placement of common stock .....     1,060,000         1,060       494,928           --          495,988

Warrants issued for services ..........          --            --          89,000           --           89,000

Stock based compensation ..............          --            --         261,133           --          261,133

Net loss ..............................          --            --            --         (768,497)      (768,497)
                                          -----------   -----------   -----------    -----------    -----------

Balance at December 31, 2007 ..........    36,002,563        36,002     7,775,255     (1,888,894)     5,922,363

Professional fees related to the
   registration of the shares issued in
   the 2007 private placement of common
   stock ..............................          --            --         (13,053)          --          (13,053)

Warrants issued for services ..........          --            --           6,700           --            6,700

Stock based compensation ..............          --            --         183,058           --          183,058

Net loss ..............................          --            --            --       (4,460,257)    (4,460,257)
                                          -----------   -----------   -----------    -----------    -----------

Balance at December 31, 2008 ..........    36,002,563   $    36,002   $ 7,951,960    $(6,349,151)   $ 1,638,811
                                          ===========   ===========   ===========    ===========    ===========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                       34
<PAGE>


                            PEOPLE'S LIBERATION, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

ORGANIZATION

         People's  Liberation,  Inc. is the parent holding  company of Versatile
Entertainment, Inc. ("Versatile"), a California corporation established in April
of 2001,  and Bella Rose, LLC ("Bella  Rose"),  a California  limited  liability
company established in May 2005, both of which were consolidated on November 22,
2005 and became  wholly-owned  subsidiaries of the Company on the effective date
of the Company's exchange transaction. William Rast Sourcing, LLC ("William Rast
Sourcing")  and William Rast  Licensing,  LLC ("William Rast  Licensing"),  both
California  limited liability  companies,  were formed effective October 1, 2006
and are  owned  50% by  Bella  Rose and 50% by  William  Rast  Enterprises,  LLC
("WRE"),  an entity owned in part by Justin  Timberlake.  J.  Lindeberg USA, LLC
("J.  Lindeberg  USA"),  a  California  limited  liability  company,  was formed
effective  July 1, 2008 and is owned 50% by Bella  Rose and 50% by J.  Lindeberg
USA Corp.,  a New York  corporation  and an entity owned by J.  Lindeberg  AB, a
Swedish corporation (collectively "Lindeberg Sweden").

         People's Liberation,  Inc. was incorporated in the State of Delaware on
December 29, 1982 under the name Philco  Financial  Management Corp. The Company
had three wholly owned  subsidiaries,  Global  Medical  Technologies,  Inc.,  an
Arizona corporation, which was operating ("Global Medical"), and Century Pacific
Fidelity Corporation and Century Pacific Investment Management Corporation, both
of which were inactive and without assets or debts.

         On January  31,  2005,  the  Company  contributed  all of the shares of
common  stock  of  its  wholly-owned,  inactive  subsidiaries,  Century  Pacific
Fidelity Corp. and Century Pacific Investment Management Corporation,  to Global
Medical. In February 2005, the Company distributed all of the outstanding shares
of  common  stock of Global  Medical  on a pro rata  basis to its  stockholders.
Following  the  distribution,  Global  Medical  continued to operate its medical
equipment   reconditioning  business  as  an  independent  company.  After  this
distribution, the Company existed as a "shell company" under the name of Century
Pacific  Financial  Corporation  with nominal  assets whose sole business was to
identify, evaluate and investigate various companies to acquire or with which to
merge.

         On November  22,  2005,  the Company  acquired  all of the  outstanding
voting  securities  of  Bella  Rose and  Versatile,  each of  which  became  its
wholly-owned subsidiaries.  The Company issued to the Bella Rose members and the
Versatile  stockholders  an  aggregate  of  2,460,106.34  shares of its series A
convertible preferred stock, which subsequently converted into 26,595,751 shares
of common  stock on January 5, 2006 on a post  reverse  stock split  basis.  The
exchange  transaction  was accounted for as a reverse merger  (recapitalization)
with  Versatile  and Bella Rose deemed to be the  accounting  acquirer,  and the
Company the legal acquirer.

         Effective on January 5, 2006,  the Company  changed its corporate  name
from  Century  Pacific  Financial  Corporation  to  People's  Liberation,  Inc.,
completed a 1-for-9.25 reverse split of its common stock, adopted its 2005 Stock
Incentive  Plan,  and its series A convertible  preferred  stock  converted into
common  stock.  Following the  conversion of the Series A convertible  preferred
stock,  the reverse stock split on January 5, 2006, and the subsequent  issuance
of shares to preserve round lot holders,  34,371,134 shares of common stock were
outstanding.  All share and per share  information  included in the accompanying
consolidated  financial  statements  reflects  the effects of the reverse  stock
split.

         Bella Rose  commenced  operations  of its William Rast clothing line in
May 2005.  Bella Rose began shipping  products under the William Rast brand name
in the fourth quarter of 2005.  Under an apparel brand agreement with WRE, Bella
Rose had the exclusive rights to manufacture  clothing and accessories under the
William Rast trade name.  Under  long-form  definitive  agreements  entered into


                                       35
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

effective October 1, 2006, which superseded the apparel brand agreement, two new
entities  were formed,  William Rast  Sourcing and William Rast  Licensing.  All
assets and  liabilities  of the Bella Rose business were  transferred to William
Rast Sourcing effective October 1, 2006. William Rast Sourcing has the exclusive
rights to  manufacture  clothing  with the William Rast brand name.  The William
Rast trademarks were transferred to William Rast Licensing  effective October 1,
2006 and William Rast Licensing has the exclusive  rights to promote and license
the William Rast brand.

         Beginning  October 1, 2006,  William  Rast  Sourcing  and William  Rast
Licensing  are  consolidated  under  Bella  Rose.  Until  WRE has a basis in the
capital of William Rast Sourcing and William Rast Licensing,  losses will not be
allocated  to WRE.  Instead,  all  losses  will be  recognized  by Bella Rose in
consolidation.  Subsequently,  if profits are generated by William Rast Sourcing
and William  Rast  Licensing,  then  profits  will not be allocated to WRE until
previously  unrecognized  minority  losses  are fully  recouped  by Bella  Rose.
Minimum profit  allocations to WRE will be accounted for as a minority  interest
in the consolidated financial statements of the Company.

         Effective July 1, 2008, Bella Rose and Lindeberg Sweden entered into an
operating  agreement and other related agreements for J. Lindeberg USA. Pursuant
to the  agreements,  J.  Lindeberg  USA has the  rights to source,  market,  and
distribute J. Lindeberg(TM) branded apparel in the United States on an exclusive
basis.  The agreements  provide that Bella Rose and Lindeberg Sweden each hold a
50% interest in J.  Lindeberg  USA with the business of J.  Lindeberg  USA being
operated by Bella Rose. Bella Rose has management  control over J. Lindeberg USA
and  therefore,  beginning  July 1, 2008, the operations of J. Lindeberg USA are
included in the  consolidated  financial  statements of the Company.  Profit and
loss allocations to Lindeberg Sweden will be recorded as a minority  interest in
the consolidated financial statements of the Company.

NATURE OF OPERATIONS

         The Company  markets and sells high-end  casual apparel under the brand
names  "People's  Liberation,"  "William  Rast" and, in the United  States,  "J.
Lindeberg," through Versatile and Bella Rose, its wholly owned subsidiaries, and
through Bella Rose's 50% owned subsidiaries, William Rast Sourcing, William Rast
Licensing and J.  Lindeberg USA. The majority of the  merchandise  the companies
offer consists of premium denim, knits,  wovens, golf wear and outerwear for men
and  women.  In the United  States,  Versatile,  William  Rast  Sourcing  and J.
Lindeberg USA distribute  their  merchandise to boutiques,  specialty stores and
better department stores, such as Nordstrom,  Bloomingdales,  Saks Fifth Avenue,
Neiman  Marcus and Fred Segal.  The Company also markets and sells J.  Lindeberg
branded  collection  and golf apparel  through its flagship  retail store in New
York City and J. Lindeberg golf wear to green grass golf stores and boutiques in
the United States.  Internationally,  in select countries, William Rast Sourcing
sells its products directly and through distributors to better department stores
and boutiques throughout the world.

         The Company  commenced its William Rast clothing line in May 2005.  The
Company's  William Rast clothing line is a collaboration  with Justin Timberlake
and his childhood friend,  Trace Ayala. In addition,  the Company's William Rast
lifestyle  collection  is being  developed  and designed in  collaboration  with
Paris68, the independent design consultancy of Johan and Marcella Lindeberg.

         The Company began distributing J. Lindeberg branded apparel products in
the United States on an exclusive  basis  beginning  July 2008 in  collaboration
with Lindeberg Sweden. In addition to being sold in the United States through J.
Lindeberg  USA, J.  Lindeberg  branded  high-end  men's fashion and premium golf
apparel is marketed and sold by Lindeberg Sweden worldwide.


                                       36
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The Company commenced its People's Liberation business in July 2004. On
December 16, 2008, the Company  entered into an agreement  with Charlotte  Russe
pursuant to which it agreed to  exclusively  sell to Charlotte  Russe,  in North
America and Central America,  People's  Liberation(TM) branded apparel,  apparel
accessories, eyewear, jewelry, watches, cosmetics and fragrances, and to provide
Charlotte  Russe with  marketing  and branding  support for People's  Liberation
branded apparel and apparel accessories. The Company will cease to sell People's
Liberation  branded  merchandise in North America and Central America to parties
other than Charlotte  Russe  effective April 30, 2009. The Company will continue
to market and sell People's Liberation branded merchandise internationally, with
the exception of Central  America.  Sales to Charlotte  Russe under the terms of
this agreement are expected to begin in July 2009.

         The Company is  headquartered  in Los  Angeles,  California,  maintains
showrooms in New York, Los Angeles and Atlanta, and has sales representatives in
Dallas, Texas, and Orlando, Florida.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

         The accounts of Versatile,  Bella Rose, William Rast Sourcing,  William
Rast  Licensing  and J.  Lindeberg  USA have  been  consolidated  for  financial
statement presentation.  All significant inter-company accounts and transactions
have been eliminated in the consolidation.

USE OF ESTIMATES

         The preparation of consolidated financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States of  America,
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities  at the  date  of the  consolidated  financial  statements  and  the
reported  amounts of revenues and expenses during the reporting  period.  Actual
results  could  differ  from  these  estimates.   The  significant   assets  and
liabilities  that require  management  to make  estimates and  assumptions  that
affect the reported amounts in the consolidated  financial  statements  included
inventories,  accounts  receivable and due (to) from factor,  intangible assets,
deferred taxes, stock based compensation and accrued expenses.

REVENUE RECOGNITION

         The Company recognizes revenues in accordance with SEC Staff Accounting
Bulletin  (SAB) No.  101,  as  amended  by SAB No.  104.  Wholesale  revenue  is
recognized  when  merchandise  is shipped to a  customer,  at which  point title
transfers to the customer, and when collection is reasonably assured.  Customers
are not given  extended  terms or dating or return rights  without  proper prior
authorization.  Revenue is recorded net of estimated  returns,  charge backs and
markdowns based upon management's estimates and historical  experience.  Website
revenue is  recognized  when  merchandise  is  shipped  to a  customer  and when
collection is reasonably  assured.  Retail  revenue is recognized on the date of
purchase from the Company's retail store.


                                       37
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

COMPREHENSIVE INCOME

         The Company has adopted Statement of Financial Accounting Standards No.
130,  "Reporting  Comprehensive  Income"  ("SFAS  130").  SFAS  130  establishes
standards for reporting and display of  comprehensive  income and its components
in a full set of general-purpose  financial  statements.  There were no material
other comprehensive income items for the years ended December 31, 2008 and 2007.

SEGMENT REPORTING

         The Company has adopted Statement of Financial Accounting Standards No.
131,  "Disclosures  about  Segments of an  Enterprise  and Related  Information"
("SFAS 131"). SFAS 131 requires that public companies report certain information
about operating  segments,  products,  services and geographical  areas in which
they operate.  The Company believes that it operates within one segment as there
is not enough difference between the types of products developed and distributed
by the  Company to justify  segmented  reporting  by  product  type.  Management
decisions   regarding  the   allocation  of  resources  and  the  assessment  of
performance are made on a company-wide basis and are not specific to the type of
product.  The Company's  operations  include wholesale sales and retail sales of
similar product  categories.  At this time, the Company's retail  operations are
not  significant  enough to  require  separate  disclosure  in the  consolidated
financial statements. See Note 21 for disclosure regarding geographic regions.

ADVERTISING

         Advertising  costs are  charged  to  expense  as of the first  date the
advertisements  take place.  Advertising  expenses  included in selling expenses
approximated  $1,813,000  and $342,000 for the years ended December 31, 2008 and
2007, respectively.

INVENTORIES

         Inventories,  consisting of piece goods and trim,  work-in-process  and
finished goods, are stated at the lower of cost (first-in,  first-out method) or
market value.  Inventories are evaluated for obsolescence and slow-moving  items
based on management's  analysis of sales levels, sales projections and inventory
levels.

STOCK-BASED COMPENSATION

         The Company  recognizes  compensation  costs  relating  to  share-based
payment  transactions  in  accordance  with  Statement of  Financial  Accounting
Standards  ("SFAS")  No.  123(R),  SHARE-BASED  PAYMENT,  and  has  applied  the
provisions  of SAB No. 107 in its adoption of SFAS No.  123(R).  See Note 14 for
disclosures regarding stock-based compensation.

         PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost.  Maintenance and repairs are
charged to expense as incurred. Upon retirement or other disposition of property
and equipment, applicable cost and accumulated depreciation and amortization are
removed  from the  accounts  and any gains or losses are  included in results of
operations.


                                       38
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Depreciation   of  property  and   equipment  is  computed   using  the
straight-line method based on estimated useful lives of the assets as follows:

         Furniture and fixtures             5 years

         Office equipment                   7 years

         Machinery and equipment            7 years

         Leasehold improvements             Term of the lease  or the  estimated
                                            life  of  the  related improvements,
                                            whichever is shorter.

         Computer Software                  5 years

INTANGIBLE ASSETS

         Intangible assets consist of trademarks and operational  control rights
related to the William Rast Sourcing and William Rast Licensing (Note 9).

         Costs incurred  related to the Company's  trademarks are amortized on a
straight-line basis over an estimated useful life of fifteen years.

IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLES

         Long-lived assets,  including trademarks and operational control rights
related to William Rast  Sourcing and William Rast  Licensing,  are reviewed for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be recoverable.  Recoverability of assets to
be held and used is measured by a comparison of the carrying  amount of an asset
to future  undiscounted net cash flows expected to be generated by the asset. If
such assets are  considered to be impaired,  the  impairment to be recognized is
measured by the amount by which the  carrying  amount of the assets  exceeds the
fair value of the assets.  Assets to be disposed of are reported at the lower of
the carrying  amount or fair value less costs to sell.  There were no impairment
losses  related to intangible  assets  recorded for the year ended  December 31,
2008. For the year ended  December 31, 2007, the Company  recorded an impairment
loss of $7,955  related to trade  names the  Company  was no longer  using.  The
impairment loss was charged to general and administrative expense.

INCOME TAXES

         Bella Rose,  William  Rast  Sourcing,  William  Rast  Licensing  and J.
Lindeberg  USA are limited  liability  companies  and are subject to  California
minimum tax of $800 and a fee based on total annual  revenue.  The earnings of a
limited liability company are reported individually by its members.

         On November 22,  2005,  People's  Liberation,  Inc.  (formerly  Century
Pacific Financial Corporation) acquired all of the outstanding voting securities
of Bella Rose and Versatile,  each of which became a wholly-owned  subsidiary of
the Company.  As a result,  Versatile  and Bella Rose  (including  its 50% owned
subsidiaries,  William Rast  Sourcing,  William Rast  Licensing and J. Lindeberg
USA) are  consolidated  and income  taxes are  reported by the parent,  People's
Liberation,  Inc. Taxes are calculated on a consolidated  basis at C-Corporation
income tax rates.

         Deferred  income  taxes are  recognized  using the asset and  liability
method by applying income tax rates to cumulative temporary differences based on
when and how they are expected to affect the tax return. Deferred tax assets and
liabilities are adjusted for income tax rate changes.


                                       39
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         In June 2006, the Financial  Accounting Standards Board ("FASB") issued
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES, an
interpretation  of SFAS No. 109. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in accordance
with  SFAS No.  109 and  prescribes  a  recognition  threshold  and  measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position taken or expected to be taken in a tax return.  The Company adopted the
provisions of FIN 48 on January 1, 2007. FIN 48 contains a two-step  approach to
recognizing  and measuring  uncertain tax positions  accounted for in accordance
with  SFAS  No.  109.  The  first  step  is to  evaluate  the tax  position  for
recognition by determining if the weight of available evidence indicates that it
is more likely than not that the position will be sustained on audit,  including
resolution of related appeals or litigation  processes,  if any. The second step
is to measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon ultimate settlement.

         The Company  files U.S.  Federal  tax  returns,  California,  New York,
Georgia  and Texas  franchise  tax  returns  and  anticipates  filing New Jersey
franchise tax returns.  For the U.S. Federal return,  all periods are subject to
tax examination by the U.S.  Internal Revenue Service ("IRS").  The Company does
not  currently  have any  ongoing  tax  examinations  with the IRS.  The Company
believes that its income tax filing  positions and deductions  will be sustained
on audit and does not anticipate any adjustments  that will result in a material
change to its financial  position.  Therefore,  no reserves for uncertain income
tax  positions  have been  recorded  pursuant  to FIN 48 during the years  ended
December 31, 2008 and 2007. In addition, the Company did not record a cumulative
effect adjustment related to the adoption of FIN 48 and does not anticipate that
the total  amount of  unrecognized  tax benefit  related to any  particular  tax
position will change significantly within the next 12 months.

          Income taxes are further described in Note 15.

CONCENTRATION OF CREDIT RISK

         Financial   instruments,   which  potentially  expose  the  Company  to
concentration of credit risk,  consist  primarily of cash and cash  equivalents,
trade accounts receivable, and amounts due from factor.  Concentration of credit
risk with respect to trade accounts receivable is significantly mitigated by the
use of a factor, which effectively transfers a substantial amount of credit risk
to the factor. The Company and its factor perform on-going credit evaluations of
its customers and the Company  maintains an allowance for doubtful  accounts and
chargebacks.  The Company may extend  unsecured  credit to its  customers in the
normal course of business.

         The Company's cash balances on deposit with banks are guaranteed by the
Federal Deposit Insurance Corporation up to $250,000. The Company may be exposed
to risk for the  amounts  of funds  held in one bank in excess of the  insurance
limit. In assessing the risk, the Company's  policy is to maintain cash balances
with high quality financial institutions.

         The  Company's  products  are  primarily  sold  to  department  stores,
specialty retail stores and international  distributors.  These customers can be
significantly affected by changes in economic, competitive or other factors. The
Company makes substantial  sales to a relatively few, large customers.  In order
to  minimize  the risk of loss,  the Company  assigns  the  majority of domestic
accounts receivable to a factor without recourse.  For non-factored and recourse
receivables,  account-monitoring procedures are utilized to minimize the risk of
loss. Collateral is generally not required.


                                       40
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ACCOUNTS RECEIVABLE - ALLOWANCE FOR RETURNS, DISCOUNTS AND BAD DEBTS

         The Company  evaluates the  collectability  of accounts  receivable and
charge backs (disputes from customers)  based upon a combination of factors.  In
circumstances where the Company is aware of a specific  customer's  inability to
meet its financial  obligations  (such as in the case of  bankruptcy  filings or
substantial  downgrading by credit sources),  a specific allowance for bad debts
is taken  against  amounts due to reduce the net  recognized  receivable  to the
amount reasonably expected to be collected. For all other customers, the Company
recognizes  an allowance for bad debts and  uncollectible  charge backs based on
its historical collection experience. If collection experience deteriorates (for
example,  due to an unexpected  material  adverse  change in a major  customer's
ability to meet its financial obligations to the Company),  the estimates of the
recoverability of amounts due could be reduced by a material amount.

SHIPPING AND HANDLING COSTS

         The Company records  shipping and handling costs billed to customers as
a component of revenue,  and shipping and handling costs incurred by the Company
for inbound and  outbound  freight are recorded as a component of cost of sales.
Total  shipping  and handling  costs  included as a component of revenue for the
years ended  December 31, 2008 and 2007 amounted to  approximately  $334,000 and
$195,000,  respectively.  Total  shipping  and  handling  costs  included  as  a
component of cost of sales amounted to  approximately  $957,000 and $506,000 for
the years ended December 31, 2008 and 2007, respectively.

CLASSIFICATION OF EXPENSES

         COST OF GOODS SOLD - Cost of goods  sold  includes  expenses  primarily
related to inventory  purchases and contract labor,  freight,  duty and overhead
expenses.  Overhead  expenses  primarily  consist of third party  warehouse  and
shipping costs.

         SELLING, DESIGN AND PRODUCTION EXPENSE - Selling, design and production
expense primarily  includes  tradeshows,  salaries,  advertising,  marketing and
promotion, design fee payments, samples, travel and showroom expenses.

         GENERAL  AND  ADMINISTRATIVE  EXPENSES  -  General  and  administrative
expenses primarily include salaries,  professional fees,  facility costs, travel
and  entertainment,  depreciation  and amortization  expense,  and other general
corporate expenses.

CONSIDERING   THE  EFFECTS  OF  PRIOR  YEAR   MISSTATEMENTS   WHEN   QUANTIFYING
MISSTATEMENTS IN CURRENT YEAR FINANCIAL STATEMENTS.

         Staff  Accounting  Bulletin No. 108,  "Considering the Effects of Prior
Year  Misstatements  when  Quantifying  Misstatements  in Current Year Financial
Statements"  ("SAB 108"),  was issued in September  2006.  SAB 108 requires that
public companies utilize a "dual-approach" to assessing the quantitative effects
of financial misstatements. This dual approach includes both an income statement
focused assessment and a balance sheet focused  assessment.  The guidance in SAB
108 must be applied to annual financial statements for fiscal years ending after
November 15, 2006.  The  adoption of this  pronouncement  has not had a material
impact on the Company's consolidated financial statements.


                                       41
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RECENTLY ISSUED ACCOUNTING STANDARDS

         In December 2007, the FASB issued SFAS No. 141(revised 2007),  BUSINESS
COMBINATIONS,  and  SFAS  No.  160,  NONCONTROLLING  INTERESTS  IN  CONSOLIDATED
FINANCIAL  STATEMENTS.  SFAS No. 141R  improves  reporting  by creating  greater
consistency in the accounting and financial reporting of business  combinations,
resulting in more complete,  comparable,  and relevant information for investors
and other users of financial  statements.  SFAS No. 141R  requires the acquiring
entity in a business combination to recognize all (and only) the assets acquired
and liabilities  assumed in the  transaction;  establishes the  acquisition-date
fair value as the measurement  objective for all assets acquired and liabilities
assumed;  and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect  of the  business  combination.  SFAS No.  160  improves  the  relevance,
comparability,  and transparency of financial  information provided to investors
by  requiring  all  entities to report  noncontrolling  (minority)  interests in
subsidiaries  in  the  same  way--as  equity  in  the   consolidated   financial
statements.  Moreover,  SFAS No. 160  eliminates  the diversity  that  currently
exists in  accounting  for  transactions  between an entity  and  noncontrolling
interests  by  requiring  they  be  treated  as  equity  transactions.  The  two
statements are effective for fiscal years  beginning after December 15, 2008 and
management  is  currently  evaluating  the  impact  that the  adoption  of these
statements may have on the Company's consolidated financial statements.

         In  March  2008,  the  FASB  issued  SFAS No.  161,  DISCLOSURES  ABOUT
DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITIES--AN  AMENDMENT OF FASB STATEMENT
NO.  133.  SFAS No. 161  changes  the  disclosure  requirements  for  derivative
instruments and hedging  activities.  Entities are required to provide  enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No.
133 and its related interpretations,  (c) how derivative instruments and related
hedged items affect an entity's financial position,  financial performance,  and
cash flows and (d) encourages, but does not require, comparative disclosures for
earlier  periods at initial  adoption.  SFAS No. 161 is effective  for financial
statements  issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged.  The adoption of this pronouncement
is not  expected  to  have a  material  impact  on  the  Company's  consolidated
financial statements.

         In May 2008,  the FASB issued SFAS No. 162 THE  HIERARCHY  OF GENERALLY
ACCEPTED  ACCOUNTING  PRINCIPLES.  SFAS 162 identifies the sources of accounting
principles  and the framework  for  selecting  the  principles to be used in the
preparation  of  financial  statements  of  nongovernmental  entities  that  are
presented in conformity with generally accepted accounting  principles (GAAP) in
the United  States (the GAAP  hierarchy).  The  Statement  is  effective 60 days
following the SEC's approval of the Public Company  Accounting  Oversight  Board
amendments to AU Section 411, THE MEANING OF Present  Fairly in Conformity  With
Generally Accepted Accounting Principles.  The adoption of this pronouncement is
not expected to have a material impact on the Company's  consolidated  financial
statements.

         Other recent  accounting  pronouncements  issued by the FASB (including
its Emerging  Issues Task Force),  the  American  Institute of Certified  Public
Accountants, and the United States Securities and Exchange Commission did not or
are not believed to have a material  impact on the  Company's  present or future
consolidated financial statements.


                                       42
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FAIR VALUE OF FINANCIAL INFORMATION

         The following  methods and  assumptions  were used to estimate the fair
value of each class of  financial  instruments  for which it is  practicable  to
estimate that value.  ACCOUNTS  RECEIVABLE AND DUE (TO) FROM FACTOR:  Due to the
short-term nature of the receivables,  the fair value  approximates the carrying
value.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES AND CUSTOMER  DEPOSIT:  Due to the
short-term  nature of the  payables,  the fair value  approximates  the carrying
value.

         The  Company  adopted  Statement  of  Financial   Accounting  Standards
("SFAS") 157 "FAIR VALUE  MEASUREMENTS"  and SFAS 159 "THE FAIR VALUE OPTION FOR
FINANCIAL  ASSETS AND  FINANCIAL  LIABILITIES"  on  January  1,  2008.  SFAS 157
establishes  a fair value  hierarchy  that  prioritizes  the inputs to valuation
techniques used to measure fair value into three levels as follows:

         o        Level I - Quoted  prices  (unadjusted)  in active  markets for
                  identical  asset  or  liabilities  that  the  Company  has the
                  ability to access as of the measurement date. Financial assets
                  and  liabilities  utilizing  Level  I  inputs  include  active
                  exchange-traded securities and exchange-based derivatives.

         o        Level II - Inputs  other than quoted  prices  included  within
                  Level  I  that  are  directly  observable  for  the  asset  or
                  liability or indirectly  observable through corroboration with
                  observable  market  data.  Financial  assets  and  liabilities
                  utilizing  Level II inputs  include  fixed income  securities,
                  non-exchange-based  derivatives,  mutual funds, and fair-value
                  hedges.

         o        Level III -  Unobservable  inputs  for the asset or  liability
                  only used when there is little,  if any,  market  activity for
                  the asset or  liability  at the  measurement  date.  Financial
                  assets and  liabilities  utilizing  Level III  inputs  include
                  infrequently-traded,    non-exchange-based   derivatives   and
                  commingled  investment  funds,  and are measured using present
                  value pricing models.

         SFAS  159  permits  companies  to  choose  to  measure  many  financial
instruments and certain other items at fair value.  The Company  determined that
as of December 31, 2008,  there were no significant  financial  instruments that
required fair value measurement pursuant to SFAS 157 or SFAS 159.

NOTE 3 - EARNINGS PER SHARE

         The Company computes and presents earnings per share in accordance with
SFAS No. 128, "EARNINGS PER SHARE".  Basic earnings per share are computed based
upon the weighted average number of common shares outstanding during the year.

         Warrants  representing  3,565,000  shares of common  stock at  exercise
prices  ranging  from  $0.40 to $2.00 per share and stock  options  representing
2,716,000  shares of common  stock at an exercise  prices  ranging from $0.30 to
$1.25 per share were outstanding as of December 31, 2008, but were excluded from
the average number of common shares  outstanding in the  calculation of earnings
per share because the effect of inclusion would be anti-dilutive.

         Warrants  representing  3,525,000  shares of common  stock at  exercise
prices  ranging  from  $0.40 to $2.00 per share and stock  options  representing
2,416,000  shares of common stock at exercise prices ranging from $0.31 to $1.25
per share were  outstanding  as of December 31, 2007, but were excluded from the
average number of common shares  outstanding in the  calculation of earnings per
share because the effect of inclusion would be anti-dilutive.


                                       43
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The following is a reconciliation of the numerators and denominators of
the basic and diluted loss per share computations:

<TABLE>
<CAPTION>
                                                LOSS           SHARES       PER SHARE
YEAR ENDED DECEMBER 31, 2008:                (NUMERATOR)   (DENOMINATOR)     AMOUNT
----------------------------                 -----------    -----------   -----------
<S>                                          <C>             <C>          <C>
Basic loss per share:
Net loss .................................   $(4,460,257)    36,002,563   $     (0.12)

Effect of Dilutive Securities:
Options ..................................          --             --            --
Warrants .................................          --             --            --
                                             -----------    -----------   -----------
Loss available to common stockholders ....   $(4,460,257)    36,002,563   $     (0.12)
                                             ===========    ===========   ===========


YEAR ENDED DECEMBER 31, 2007:
----------------------------
Basic loss per share:
Net loss .................................   $  (768,497)    35,200,207   $     (0.02)

Effect of Dilutive Securities:
Options ..................................          --             --            --
Warrants .................................          --             --            --
                                             -----------    -----------   -----------
Loss available to common stockholders ....   $  (768,497)    35,200,207   $     (0.02)
                                             ===========    ===========   ===========
</TABLE>


NOTE 4 - DUE (TO) FROM FACTOR

         The Company uses a factor for working capital and credit administration
purposes.  Under the factoring  agreements,  the factor  purchases a substantial
portion of the Company's trade accounts  receivable and assumes credit risk with
respect to certain accounts.

         The factor agreements  provide that the Company can borrow an amount up
to 85% of the value of its approved factored customer invoices.  The Company can
also borrow up to 50% of its eligible  inventory (as defined in the agreements).
Maximum  borrowings  under the Company's  People's  Liberation  and William Rast
inventory facility are not to exceed $1.3 million of eligible inventory. Maximum
borrowings,  including  borrowings  related to factored accounts  receivable and
inventory, related to the Company's J. Lindeberg facility are not to exceed $1.5
million.  The factor commission is 0.8% of the customer invoice amount for terms
up to 60 days,  plus one  quarter  of one  percent  (.25%)  for each  additional
thirty-day term.

         Receivables  sold in excess of maximums  established  by the factor are
subject to recourse in the event of nonpayment  by the customer.  The Company is
contingently  liable to the factor for merchandise  disputes and customer claims
on receivables sold to the factor.

         To the  extent  that  the  Company  draws  funds  prior  to the  deemed
collection  date of the  accounts  receivable  sold to the  factor,  interest is
charged at the factor's  prime lending rate plus 1% per annum.  Factor  advances
and  ledger  debt  are  collateralized  by  accounts  receivable,   inventories,
equipment and general  intangibles.  Ledger debt (payables to suppliers that use
the same factor as the Company)  amounted to approximately  $12,000 and $292,000
at  December  31,  2008 and 2007,  respectively.  From time to time,  the factor
issues  letters  of  credit  and  vendor  guarantees  on the  Company's  behalf.


                                       44
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Outstanding  letters  of credit  and  vendor  guarantees  totaled  approximately
$91,000 as of December 31, 2008. There were no outstanding  letters of credit or
vendor guarantees as of December 31, 2007.

         The J. Lindeberg factoring  agreements provide for corporate guaranties
from the Company's related entities, People's Liberation, Inc., Bella Rose, LLC,
and Versatile Entertainment, Inc.

         Due (to) from factor is summarized as follows:

                                                          DECEMBER 31,
                                                -------------------------------
                                                    2008                2007
                                                -----------         -----------
Outstanding receivables:
  Without recourse .....................        $ 3,423,524         $ 2,490,588
  With recourse ........................            692,155              61,432
                                                -----------         -----------
                                                  4,115,679           2,552,020
Advances ...............................         (3,520,281)           (649,049)
Open credits ...........................           (765,767)           (385,942)
                                                -----------         -----------
                                                $  (170,369)        $ 1,517,029
                                                ===========         ===========

NOTE 5 - ACCOUNTS RECEIVABLE

         Accounts receivable is summarized as follows:

                                                            DECEMBER 31,
                                                   ----------------------------
                                                       2008             2007
                                                   -----------      -----------

Trade accounts receivable ....................     $ 1,553,922      $ 1,125,510
Less allowance for doubtful accounts and
subsequent credits ...........................        (246,000)         (96,000)
                                                   -----------      -----------
                                                   $ 1,307,922      $ 1,029,510
                                                   ===========      ===========

NOTE 6 - INVENTORIES

         Inventories are summarized as follows:

                                                            DECEMBER 31,
                                                   ----------------------------
                                                       2008             2007
                                                   -----------      -----------

Piece goods and trim .........................     $ 1,564,727      $ 1,287,488
Work in process ..............................         418,710          603,394
Finished goods ...............................       2,942,001        1,942,288
                                                   -----------      -----------
                                                   $ 4,925,438      $ 3,833,170
                                                   ===========      ===========


                                       45
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 - PROPERTY AND EQUIPMENT

         Property and equipment is summarized as follows:

                                                            DECEMBER 31,
                                                   ----------------------------
                                                       2008             2007
                                                   -----------      -----------

Furniture and fixtures .......................     $   451,854      $   182,505
Office equipment .............................         256,454          184,225
Machinery and equipment ......................          48,695           74,119
Leasehold improvements .......................         119,910          115,699
Computer software ............................         352,176          305,439
                                                   -----------      -----------

                                                     1,229,089          861,987
Less accumulated depreciation and amortization        (391,738)        (249,723)
                                                   -----------      -----------
                                                   $   837,351      $   612,264
                                                   ===========      ===========


         Depreciation and amortization expense amounted to $257,548 and $150,137
for the years ended December 31, 2008 and 2007, respectively.

NOTE 8 - TRADEMARKS

         Trademarks are summarized as follows:

                                                            DECEMBER 31,
                                                   ----------------------------
                                                       2008             2007
                                                   -----------      -----------

Trademarks, at cost ..........................     $   662,716      $   391,717
Less accumulated amortization ................         (62,107)         (28,358)
                                                   -----------      -----------
                                                   $   600,609      $   363,359
                                                   ===========      ===========

         Future annual estimated amortization expense is summarized as follows:

         YEARS ENDING DECEMBER 31,
         -------------------------
         2009..................................................     $    40,040
         2010..................................................          40,040
         2011..................................................          40,040
         2012..................................................          40,040
         2013..................................................          40,040
         Thereafter............................................         400,409
                                                                     ----------
                                                                     $  600,609
                                                                     ==========

         Trademark  amortization expense amounted to $33,749 and $20,654 for the
years  ended  December  31,  2008 and  2007,  respectively.  For the year  ended
December 31, 2007, the Company  recorded an impairment loss of $7,955 related to
trade names the Company was no longer using.  The impairment loss was charged to
general and  administrative  expense.  There was no impairment loss recorded for
the year ended December 31, 2008.


                                       46
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 - INTANGIBLE ASSET AND MINORITY INTEREST PAYABLE

         Intangible asset consists of operational  control rights related to the
William Rast Sourcing and William Rast Licensing entities.

         On or around April 27, 2005, Bella Rose entered into letter  agreements
(the "Letter Agreements") with William Rast Enterprises, LLC ("WRE"). The Letter
Agreements  contemplated the formation of a joint venture between the parties to
exploit the William Rast(TM) trademark. More particularly, the Letter Agreements
contemplated  the  formation of a sourcing  company,  which would have rights to
manufacture  and sell  William Rast branded  apparel,  and a licensing  company,
which  would  own the  William  Rast(TM)  trademark  and  license  rights to the
trademark to the sourcing company and other parties.  The Letter Agreements also
contemplated a services  agreement,  pursuant to which Justin  Timberlake  would
provide  personal  services  to the  licensing  company  and  its  licensees  in
connection with the exploitation of the William Rast brand.

         While the Letter  Agreements  contemplated  that the  venture  would be
operated by a separate operating entity, which entity would be owned and managed
50% by Bella  Rose and 50% by WRE,  the  venture's  business  had been  operated
directly by Bella Rose since inception.

         On  October  1,  2006,  Bella  Rose  and  WRE  entered  into  long-form
definitive  agreements,   including  the  limited  liability  company  operating
agreement of William Rast Sourcing,  LLC (the "Sourcing  Operating  Agreement"),
the limited liability company operating agreement of William Rast Licensing, LLC
(the "Licensing Operating  Agreement",  and together with the Sourcing Operating
Agreement,  the  "Operating  Agreements"),  and the  services  agreement  by and
between William Rast Licensing and Justin Timberlake (the Operating  Agreements,
together  with  the  Services   Agreement,   the  "Transaction   Documents")  to
memorialize  the terms set forth in the Letter  Agreements,  with the  exception
that Bella Rose has  operational  control over William  Rast  Sourcing,  LLC and
William Rast Licensing, LLC.

         WRE received a 50% membership interest in William Rast Sourcing.  Bella
Rose was granted a 50% membership  interest in William Rast Sourcing in exchange
for  assigning  all of the assets and  liabilities  of the William  Rast apparel
business operated by Bella Rose. Profits and losses are allocated to each member
in accordance  with their  respective  membership  interests.  WRE is to receive
minimum annual non-cumulative profit allocations of 6% of net sales or, if less,
the  actual  amount of profits  for the year.  Bella  Rose is  required  to loan
William  Rast  Sourcing up to $1.8 million in unsecured  working  capital  funds
through  December  31, 2007.  The Sourcing  Operating  Agreement  also  includes
certain  rights  related  to the  sale  or  transfer  of  membership  interests,
including right of first refusal and drag along rights.

         WRE also received a 50% membership  interest in William Rast Licensing.
Bella Rose was granted a 50%  membership  interest in William Rast  Licensing in
exchange  for  contributing  the William  Rast(TM)  trademarks  to the  company.
Profits  and  losses  are  allocated  to each  member in  accordance  with their
respective membership interests. WRE is to receive minimum annual non-cumulative
profit  allocations of 3% of net sales or, if less, the actual amount of profits
for the year.  Bella Rose was  required to loan  William  Rast  Licensing  up to
$200,000 in unsecured  working  capital  funds  through  December 31, 2007.  The
Licensing  Operating  Agreement also includes certain rights related to the sale
or transfer of membership  interests,  including right of first refusal and drag
along rights.

         William  Rast  Licensing  granted  William  Rast  Sourcing a perpetual,
royalty free, exclusive,  worldwide,  nontransferable license to use the William
Rast trademarks in connection with the sourcing,  marketing and  distribution of
men's, women's and children's apparel.


                                       47
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         In  consideration  for WRE entering  into the  Operating  Agreements on
terms which give Bella Rose  operational  control over the Sourcing  Company and
the Licensing Company,  which operational control the Letter Agreements provided
would be 50% in favor of Bella  Rose and 50% in favor of WRE,  the  Company,  on
October 1, 2006,  issued to WRE 571,429  shares of its common  stock,  par value
$0.001 per share. The common stock issued contains  restrictions  related to the
sale or  transfer  of the shares,  including  right of first  refusal and annual
volume  limitations.  The market price of the Company's common stock on the date
of  issuance of the shares was $0.75.  The  $428,572  value of the common  stock
issued to WRE has been recorded as an intangible asset on Bella Rose's financial
statements. The intangible asset is expected to have an indefinite life and will
be reviewed for impairment on a quarterly basis.

         The  issuance  of the  shares of common  stock to WRE was  exempt  from
registration  under the  Securities  Act of 1933,  as amended  (the  "Securities
Act"),  pursuant to an exemption  from  registration  contained in Regulation D,
only to accredited  investors.  The shares of common stock may not be offered or
sold in the United States unless they are registered  under the Securities  Act,
or an exemption  from the  registration  requirements  of the  Securities Act is
available.  No registration  statement  covering these securities has been filed
with the United  States  Securities  and Exchange  Commission  or with any state
securities commission.
         Pursuant to a services  agreement  entered  into  between  William Rast
Licensing and Justin  Timberlake,  Mr. Timberlake agreed to provide William Rast
Licensing and its licensees  (which includes William Rast Sourcing) with certain
services in  connection  with the launch,  advertising,  design,  and styling of
William Rast branded apparel and other consumer products. During the term of the
agreement,  except as otherwise provided in the agreement, the services rendered
by Mr.  Timberlake in the indirect  endorsement of William Rast branded  apparel
and other  consumer  products  were  exclusive  to William Rast  Licensing.  The
Services Agreement expired on December 31, 2008.

         Beginning  October 1, 2006,  William  Rast  Sourcing  and William  Rast
Licensing are  consolidated  under Bella Rose, a wholly-owned  subsidiary of the
Company.  Until WRE has a basis in the  capital of  William  Rast  Sourcing  and
William Rast Licensing, losses will not be allocated to WRE. Instead, all losses
will be recognized by Bella Rose in consolidation.  Subsequently, if profits are
generated by William Rast Sourcing and William Rast Licensing, then profits will
not be allocated to WRE until previously  unrecognized minority losses are fully
recouped by Bella Rose.  Minimum profit allocations to WRE will be accounted for
as a minority interest in the consolidated financial statements of the Company.

         Because net liabilities of Bella Rose were  transferred to William Rast
Sourcing and William Rast  Licensing  upon  formation of the new  entities,  the
settlement of which is the sole  responsibility of Bella Rose, there was no gain
or loss recognized upon the transfer of the net liabilities to the new entities.

         Assets and  liabilities  of Bella  Rose  transferred  to  William  Rast
Sourcing and William Rast Licensing on October 1, 2006 were transferred at their
carrying value on the books of Bella Rose on the date of transfer.

         In May 2007,  the limited  liability  company  operating  agreements of
William  Rast  Sourcing,  LLC and William Rast  Licensing,  LLC were amended and
restated to reflect changes in  distributions  and the allocation of profits and
losses among the entities members. The amended and restated operating agreements
provide for minimum quarterly  minority interest cash distributions to WRE based
on net  revenues,  as  defined in the  operating  agreements,  generated  by the
companies during the applicable quarter. Effective January 1, 2007, William Rast
Sourcing will pay WRE a minimum quarterly  minority interest  distribution of 6%
of applicable net sales  generated by William Rast Sourcing during the quarterly


                                       48
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

period,  and William Rast  Licensing will pay WRE a minimum  quarterly  minority
interest  distribution  of 3% of applicable net sales  generated by William Rast
Licensing during the quarterly period. Minority interest distributions are to be
paid 45 days following the applicable quarter.

         On November 9, 2007, the limited liability company operating  agreement
of William Rast Sourcing,  LLC was further  amended to reflect a modification of
the  distributions  to WRE.  For the  calendar  quarters  ending June 30,  2007,
September 30, 2007 and December 31, 2007,  all cash  distributions  William Rast
Sourcing,  LLC is  required to pay to WRE  pursuant to the amended and  restated
Operating Agreement shall not be paid or accrued for future payment with respect
to such calendar quarters.

         Total minority  interest  recorded for the year ended December 31, 2008
amounted to $1,326,293 and represents minimum distributions accrued for the year
ended  December 31, 2008.  Total minority  interest  recorded for the year ended
December 31, 2007  amounted to $113,017  and  represents  distributions  for the
calendar   quarter  ended  March  31,  2007,   which  were  paid  in  May  2007.
Distributions  to WRE  are  recorded  as  minority  interest  in  the  Company's
consolidated statements of operations.

         On November 13, 2007, the Company issued a warrant to purchase  150,000
shares of its common stock to WRE.  The warrant has an exercise  price of $0.40,
vests  immediately  and has a term of five  years.  The  warrant  was  valued at
approximately $27,000 using the Black Scholes valuation model.

NOTE 10- OTHER ASSETS

         Other assets are summarized as follows:
                                                              DECEMBER 31,
                                                       -------------------------
                                                         2008             2007
                                                       --------         --------
William Rast lifestyle apparel
   collection rights .........................         $   --           $200,000
Deposits .....................................          444,266           65,020
                                                       --------         --------
                                                       $444,266         $265,020
                                                       ========         ========

WILLIAM RAST LIFESTYLE APPAREL DESIGN AGREEMENTS

         Effective  November 15,  2007,  William  Rast  Sourcing  entered into a
design services agreement with Paris68 LLC and Johan and Marcella Lindeberg. The
design  services  agreement  provided that the Company's  William Rast lifestyle
collection  be  developed  and  designed  in  collaboration  with  Paris68,  the
independent design consultancy of Johan and Marcella Lindeberg. Johan Lindeberg,
best known for his role as Creative  Director of the Swedish brand J. Lindeberg,
designs the Company's  men's  collection  while Marcella  Lindeberg  designs the
Company's women's collection.  The initial collections were launched in February
of 2008.  The design  services  agreement  with  Paris68 and Johan and  Marcella
Lindeberg was for a three-year period ending December 2010.

         In  accordance  with the terms of the design  services  agreement,  the
Company was required to make minimum  design fee payments  totaling $6.5 million
over the term of the  agreement.  In addition to the minimum annual design fees,
the design  services  agreement  also  provided  for  royalty  payments  for the
contract  years  ending  December  31,  2009 and 2010 of 7% of net  sales of the
collections  products in excess of $7.5 million up to $20 million, and 5% of net
sales of the collection's products in excess of $20 million.


                                       49
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         As of  December  31,  2007,  collection  rights  related  to the design
collection of the Company's William Rast men's and women's ready-to-wear product
line by Johan and Marcella  Lindeberg  amounted to $200,000 and  represented  an
advance  design  fee  payment  made in  accordance  with the terms of the design
services agreement.  Future contractual design fee payments due under the design
services  agreement were to be amortized in accordance  with the revenue derived
from sales of the collection  products.  Expense amortized to sales recorded for
the year ended December 31, 2008 amounted to approximately  $678,000.  There was
no amortization expense recorded during the year ended December 31, 2007.

         Effective  December 1, 2008, the design services agreement with Paris68
LLC and Johan and Marcella  Lindeberg was  terminated and the parties are in the
process of negotiating the final terms of a new design consulting agreement. The
Company currently has a verbal agreement with Paris68 LLC and Johan and Marcella
Lindeberg which provides for the payment of design fees at a rate of $97,000 per
month in addition to travel and other expenses incurred by the design team

         As a result of the termination of the design  services  agreement dated
effective  November 15, 2007,  prepaid design fees incurred  through December 1,
2008  amounting to $1.6 million were expensed to selling,  design and production
expense  during the fourth  quarter of 2008.  Total  design fees paid to Paris68
pursuant to the  contract  from  November  15, 2007  through  November  30, 2008
amounted to $2.3  million,  including  the $1.6  million  expensed in the fourth
quarter of 2008.

NOTE 11 - CHARLOTTE RUSSE DISTRIBUTION AGREEMENT

         On December  16,  2008,  the Company  entered  into an  agreement  (the
"AGREEMENT") with Charlotte Russe Holding, Inc. and its wholly-owned subsidiary,
Charlotte Russe Merchandising, Inc. (collectively,  "CHARLOTTE RUSSE"), pursuant
to which the Company's wholly-owned subsidiary,  Versatile  Entertainment,  Inc.
("VE"),  agreed to  exclusively  sell to Charlotte  Russe,  in North America and
Central America,  People's Liberation(TM) branded apparel,  apparel accessories,
eyewear,  jewelry, watches,  cosmetics and fragrances,  and to provide Charlotte
Russe with  marketing  and  branding  support for  People's  Liberation  branded
apparel and apparel accessories.

         Pursuant to the Agreement, the Company will continue to design, source,
sample,  fit and deliver an assortment of finished  goods  selected by Charlotte
Russe  and  sell  such  merchandise  to  Charlotte  Russe at  wholesale  prices.
Charlotte Russe has the exclusive right to market, distribute, and sell People's
Liberation branded  merchandise  purchased from the Company in North America and
Central America through  Charlotte  Russe(TM)  branded retail stores and related
distribution channels,  including outlet locations and direct-to-consumer sales.
The Company will cease to sell People's  Liberation branded  merchandise in such
territories to parties other than Charlotte  Russe effective April 30, 2009. The
Company  will  continue  to  market  and sell its  People's  Liberation  branded
merchandise  internationally,  with the  exception of Central  America.  Product
sales to Charlotte Russe under the terms of this agreement are expected to begin
shipping in July 2009.

         In  consideration  for the exclusive  rights granted to Charlotte Russe
under the Agreement,  Charlotte  Russe has agreed to purchase from the Company a
minimum amount of People's  Liberation branded  merchandise during each contract
year. The aggregate minimum purchase obligation for the period from inception of
the  Agreement  through the end of its initial  term on December 31, 2012 is $65
million.  The amount of the minimum purchase obligation varies by contract year,
and may be less than or greater than $65 million if the  Agreement is terminated
prior to expiration of the initial term or is renewed for one or more additional
renewal period.


                                       50
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Included in customer  deposits as of December 31, 2008, is a $1 million
payment  received from  Charlotte  Russe in December 2008 upon  execution of the
Agreement.  This  deposit  will  be  applied  against  future  minimum  purchase
requirements for the first contract year of the Agreement ending June 30, 2010.

         The initial term of the Agreement expires on December 31, 2012, and may
be extended by Charlotte Russe for two additional  one-year renewal periods with
minimum  purchase  requirements  of an  aggregate  of $65  million  during  such
two-year  period.  Charlotte Russe may elect to terminate the Agreement early by
delivering written notice to the Company at any time between January 1, 2011 and
June 30,  2011,  in which event the  Agreement  shall  terminate,  at  Charlotte
Russe's  election,  on  either  (i) July 1, 2011  with the  payment  of an early
termination fee, or (ii) December 31, 2011.

         In addition to its minimum  purchase  obligations,  if Charlotte  Russe
elects to renew the Agreement  beyond the initial term, then commencing  January
1, 2013,  Charlotte  Russe will pay the Company a royalty  equal to a negotiated
percentage of the amount by which actual  wholesale  sales of merchandise  for a
contract year exceed the minimum purchase obligation for such contract year.

NOTE 12 - J. LINDEBERG USA, LLC AND DUE TO MEMBER

         Effective  July  1,  2008,  the  Company,   through  its   wholly-owned
subsidiary,  Bella Rose,  LLC, and  Lindeberg  Sweden  entered into an operating
agreement and other related  agreements for J.  Lindeberg  USA.  Pursuant to the
agreements,   J.   Lindeberg  USA  will  source,   market,   and  distribute  J.
Lindeberg(TM)  branded apparel in the United States on an exclusive  basis.  The
agreements  provide  that the  Company  and  Lindeberg  Sweden  each  hold a 50%
interest  in J.  Lindeberg  USA with the  business  of J.  Lindeberg  USA  being
operated by the Company. Under the terms of the agreements, Lindeberg Sweden was
required to  contribute  to J.  Lindeberg USA $20,000 in cash as well as certain
assets consisting  primarily of accounts  receivable and inventory.  The Company
was  required  to  contribute  to J.  Lindeberg  USA $20,000 in cash and will be
required to  contribute  up to a maximum of $1.5  million in working  capital or
related  guaranties  through  December 2010.  The  agreements  also provide that
Lindeberg  Sweden will,  among other things,  make available to J. Lindeberg USA
for  purchase all new  collections  of J.  Lindeberg(TM)  branded  apparel,  and
provide  for the  factory-direct  purchase  by the  Company of J.  Lindeberg(TM)
branded apparel on terms no less favorable to the Company than terms received by
Lindeberg  Sweden  or its  affiliates  for the  same or  substantially  the same
merchandise.  In addition,  the agreements  provide for a license from Lindeberg
Sweden to J. Lindeberg USA of the J.  Lindeberg(TM) mark and other related marks
for use in the United States on an exclusive basis for a period of 25 years. The
operating agreement provides that J. Lindeberg AB has the option to purchase the
Company's  share of J. Lindeberg USA at a negotiated  purchase price as outlined
in the agreement.


                                       51
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The following table  summarizes the estimated fair values of the assets
and  liabilities  contributed  on  July  1,  2008 to J.  Lindeberg  USA.  Member
contribution  receivable  represents  in-transit  inventory  contributed  to  J.
Lindeberg USA by Lindeberg Sweden in July 2008.

Current assets:
  Cash ....................................................           $   40,000
  Accounts receivable .....................................              726,191
  Inventory ...............................................              488,700
  Member contribution receivable ..........................            1,002,669
  Property and equipment ..................................               50,000
  Deposits ................................................              385,140
                                                                      ----------
    Total assets contributed ..............................            2,692,700
                                                                      ----------
Current liabilities:
  Due to member ...........................................              385,140
                                                                      ----------
    Total liabilities assumed .............................              385,140
                                                                      ----------
      Net assets contributed ..............................           $2,307,560
                                                                      ==========

         This  transaction  is  an  acquisition  of a  business  and  accounting
standards  require  proforma  financial  information  to  be  disclosed  in  the
Company's annual financial  statements.  Unaudited proforma consolidated results
of  operations  for the years ended  December  31,  2008 and 2007,  as though J.
Lindeberg USA had been acquired as of January 1, 2007, are as follows:

                                                 YEAR ENDED         YEAR ENDED
                                                DECEMBER 31,       DECEMBER 31,
                                                    2008               2007
                                                ------------       ------------

Net sales ................................      $ 36,489,010       $ 28,598,247
Net loss .................................      $ (4,663,099)      $ (1,422,924)
Basis and diluted loss per share .........      $      (0.13)      $      (0.04)


         The pro-forma  consolidated  results are not necessarily  indicative of
the operating  results that would have been achieved had the transaction been in
effect as of the  beginning of the period  presented and should not be construed
as being representative of future operating results.

         Due to member as of December 31, 2008 represents  amounts payable to J.
Lindeberg AB related to finished  good  purchases  and the New York retail store
and showroom deposits.

NOTE 13 - STOCKHOLDERS' EQUITY

         On  September  28,  2007 and  November  2, 2007,  the  Company  sold an
aggregate of 1,060,000  shares of its common stock at a purchase  price of $0.50
per  share for gross  proceeds  after  legal  and  other  expenses  amounted  to
$482,935,  including approximately $13,000 in legal and accounting fees incurred
in 2008 related to the registration of the shares, to various investors pursuant
to the terms of subscription agreements entered into with each investor.

         Pursuant  to the  terms  of a  certain  registration  rights  agreement
entered into with each  investor,  the Company  agreed to provide the  investors
certain  registration rights with respect to the shares under the Securities Act
of 1933, as amended. The registration rights agreement required that the Company
file a registration  statement  with the  Securities and Exchange  Commission to
register  the  resale  of the  shares  by the  investors  and  use  commercially


                                       52
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

reasonable  efforts to cause such  registration  statement  to become and remain
effective  at least for a period  ending with the first to occur of (i) the sale
of the shares covered by the  registration  statement and (ii) the  availability
under Rule 144 for the investors to resell without restriction all of the shares
covered by the registration statement.

NOTE 14 - STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS

         On January 5, 2006, the Company  adopted its 2005 Stock  Incentive Plan
(the  "Plan"),  which  authorized  the  granting  of a  variety  of  stock-based
incentive  awards.  The Plan is  administered  by the Board of  Directors,  or a
committee  appointed by the Board of Directors,  which determines the recipients
and terms of the awards  granted.  The Plan  provides  for a total of  5,500,000
shares of common stock to be reserved for issuance under the Plan.

         The   Company   recognizes   stock-based   compensation   costs   on  a
straight-line  basis over the vesting  period of each award,  which is generally
between one to four years.

         During the year ended  December 31, 2008,  the Company  issued  690,000
options to  employees,  officers and directors at exercise  prices  ranging from
$0.30 to $0.50 per share.  During the year ended  December 31, 2007, the Company
issued  1,912,000  options  to  employees,   officers,   directors  and  outside
consultants at exercise prices ranging from $0.31 to $1.25 per share. Options to
purchase  1,539,135 and 972,333 shares were  exercisable as of December 31, 2008
and 2007,  respectively.  Total stock based  compensation  expense for the years
ended  December  31,  2008 and 2007 was  approximately  $183,000  and  $261,000,
respectively. The compensation expense recognized during the year ended December
31,  2008 did not  change  basic  and  diluted  loss per share  reported  in the
Company's  Statement of Operations.  The compensation  expense recognized during
the year ended  December  31, 2007  increased  basic and diluted  loss per share
reported in the Company's Statement of Operations from $0.01 to $0.02 per share.
The total fair value of options  granted to employees,  officers,  directors and
outside  consultants  during  the years  ended  December  31,  2008 and 2007 was
approximately $101,000 and $535,000,  respectively.  There were no stock options
or warrants exercised during the years ended December 31, 2008 and 2007.

         The fair value of options is  estimated  on the date of grant using the
Black-Scholes   option   pricing   model.   The  valuation   determined  by  the
Black-Scholes  pricing model is affected by the Company's stock price as well as
assumptions regarding a number of highly complex and subjective variables. These
variables include,  but are not limited to, expected stock price volatility over
the term of the awards,  and actual and projected employee stock option exercise
behaviors.  Stock price  volatility is estimated based on a peer group of public
companies  and expected  term is estimated  using the "safe  harbor"  provisions
provided in SAB 107. Under SAB 110, the safe harbor  provisions  provided by SAB
107 were  extended  beyond  December  31, 2007 for  companies  that did not have
sufficient  historical  data to  calculate  the expected  term of their  related
options.  During the year ended  December  31,  2008,  the  Company did not have
sufficient  historical  data to  calculate  expected  term and the  safe  harbor
provisions of SAB 107 were used to calculate  expected term for options  granted
during the period. The  weighted-average  assumptions the Company used as inputs
to the  Black-Scholes  pricing model for options  granted  during the year ended
December 31, 2008 included a dividend  yield of zero, a risk-free  interest rate
of 2.9%,  expected  term of 3.7 years and an  expected  volatility  of 58%.  The
weighted-average  assumptions  the Company  used as inputs to the  Black-Scholes
pricing  model for  options  granted  during the year ended  December  31,  2007
included a dividend yield of zero, a risk-free  interest rate of 4.1%,  expected
term of 5.7 years and an expected volatility of 71.5%.

         For stock-based  awards issued to employees and directors,  stock-based
compensation  is  attributed to expense  using the  straight-line  single option
method.   Stock-based  compensation  expense  recognized  in  the  Statement  of
Operations  for the  years  ended  December  31,  2008 and 2007 is  included  in


                                       53
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

selling,  design and production and general and administrative  expenses, and is
based on awards ultimately expected to vest. SFAS 123(R) requires forfeitures to
be estimated  at the time of grant and  revised,  if  necessary,  in  subsequent
periods if actual  forfeitures  differ from those estimates.  For the year ended
December  31,  2008,  the Company  did not have  sufficient  historical  data to
calculate the expected  forfeiture  rate and as such, the Company is recognizing
forfeitures as they occur.

         Options  awarded to  non-employees  are  charged  to  expense  when the
services are performed and benefit is received as provided by EITF 96-18.

         For the years  ended  December  31,  2008 and 2007,  total  stock-based
compensation  expense included in the consolidated  statements of operations was
$183,058 and $261,133, charged to the following expense categories:

                                                       Year ended December 31,
                                                     ---------------------------
                                                         2008           2007
                                                     ------------   ------------

Selling expense ..................................   $      5,733   $     26,411
Design and production ............................         20,142         34,149
General and administrative .......................        157,183        200,573
                                                     ------------   ------------
Total stock-based compensation ...................   $    183,058   $    261,133
                                                     ============   ============

         The following table summarizes the activity in the Plan:

                                                                       Weighted
                                                                        Average
                                                         Number of     Exercise
                                                          Shares         Price
                                                        ----------    ----------

Options outstanding - January 1, 2007 ...............    1,878,000    $     1.25
     Granted ........................................    1,912,000          0.53
     Exercised ......................................         --            --
     Forfeited ......................................   (1,374,000)         1.18
                                                        ----------

Options outstanding - December 31, 2007 .............    2,416,000          0.72
     Granted ........................................      690,000          0.41
     Exercised ......................................         --            --
     Forfeited ......................................     (390,000)         0.79
                                                        ----------

Options outstanding - December 31, 2008 .............    2,716,000    $     0.64
                                                        ==========


                                       54
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Additional   information   relating  to  stock   options  and  warrants
outstanding and exercisable at December 31, 2008,  summarized by exercise price,
is as follows:

<TABLE>
<CAPTION>
                                                                                         Exercisable
                                       Outstanding Weighted Average                    Weighted Average
                                -------------------------------------------      ----------------------------
                                                 Life           Exercise                          Exercise
Exercise Price Per Share          Shares        (years)           Price            Shares           Price
---------------------------     ----------     ----------      ------------      -----------     ------------
<S>                                 <C>           <C>             <C>                 <C>           <C>
         $ 0.30 (options)           90,000        9.5             $ 0.30              45,000        $ 0.30
         $ 0.31 (options)           48,000        8.5             $ 0.31              48,000        $ 0.31
         $ 0.38 (options)          280,000        8.6             $ 0.38             177,760        $ 0.38
         $ 0.40 (options)          450,000        9.5             $ 0.40              31,250        $ 0.40
         $ 0.40 (warrants)         150,000        3.9             $ 0.40             150,000        $ 0.40
         $ 0.46 (options)          450,000        8.5             $ 0.46             412,500        $ 0.46
         $ 0.50 (options)          744,000        8.9             $ 0.50             319,000        $ 0.50
         $ 0.50 (warrants)         290,000        3.9             $ 0.50             290,000        $ 0.50
         $ 1.25 (options)          654,000        7.6             $ 1.25             505,625        $ 1.25
         $ 1.25 (warrants)         625,000        1.9             $ 1.25             625,000        $ 1.25
         $ 2.00 (warrants)       2,500,000        1.9             $ 2.00           2,500,000        $ 2.00
                                ----------                                        ----------

                                 6,281,000        4.9             $ 1.23           5,104,135        $ 1.39
                                ==========                                        ==========
</TABLE>


         A summary of the changes in the Company's  unvested stock options is as
follows:

                                                                      Weighted
                                                                      Average
                                                        Number of    Grant Date
                                                         Shares      Fair Value
                                                       ----------    ----------
Unvested stock options - January 1, 2007 ...........    1,437,417    $     0.56
     Granted .......................................    1,912,000          0.28
     Vested ........................................     (531,750)        (0.28)
     Forfeited .....................................   (1,374,000)        (0.48)
                                                       ----------

Unvested stock options - December 31, 2007 .........    1,443,667          0.32
     Granted .......................................      690,000          0.15
     Vested ........................................     (566,802)        (0.27)
     Forfeited .....................................     (390,000)        (0.32)
                                                       ----------

Unvested stock options - December 31, 2008 .........    1,176,865    $     0.24
                                                       ==========


         As of December 31, 2008,  there were 1,539,135 of vested stock options.
As of December 31, 2008, there was approximately  $254,000 of total unrecognized
compensation  expense related to share-based  compensation  arrangements granted
under the Plan.  The cost is expected  to be  recognized  on a  weighted-average
basis over the next three years. The aggregate  intrinsic value of stock options
outstanding  was zero at December  31, 2008 and 2007 as the market  value of the
options was lower than the exercise value.

         The Company has recorded a 100% valuation allowance on its deferred tax
asset related to net operating loss carryforwards.  As a result, the stock-based
compensation  has  not  been  tax  effected  on the  consolidated  statement  of
operations.  For the years ended  December  31, 2008 and 2007,  the deferred tax
effect related to nonqualified stock options is not material.


                                       55
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         During the year ended  December 31, 2008,  the Company issued a warrant
to purchase 40,000 shares of its common stock to a consulting firm for services.
The warrant has an exercise price of $0.50, a five-year term and vested over the
9-month term of the service contract. The warrant was valued at $6,700 using the
Black-Scholes option pricing model. During the year ended December 31, 2007, the
Company  issued a warrant to purchase  250,000  shares of its common  stock to a
consulting  firm.  The warrant has an exercise  price of $0.50, a five-year term
and vested over the term of the consulting agreement.  The warrant was valued at
$75,000 using the  Black-Scholes  option  pricing  model.  During the year ended
December 31, 2007, the Company also issued a warrant to purchase  150,000 shares
of its common  stock to William  Rast  Enterprises.  The warrant has an exercise
price of $0.40, vested immediately and has a term of five years. The warrant was
valued at approximately $27,000 using the Black Scholes valuation model.

NOTE 15 - INCOME TAXES

         On November 22, 2005,  People's  Liberation  (formerly  Century Pacific
Financial  Corporation)  acquired all of the  outstanding  voting  securities of
Bella Rose and Versatile,  each of which became a wholly-owned subsidiary of the
Company.  As a  result,  Versatile  and  Bella  Rose  (including  its 50%  owned
subsidiaries,  William Rast  Sourcing,  William Rast  Licensing and J. Lindeberg
USA) are consolidated and taxes are reported by the parent, People's Liberation.
Taxes are calculated on a consolidated basis at C-Corporation tax rates.

         Deferred income taxes arise  principally from temporary  differences in
the method of  depreciating  property  and  equipment  for income tax  reporting
purposes and the  recognition  of expense  related to the allowance for doubtful
accounts  for income  tax  reporting  purposes.  The  Company  had  Federal  net
operating  losses  available to carryforward to future periods of  approximately
$4.5  million as of December  31,  2008.  Federal net  operating  losses  expire
beginning 2027 and state net operating losses expire beginning 2017. A valuation
allowance  has been  provided for the deferred  income tax asset  related to net
operating loss carryforwards. At this time, the Company cannot determine that it
is more likely  than not that it will  realize  the future  income tax  benefits
related to its net operating losses.

         The Company files U.S. Federal tax returns and franchise tax returns in
several U.S. states. For the U.S. Federal return, all periods are subject to tax
examination by the U.S. Internal Revenue Service.  There were no examinations by
the Internal Revenue Service during the years ended December 31, 2008 and 2007.

         The (benefit)  provision for income taxes for the years ended  December
31, 2008 and 2007 consists of the following:

                                                         2008             2007
                                                       --------         --------
Federal:
    Current provision .........................        $ 16,788         $ 29,698
    Deferred (benefit) provision ..............         (46,750)          39,100
                                                       --------         --------
                                                        (29,962)          68,798
                                                       --------         --------
State:
    Current provision .........................           2,962            5,241
    Deferred (benefit) provision ..............          (8,250)           6,900
                                                       --------         --------
                                                         (5,288)          12,141
                                                       --------         --------
                                                       $(35,250)        $ 80,939
                                                       ========         ========


                                       56
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The difference between the (benefit) provision for income taxes and the
expected  income tax  (benefit)  provision  determined by applying the statutory
Federal  and state  income  tax rates to pre-tax  accounting  loss for the years
ended December 31, 2008 and 2007 are as follows:

                                                           2008         2007
                                                         --------     --------

Federal statutory rate ...............................     34.0 %       34.0 %
State taxes net of Federal benefit ...................        6.0         (6.0)
Net operating loss valuation allowance ...............      (40.0)       (40.0)
LLC gross receipts tax ...............................       (0.6)        (2.1)
Other ................................................        1.7         --
                                                         --------     --------
                                                              1.1%       (14.1)%
                                                         ========     ========


         The  components  of the  Company's  consolidated  deferred  income  tax
balances as of December 31, 2008 and 2007 are as follows:

                                                         2008           2007
                                                     -----------    -----------
Deferred income tax assets - current:
    Bad debt reserve .............................   $    98,000    $    38,000
    Other reserves ...............................       140,000           --
                                                     -----------    -----------
                                                         238,000         38,000
    Less:  Valuation allowance ...................      (238,000)          --
                                                     -----------    -----------
         Net deferred income tax assets - current    $      --      $    38,000
                                                     ===========    ===========

Deferred income tax asset - long-term:
    Net operating loss carryforwards .............   $ 1,788,000    $   622,000

Deferred income tax liabilities - long-term:
    Property and equipment .......................      (155,000)       (51,000)
    Excess of liabilities over assets from LLC due
    to exchange transaction ......................          --          (42,000)
                                                     -----------    -----------
                                                       1,633,000        529,000
    Less:  Valuation allowance ...................    (1,633,000)      (622,000)
                                                     -----------    -----------
         Deferred income taxes - long-term .......   $      --      $   (93,000)
                                                     ===========    ===========


NOTE 16 - RELATED PARTY TRANSACTIONS

         Colin Dyne became Chief Executive Officer and a director of the Company
on May 21, 2007.  Colin Dyne is a significant  stockholder  of the Company,  and
served as a  consultant  prior to joining  the  Company  as its Chief  Executive
Officer,  advising on strategic sales initiatives.  The Company paid $192,000 in
consulting fees to Mr. Dyne during the year ended December 31, 2007.  There were
no consulting fees paid to Mr. Dyne during the year ended December 31, 2008.

         Mr.  Dyne also  serves as a member of the Board of  Directors  of Talon
International,  Inc.  (OTCBB:  TALN),  owner of Talon zippers.  Mr. Dyne founded
Tag-It,  Inc.,  a  subsidiary  of Talon,  in 1991.  Mr.  Dyne  served as Talon's
President from inception and as its Chief  Executive  Officer from 1997 to 2005.
During the years ended  December 31, 2008 and 2007,  the Company  purchased trim
products  from  Talon   amounting  to   approximately   $536,000  and  $395,000,
respectively.


                                       57
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Kenneth  Wengrod,  a  member  of  the  Company's  Board  of  Directors,
currently serves as President of FTC Commercial Corp.  ("FTC"),  a company which
he founded in 2002 and in which he holds a minority  equity  position.  FTC is a
global  finance  commercial  service  company  primarily  focused in the apparel
industry.  The  Company is party to  various  factoring  agreements  with FTC as
further  described in Note 4 to the  consolidated  financial  statements.  As of
December 31, 2008, total factored accounts  receivable included in due to factor
amounted to approximately $4.1 million.  Outstanding advances as of December 31,
2008  amounted to  approximately  $3.5  million,  and are included in the due to
factor balance. In connection with Mr. Wengrod's  appointment as a director,  on
September  21, 2007,  the Company  granted to Mr.  Wengrod a ten-year  option to
purchase  24,000  shares of the Company's  common stock at an exercise  price of
$0.50 per share pursuant to the Company's 2005 Stock Incentive Plan. On June 26,
2008, Mr. Wengrod  received an additional  30,000 options to purchase  shares of
the  Company's  common  stock  at an  exercise  price  of  $0.30  per  share  as
compensation for director services provided to the Company.

         We are party to a consulting  arrangement with Susan White, a member of
the Company's Board of Directors, pursuant to which Ms. White provides image and
marketing  consulting  services to the Company.  During the years ended December
31, 2008 and 2007, the Company paid Ms. White approximately $53,000 and $94,000,
respectively, for such consulting services.

         Pursuant to a private placement  transaction  entered into on September
28, 2007, the Company's former  international  distributor  consultant,  Andreas
Kurz, though an entity of which he is a trustee,  Akil Trust,  purchased 200,000
shares of the  Company's  common stock which  increased  Akil Trust's  aggregate
holdings to 450,000  shares of the  Company's  common  stock as of December  31,
2007.  During the year ended  December 31, 2008,  Akil Trust sold it holdings in
the  Company's  common  stock.  See  Note  19 for a  summary  of the  consulting
agreement   entered  into  by  Andreas  Kurz  and  his  consulting  firm,  Akari
International.

         Pursuant to a private placement  transaction  entered into on September
28, 2007, the Company's exclusive distributor in Germany,  Unifa GmbH, purchased
500,000  shares of the  Company's  common stock.  Net sales to this  distributor
amounted to  approximately  $1.3 million and $1.1 million during the years ended
December 31, 2008 and 2007, respectively.

         Pursuant to a private placement  transaction  entered into on September
28, 2007, the Company's former  financial  advisor,  Europlay Capital  Advisors,
LLC,  purchased 200,000 shares of the Company's common stock which increased its
aggregate  holdings to 450,000 shares of the Company's common stock. See Note 19
for a summary  of the  consulting  agreement  entered  into by the  Company  and
Europlay Capital Advisors.

NOTE 17 - SENIOR MANAGEMENT RESTRUCTURING

         In the  second  quarter  of 2007,  the  Company's  Board  of  Directors
authorized  management  to  take  certain  actions  to  restructure  its  senior
management  team.  These actions included the appointment of Colin Dyne as Chief
Executive Officer and Co-Chairman of the Board of Directors,  the resignation of
Daniel Guez as Chief Executive Officer and his appointment as Co-Chairman of the
Board of  Directors,  and a reduction  of Mr.  Guez's  salary.  The actions also
included the  termination  of the Company's  president and the reduction of base
salaries of the Company's Chief Financial Officer and Chief Operating Officer.

         On October 2, 2007,  Daniel Guez, who served as the Company's  Creative
Director,  resigned from his position with the Company. On October 12, 2007, Mr.
Guez  resigned as a member of the Board of Directors of the Company and Mr. Dyne
became sole Chairman of the Board.


                                       58
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18 - OFFICER COMPENSATION

COLIN DYNE

         On May 21,  2007,  the Board of Directors  appointed  Colin Dyne as the
Company's Chief Executive Officer and Co-Chairman of the Board of Directors. Mr.
Dyne received an annual  salary of $200,000  through March 30, 2008 and $395,000
through January 31, 2009. On February 1, 2009, the Company  temporarily  reduced
all officer  salaries by 10%,  resulting in a new annual salary base of $355,500
for Mr. Dyne through April 30, 2009.  Compensation is payable in accordance with
the  Company's  standard  payroll  practices.  Mr.  Dyne also  receives  medical
insurance  reimbursements  and an auto  allowance  of $2,000 per  month.  Annual
bonuses are  determined at the discretion of the Board of Directors and amounted
to  $75,000  and  $30,000  for the  years  ended  December  31,  2008 and  2007,
respectively.

DARRYN BARBER

         On January 3, 2006,  the Company  entered into an employment  agreement
with Darryn Barber  pursuant to which he served as the Company's Chief Financial
Officer and Chief  Operating  Officer.  The  agreement was for a term of 2 years
commencing  as of November 22, 2005 and  terminating  on November 21, 2007.  Mr.
Barber received a base salary of $212,000 in the first year of his  appointment,
and was to receive a base  salary of  $232,000  during  the  second  year of his
contract.  On June  5,  2007,  in  connection  with a  restructuring  of  senior
management,  the  Company  and Mr.  Barber  agreed to reduce his base  salary to
$200,000 per annum  beginning June 5, 2007. In addition to his base salary,  Mr.
Barber was to receive an annual  bonus of not less than $25,000 and no more than
$100,000  based on objectives  determined by our Board of Directors.  On July 7,
2006,  in accordance  with his  employment  agreement,  Mr. Barber was granted a
stock  option to purchase  300,000  shares of the  Company's  common stock at an
exercise  price of $1.25 per share which is now fully  vested.  In the event Mr.
Barber was  terminated  without  cause,  the  Company was to continue to pay Mr.
Barber's  then  current  base salary for the  remaining  term of the  agreement,
without regard to any employment of Mr. Barber by a third party.

         On November 8, 2006,  the Company  and Darryn  Barber  entered  into an
amendment to his employment  agreement.  Pursuant to the  amendment,  Mr. Barber
resigned from his position as Chief Operating Officer of the Company,  effective
the same date,  but will continue to serve us as the Company's  Chief  Financial
Officer.  The amendment also extended the exercise period of Mr. Barber's option
to purchase 300,000 shares of the Company's common stock to a period of one year
following  termination of Mr.  Barber's  service with the Company for any reason
other than for cause (as defined in the employment agreement).  Previously,  Mr.
Barber's  option was to remain  exercisable  for a period of at least six months
following  termination of his service with the Company for any reason other than
for cause.

         On June 5, 2007, the Company's Board of Directors  approved an award to
Darryn Barber of options to purchase  150,000  shares of its common  stock.  The
options  have an exercise  price of $0.46 per share,  the  closing  price of the
Company's common stock on the Over-The-Counter Bulletin Board on the date of the
award, are fully vested, and have a term of ten years.

         On August 7, 2007, the Company's  Board of Directors  approved an award
to Darryn Barber of options to purchase  100,000 shares of its common stock. The
options  have an exercise  price of $0.38 per share,  the  closing  price of the
Company's common stock on the Over-The-Counter Bulletin Board on the date of the
award,  and have a term of ten years.  The options vested 50% on August 1, 2008,
and the remaining 50% will vest in equal monthly installments thereafter through
August 1, 2009.


                                       59
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         On November  14, 2007,  the  Company's  Board of Directors  approved an
award to Darryn  Barber of  options  to  purchase  450,000  shares of its common
stock.  The options have an exercise price of $0.50 per share, the closing price
of the Company's common stock on the Over-The-Counter Bulletin Board on the date
of the  award,  and have a term of ten  years.  The  options  vest in  quarterly
installments of 45,000 beginning February 14, 2008 through May 14, 2010.

         Mr.  Barber  received an annual  salary of $200,000  through  March 31,
2008,  $250,000  from April 1, 2008 through May 7, 2008 and $275,000 from May 8,
2008 through  January 31,  2009.  On February 1, 2009,  the Company  temporarily
reduced all officer  salaries by 10%,  resulting in a new annual  salary base of
$247,500  for Mr.  Barber  through  April 30, 2009.  Compensation  is payable in
accordance  with the  Company's  standard  payroll  practices.  Mr.  Barber also
receives medical  insurance  reimbursements  and an auto allowance of $1,500 per
month. Mr. Barber's annual bonuses amounted to $22,500 and $25,000 for the years
ended December 31, 2008 and 2007, respectively.

         Mr.  Barber was  appointed  President of the Company on May 8, 2008, in
addition to his then and current position of Chief Financial Officer.

THOMAS NIELDS

         On  November  8, 2006,  Thomas  Nields was  appointed  Chief  Operating
Officer of the Company.  Pursuant to an oral  agreement  between the Company and
Mr.  Nields,  Mr.  Nields  was to be paid an annual  salary of  $250,000,  and a
discretionary  bonus  to be  determined  annually  by  the  Company's  Board  of
Directors.  On June 5,  2007,  in  connection  with a  restructuring  of  senior
management,  the  Company  and Mr.  Nields  agreed to reduce his base  salary to
$200,000  per annum  beginning  June 5, 2007.  Beginning  April 1, 2008  through
January 31, 2009,  Mr. Nields  salary was increased to $235,000.  On February 1,
2009, the Company  temporarily reduced all officer salaries by 10%, resulting in
a new annual  salary base of $211,500  for Mr.  Nields  through  April 30, 2009.
Compensation  is payable  in  accordance  with the  Company's  standard  payroll
practices. Mr. Nields also receives medical insurance reimbursements and an auto
allowance of $1,200 per month.  Mr. Nields's annual bonuses  amounted to $22,500
and $20,000 for the years ended December 31, 2008 and 2007, respectively.

         On June 22, 2006, the Company's Board of Directors approved an award to
Thomas  Nields of options to purchase  100,000  shares of the  Company's  common
stock.  The options have an exercise price of $1.25 per share and have a term of
ten years.  The options vest 25% on July 1, 2007,  and the  remaining  75% shall
vest in equal monthly installments thereafter through July 1, 2010.

         On June 5, 2007, the Company's Board of Directors  approved an award to
Thomas  Nields of options to purchase  150,000  shares of the  Company's  common
stock.  The options have an exercise price of $0.46 per share, the closing price
of the Company's common stock on the Over-The-Counter Bulletin Board on the date
of the award, are fully vested, and have a term of ten years.

         On August 7, 2007, the Company's  Board of Directors  approved an award
to Thomas Nields of options to purchase  100,000 shares of its common stock. The
options  have an exercise  price of $0.38 per share,  the  closing  price of the
Company's common stock on the Over-The-Counter Bulletin Board on the date of the
award,  and have a term of ten years.  The options vested 50% on August 1, 2008,
and the  remaining  50%  shall  vest in equal  monthly  installments  thereafter
through August 1, 2009.

         On August 7, 2008, the Company's  Board of Directors  approved an award
to Thomas Nields of options to purchase  250,000 shares of its common stock. The
options  have an exercise  price of $0.40 per share,  the  closing  price of the
Company's common stock on the Over-The-Counter Bulletin Board on the date of the
award,  and  have a term of ten  years.  The  options  vest in  eight  quarterly
installments of 31,250 shares beginning November 7, 2008 through August 7, 2010.


                                       60
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ANDREA SOBEL

         On May 22, 2008,  Andrea Sobel was appointed Vice President of Branding
and Licensing of the Company.  Ms. Sobel  entered into an  employment  agreement
with the  Company on May 16,  2008.  Pursuant  to the  agreement,  Ms.  Sobel is
employed by the Company on an "at-will" basis, and will be paid a base salary of
$200,000 per annum.  During the first year of her employment,  Ms. Sobel will be
entitled  to a bonus in the amount of three  percent  (3%) of license  royalties
received  by the  Company.  If at any time prior to May 16,  2011,  the  Company
terminates  Ms. Sobel's  employment  without cause and Ms. Sobel delivers to the
Company a signed settlement  agreement and general release, the Company will pay
Ms. Sobel the equivalent of six months base salary,  at her then current rate of
pay. On February 1, 2009, the Company  temporarily  reduced all officer salaries
by 10%,  resulting in a new annual salary base of $180,000 for Ms. Sobel through
April 30,  2009.  Compensation  is  payable  in  accordance  with the  Company's
standard  payroll   practices.   Ms.  Sobel  also  receives  medical   insurance
reimbursements and an auto allowance of $500 per month. Ms. Sobel's annual bonus
amounted to $7,500 for the year ended December 31, 2008.

         On May 16, 2008, the Company's Board of Directors  approved an award to
Andrea  Sobel of options to purchase  200,000  shares of its common  stock.  The
options  have an exercise  price of $0.40 per share,  the  closing  price of the
Company's common stock on the Over-The-Counter Bulletin Board on the date of the
award,  and have a term of ten years.  The options vest 100,000 shares on May 1,
2008 and 5,555 per month thereafter through October 1, 2010.

DANIEL GUEZ

         On October 2,  2007,  Daniel  Guez,  who was  serving as the  Company's
Creative  Director,  resigned from his position with the Company.  In connection
with Mr. Guez's resignation, the Company entered into a separation agreement and
mutual release with Mr. Guez. The separation agreement provided that the certain
amended  and  restated  employment  agreement  dated June 19,  2007  between the
Company and Mr. Guez be terminated  and of no further force or effect,  and that
except as provided in the separation agreement, all responsibilities, duties and
obligations  of Mr. Guez to the Company and of the Company to Mr. Guez under the
employment agreement be terminated and of no further force or effect.

         The separation  agreement  provided that the Company pay Mr. Guez three
months  of his base  salary  of  $16,667  per  month,  and  three  months of his
automobile allowance of $1,200 per month. In addition, Mr. Guez and his eligible
family  members  continued  to receive  medical  benefits for a period of twelve
months from the date of his resignation.  The separation agreement also provided
that,  prior to November 30, 2007, Mr. Guez would not sell or otherwise  dispose
of any  shares of the  Company's  common  stock  beneficially  owned by him.  In
addition,  Mr. Guez granted the Company a right of first refusal to purchase any
of his shares of common  stock if he  intended to sell in a public sale prior to
the earlier of January 31,  2008 and the date when Mr. Guez  beneficially  owned
less than 10% of the Company's common stock then issued and outstanding.

EDWARD HOUSTON

         In connection with the restructuring of its senior management positions
in 2007, the Company eliminated the position of President. As a consequence,  on
June 7, 2007,  the Company  terminated  the  employment of Edward  Houston,  who
served  as its  President.  In  accordance  with  the  terms  of his  employment
agreement,  the Company paid Mr. Houston  severance in the amount of $150,000 in
equal  bi-monthly  installments  over a six-month  period.  A total of $154,500,
including  expenses,  was charged to general and administrative  expense in June
2007 as a result  of this  severance  liability.  Pursuant  to the  terms of his
employment agreement,  Mr. Houston was also granted a non-qualified stock option


                                       61
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to purchase up to 1,000,000  shares of the Company's common stock at an exercise
price of $1.25 per  share.  On the date of his  termination,  Mr.  Houston  held
options to purchase  249,999  shares of the  Company's  common  stock which were
fully  vested,  and his  remaining  options to  purchase  750,001  shares of the
Company's  common stock were  forfeited.  Mr. Houston did not exercise his fully
vested options and these options were subsequently forfeited also.

NOTE 19 - CONSULTING AGREEMENTS

         On February 1, 2007,  the Company  entered into a consulting  agreement
with Akari Enterprises,  LLC, a consulting firm formed and controlled by Andreas
Kurz. Akari Enterprises was responsible for negotiating  exclusive  distribution
agreements with  distributors  outside of the United States and managed People's
Liberation  and William Rast's  international  distribution  relationships.  The
consulting  agreement  provided for commissions to be paid to Akari  Enterprises
based on a defined formula related to net international  sales and terminated on
December 31, 2009. Total commissions paid to Akari International pursuant to the
consulting agreement amounted to approximately $53,000 and $94,000 for the years
ended  December  31, 2008 and 2007,  respectively.  On December  17,  2007,  the
Company  granted Mr. Kurz an option to purchase  50,000  shares of the Company's
common stock at an exercise price of $0.50 per share.  The option vested monthly
through  December  17,  2009  and had a term of five  years.  In May  2008,  the
consulting  agreement was  terminated  and the stock options  granted to Andreas
Kurz were subsequently forfeited.

         Effective  October 1,  2007,  the  Company  entered  into a  consulting
agreement with Europlay Capital Advisors, LLC. Under the terms of the consulting
agreement,  Europlay  Capital  Advisors was the  Company's  exclusive  financial
advisor to raise capital and provide  other  financial  advisory and  investment
banking  services  for a term of one  year.  Europlay  Capital  Advisors  was to
receive  a fee for the  successful  completion  of a  financing  transaction  or
acquisition at a negotiated rate. In conjunction with the consulting  agreement,
the Company issued to Europlay  Capital  Advisors a warrant to purchase  250,000
shares of common  stock at an  exercise  price of $0.50 per share.  The  warrant
vested over the term of the  consulting  agreement and has a term of five years.
No proceeds  were  received by the Company as a result of the warrant  issuance.
There were no financing  transactions  completed by the Company  pursuant to the
consulting agreement and the consulting agreement was terminated in 2008.

         On January 5, 2006,  the Company  entered into a  consulting  agreement
with MK  Sportswear.  Under the terms of the  agreement,  MK  Sportswear  was to
provide  sales and customer  services  functions  on behalf of the Company.  The
agreement provided for commissions at an agreed upon percentage of net sales and
had a term of two years that expired on December 31, 2008.  In  accordance  with
the agreement,  on June 22, 2006 the Company issued a non-qualified stock option
to purchase 150,000 shares of the Company's common stock at an exercise price of
$1.25 per share to Mark  Kanights.  The  options  vested  25% after one year and
monthly  thereafter over two years.  On August 22, 2006, the Company  terminated
its original  agreement and entered into a new agreement  with MK Sportswear and
Mark Kanights,  whereby Mark Kanights was to provide sales and customer  service
functions  on behalf of the Company on an exclusive  basis  through July 1, 2009
and receive a monthly salary and commissions at an agreed upon percentage of net
sales.  Pursuant to the new agreement,  in exchange for services to be performed
by Mark Kanights through July 1, 2009, the 150,000 stock options granted to Mark
Kanights  under the original  agreement  were to remain granted to him under the
same terms and conditions set forth in the original agreement. Effective January
15, 2008, the parties  terminated this  agreement.  Pursuant to the terms of the
Company's  2005 Stock  Incentive  Plan, the  unexercised  options were forfeited
three months following termination of services.


                                       62
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 20 - LEASES

         The Company leases its principal  executive  office space under a lease
agreement that expires in March 2012. The facility is  approximately  13,000 sq.
ft, and is located in Los Angeles, California. It is from this facility that the
Company conducts all of its executive and administrative  functions. The Company
leases 7,500 square feet of warehouse space located in Los Angeles,  California,
to conduct its design functions and to store its trim and design library under a
lease that expires in February 2010. Finished goods are shipped from third-party
warehouses in Commerce,  California, and Somerset, New Jersey. Internet products
are shipped from a third-party warehouse in Long Beach, California.  The Company
has showrooms located in Los Angeles,  New York City and Atlanta.  The Company's
William  Rast New York City  showroom  lease  expires  in April  2009 and its J.
Lindeberg New York City showroom  lease expires in April 2011. The Company's Los
Angeles  showroom  lease  expires  in May 2013 and its  Atlanta  showroom  lease
expires in May 2009. The lease  agreement for the Company's J. Lindeberg  retail
store  located in New York City expires in June 2010.  The Company  accounts for
its leases in accordance with SFAS No. 13, whereby step  provisions,  escalation
clauses, tenant improvement allowances,  increases based on an existing index or
rate,  and other  lease  concessions  are  accounted  for in the  minimum  lease
payments and are charged to operations on a straight line basis over the related
lease term.  Total rent  expense for the years ended  December 31, 2008 and 2007
amounted to approximately $540,000 and $341,000, respectively.

         Future annual  minimum  payments due under the leases are summarized as
follows:

         YEARS ENDING DECEMBER 31,
         -------------------------
         2009 .................................              $1,085,277
         2010 .................................                 865,330
         2011 .................................                 577,524
         2012 .................................                 210,256
         2013 .................................                  41,940
                                                             ----------
                                                             $2,780,327
                                                             ==========

NOTE 21 - GEOGRAPHIC INFORMATION

         The Company  designs,  markets and sells high-end  casual apparel under
the brand names People's Liberation,  William Rast and, in the United States, J.
Lindeberg.  The types of  products  developed  and sold by the  Company  are not
sufficiently  different to account for these  products  separately or to justify
segmented reporting by product type.


                                       63
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The Company distributes its products  internationally and has reporting
requirements based on geographic regions. All of the Company's long-lived assets
are located in the United  States.  Sales are  attributed to countries  based on
customer delivery locations, as follows:

                                                     Year Ended December 31,
                                                --------------------------------
                                                    2008                 2007
                                                -----------          -----------
Net Sales:
    United States ....................          $27,025,241          $17,793,652
    Canada ...........................            2,159,282              659,192
    Germany ..........................            1,067,116            1,084,940
    Italy ............................              646,261              181,967
    Belgium ..........................              296,060              126,926
    United Kingdom ...................              237,496               94,553
    Australia ........................              141,788                 --
    Norway ...........................               84,439                 --
    South Africa .....................               65,570                1,571
    Greece ...........................               61,001               22,259
    Mexico ...........................               38,950               15,932
    Sweden ...........................                 --                124,332
    Other ............................              366,889              162,053
                                                -----------          -----------
                                                $32,190,093          $20,267,377
                                                ===========          ===========

NOTE 22 - CUSTOMER CONCENTRATION

         During  the  years  ended  December  31,  2008 and 2007,  one  customer
comprised  greater  than 10% of the  Company's  sales.  Sales  to this  customer
amounted to 28.9% and 31.1% of net sales for the years ended  December  31, 2008
and 2007, respectively. At December 31, 2008 and 2007, receivables due (to) from
this customer are included in due from factor.

NOTE 23 - SUPPLIER CONCENTRATION

         During the year ended  December 31,  2008,  three  suppliers  comprised
greater than 10% of the  Company's  purchases.  Purchases  from these  suppliers
amounted to 10.6%,  11.7% and 12.2% for the year ended  December  31,  2008.  At
December 31, 2008,  accounts payable and accrued expenses  included an aggregate
of approximately  $715,000 due to these vendors.  During the year ended December
31, 2007, four suppliers comprised greater than 10% of the Company's  purchases.
Purchases from these suppliers amounted to 10.7%, 11.3%, 11.8% and 18.6% for the
year ended December 31, 2007. At December 31, 2007, accounts payable and accrued
expenses included an aggregate of approximately $934,000 due to these vendors.

         During  the  year  ended  December  31,  2008,  the  Company  purchased
substantially  all of its J.  Lindeberg  brand  products from J. Lindeberg AB in
Sweden,  the beneficial owner of 50% of the Company's  subsidiary,  J. Lindeberg
USA. Total purchases f from J. Lindeberg AB for the year ended December 31, 2008
amounted to approximately $905,000. Included in Due to Member as of December 31,
2008 is approximately $42,000 due to J. Lindeberg AB for product purchases.

NOTE 24 - OFF-BALANCE SHEET RISK AND CONTINGENCIES

         Financial   instruments  that   potentially   subject  the  Company  to
off-balance  sheet risk  consist of factored  accounts  receivable.  The Company
sells  the  majority  of  its  trade  accounts  receivable  to a  factor  and is
contingently  liable to the factor for  merchandise  disputes and other customer


                                       64
<PAGE>


                            PEOPLE'S LIBERATION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

claims.  At December  31,  2008,  total  factor  receivables  approximated  $4.1
million.  The factor also issues letters of credit and vendor  guarantees on the
Company's behalf.  Outstanding  letters of credit and vendor guarantees  totaled
approximately $91,000 as of December 31, 2008.

         The Company is subject to certain legal  proceedings and claims arising
in  connection  with its  business.  In the  opinion  of  management,  there are
currently no claims that will have a material  adverse  effect on the  Company's
consolidated financial position, results of operations or cash flows.

         Pursuant to the operating  agreement  the Company  entered into with J.
Lindeberg USA Corp and J. Lindeberg AB, the Company  contributed $20,000 in cash
to its 50% owned  subsidiary,  J.  Lindeberg  USA,  LLC, and will be required to
contribute  up to a maximum  of $1.5  million  in  working  capital  or  related
guaranties  through  December  2010.  At this point in time,  the cash amount in
excess  of  $20,000  that the  Company  will be  required  to  contribute  to J.
Lindeberg  USA, LLC, if any, is uncertain.  The Company's J. Lindeberg USA, LLC,
factoring agreements provide for corporate guaranties from its related entities,
People's Liberation, Inc., Bella Rose, LLC, and Versatile Entertainment, Inc.

         In  accordance  with the bylaws of the Company,  officers and directors
are  indemnified  for certain events or  occurrences  arising as a result of the
officer or director's serving in such capacity.  The term of the indemnification
period is for the  lifetime of the officer or  director.  The maximum  potential
amount of future  payments  the  Company  could be  required  to make  under the
indemnification provisions of its bylaws is unlimited. At this time, the Company
believes  the  estimated  fair value of the  indemnification  provisions  of its
bylaws is minimal  and  therefore,  the  Company  has not  recorded  any related
liabilities.

         In  addition  to  the  indemnification  required  in  our  articles  of
incorporation and bylaws, we have entered into indemnity agreements with each of
our current officers, directors and a key employee. These agreements provide for
the  indemnification  of our  directors,  officers  and  key  employee  for  all
reasonable  expenses and  liabilities  incurred in connection with any action or
proceeding  brought against them by reason of the fact that they are or were our
agents. We believe these indemnification provisions and agreements are necessary
to attract and retain qualified directors, officers and employees.

         The Company enters into indemnification provisions under its agreements
in  the  normal  course  of  business,  typically  with  suppliers,   customers,
distributors  and  landlords.  Under these  provisions,  the  Company  generally
indemnifies  and holds  harmless the  indemnified  party for losses  suffered or
incurred by the indemnified party as a result of the Company's activities or, in
some  cases,  as a  result  of the  indemnified  party's  activities  under  the
agreement.  These  indemnification  provisions  often  include  indemnifications
relating  to  representations  made by the Company  with regard to  intellectual
property rights. These indemnification  provisions generally survive termination
of the underlying agreement. The maximum potential amount of future payments the
Company  could be  required to make under these  indemnification  provisions  is
unlimited.  The Company has not incurred  material  costs to defend  lawsuits or
settle claims  related to these  indemnification  agreements.  As a result,  the
Company  believes  the  estimated  fair value of these  agreements  is  minimal.
Accordingly, the Company has not recorded any related liabilities.

NOTE 25 - PROFIT SHARING PLAN

         The  Company  has  established  a  401(k)  profit-sharing  plan for the
benefit of eligible employees. The Company may make contributions to the plan as
determined by the Board of Directors.  There were no  contributions  made during
the years ended December 31, 2008 and 2007.


                                       65
<PAGE>


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         Not applicable.

ITEM 9A(T). CONTROLS AND PROCEDURES

         EVALUATION OF CONTROLS AND PROCEDURES

         Members of the our management,  including our Chief Executive  Officer,
Colin Dyne,  and Chief  Financial  Officer and President,  Darryn  Barber,  have
evaluated  the  effectiveness  of our  disclosure  controls and  procedures,  as
defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15,  as of December
31,  2008,  the end of the  period  covered  by this  report.  Based  upon  that
evaluation,  Messrs.  Dyne and Barber concluded that our disclosure controls and
procedures were effective as of December 31, 2008.

         CHANGES IN CONTROLS AND PROCEDURES

         There were no changes in our internal control over financial  reporting
or in other factors  identified in connection  with the  evaluation  required by
paragraph  (d) of Exchange Act Rules 13a-15 or 15d-15 that  occurred  during the
fourth quarter ended  December 31, 2008 that have  materially  affected,  or are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

         Our management is responsible for establishing and maintaining adequate
internal  control over  financial  reporting as defined in Rules  13a-15(f)  and
15d-15(f)  under the Securities  Exchange Act of 1934, as amended.  Our internal
control over  financial  reporting is designed to provide  reasonable  assurance
regarding  the  reliability  of  financial  reporting  and  the  preparation  of
financial statements for external purposes in accordance with generally accepted
accounting  principles.  Our internal control over financial  reporting includes
those policies and procedures that:

         (i)      pertain to the  maintenance  of records  that,  in  reasonable
detail,  accurately and fairly reflect the  transactions and dispositions of our
assets;

         (ii)     provide reasonable assurance that transactions are recorded as
necessary to permit the  preparation of financial  statements in accordance with
U.S.  generally  accepted  accounting  principles,  and  that our  receipts  and
expenditures are being made only in accordance with authorizations of management
and directors; and

         (iii)    provide reasonable  assurance  regarding  prevention or timely
detection of unauthorized acquisition,  use or disposition our assets that could
have a material effect on our financial statements.

         Because  of  inherent  limitations,  internal  control  over  financial
reporting may not prevent or detect misstatements.  In addition,  projections of
any  evaluation  of  effectiveness  to future  periods  are subject to risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

         Our management  assessed the effectiveness of our internal control over
financial reporting as of December 31, 2008. In making this assessment,  we used
the  criteria  set forth by the  Committee of  Sponsoring  Organizations  of the
Treadway Commission (COSO) in Internal  Control-Integrated  Framework.  Based on
our assessment and those criteria,  we have concluded that our internal  control
over financial reporting was effective as of December 31, 2008.


                                       66
<PAGE>


         This  annual  report  does not  include  an  attestation  report by our
registered  public  accounting  firm regarding  internal  control over financial
reporting.  Management's report was not subject to attestation by our registered
public  accounting  firm  pursuant  to  temporary  rules of the  Securities  and
Exchange Commission that permit us to provide only our management report in this
annual report.

ITEM 9B. OTHER INFORMATION

         None

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

         The  following  table sets forth the name,  age and position of each of
our  executive  officers and  directors  as of December  31, 2008.  There are no
family relationships between our executive officers and directors.

NAME                      AGE           POSITION HELD
----                      ---           -------------

Colin Dyne                45            Chief Executive Officer and Director
Darryn Barber             33            President and Chief Financial Officer
Thomas Nields             43            Chief Operating Officer
Andrea Sobel              41            Vice President of Branding and Licensing
Dean Oakey                50            Director
Susan White               58            Director
Kenneth Wengrod           58            Director


         COLIN DYNE  became our Chief  Executive  Officer  and a director of the
company on May 21, 2007. Colin Dyne is a significant stockholder of the company,
and has served as a consultant to the company since December  2005,  advising on
strategic  sales  initiatives.  Mr. Dyne also serves as a member of the Board of
Directors of Talon  International,  Inc. (OTCBB:  TALN), owner of Talon zippers.
Mr. Dyne founded  Tag-It,  Inc., a subsidiary of Talon, in 1991. Mr. Dyne served
as Talon's President from inception and as its Chief Executive Officer from 1997
to 2005.

         DARRYN BARBER has served as our Chief Financial  Officer since November
22, 2005 and as our  President  and Chief  Financial  Officer since May 8, 2008.
Prior to joining  us, Mr.  Barber  spent  five  years as a senior  associate  at
Europlay  Capital  Advisors,  LLC  and  its  affiliates.  Mr.  Barber  has  been
successful  in  evaluating,   developing,   and  operating   businesses  in  the
entertainment  and technology  fields.  Mr. Barber was responsible for preparing
business  models,   financial  planning,   evaluating  and  valuing  businesses,
providing corporate and strategic advice and preparing  businesses for strategic
transactions. Mr. Barber brings over 10 years experience in owning and operating
businesses.  Prior to Europlay  Capital  Advisors,  Mr.  Barber was  Director of
Operations  of  Trademark  Cosmetics,  a private  label  cosmetic  manufacturing
company.  Mr. Barber earned an MBA from California State  University  Northridge
and a BA in business economics from the University of California Santa Barbara.

         THOMAS NIELDS has served as our Chief Operating  Officer since November
8, 2006.  Prior to joining  us,  Mr.  Nields  held  various  positions  at Talon
International, Inc., owner of Talon zippers, from November 1994 to October 2006.
These positions included Director of Global Operations, President of Talon, Inc.
(a wholly-owned  subsidiary of Talon International,  Inc.) and Vice President of
Production.  During his employment  with Talon,  Mr. Nields was  responsible for
implementing and managing production facilities in eight countries including the
U.S., Mexico and Hong Kong.


                                       67
<PAGE>


         ANDREA SOBEL has served as our Vice President of Branding and Licensing
since May 22, 2008.  Ms.  Sobel has over 15 years of  experience  in  licensing,
marketing and brand development. Since 2007, she was Vice President of Marketing
with  SANRIO,  where  she was  responsible  for  market  development  and  brand
positioning of that company's  Hello Kitty and other character  brands.  Between
2004 and 2007 and between 1999 and 2002, she was also a principal and licensing,
merchandising and marketing consultant with ALS Consulting,  a firm specializing
in  marketing  and  brand  development.  Between  2002 and 2004,  Ms.  Sobel was
Director of Licensing  and Business  Development  for Murad,  Inc.  From 1990 to
1999,  she was with  Guess?,  Inc.  in a  series  of  progressively  responsible
positions  culminating with Vice President of Licensing and Product  Development
from 1995 to 1999.  She holds a Bachelor of Arts in History and Spanish from the
University of California at Berkeley and an MBA from UCLA's  Anderson  School of
Business.

         DEAN OAKEY has served as a director since November 22, 2005.  From June
1997 to present,  Mr.  Oakey has served as the Managing  Director of  Investment
Banking for SMH Capital,  Corp.,  an investment  banking firm. In this capacity,
Mr. Oakey has been responsible for business  development and management  duties,
with a focus on the consumer products and services industries.

         SUSAN WHITE joined our Board of  Directors  on May 21, 2007.  Ms. White
has served as Chief Executive Officer and President of Brand Identity Solutions,
LLC, a branding,  marketing and licensing  consulting  company,  since 1987. Ms.
White also is the CEO and  president  of  Whitespeed,  LLC, an internet  design,
branding  and  marketing  company.  Ms. White  previously  served as Director of
Marketing  and  Advertising  Worldwide  for Warnaco from  November  1997 through
August 1999.

         KENNETH  WENGROD  joined our Board of Directors on September  21, 2007.
Mr. Wengrod  currently  serves as President of FTC  Commercial  Corp., a company
which he founded in 2002  ("FTC") and in which he  continues  to hold a minority
equity position.  FTC is a global finance  commercial  service company primarily
focused in the apparel  industry.  From 1996 to 2002,  Mr. Wengrod was the Chief
Financial  Officer and General  Manager of Meridian  Textiles f/k/a Mark Fabrics
where he was responsible for the operations of the  multi-million  dollar fabric
converting  company.  Prior to joining  Meridian  Textiles,  Mr. Wengrod was the
Chief  Operating  Officer of Rampage  Clothing Co. from 1992 to 1995,  and was a
Senior  Vice  President  of Barclays  Commercial  Corp.  from 1987 to 1992.  Mr.
Wengrod  holds a  Bachelor  of Science  degree in  Economics  from  Northeastern
University.

DIRECTOR INDEPENDENCE

         Our board of directors  currently consists of four members:  Colin Dyne
(our Chief Executive Officer), Dean Oakey, Susan White and Kenneth Wengrod. Each
of Colin Dyne, Dean Oakey, Susan White and Ken Wengrod were elected at a meeting
of shareholders and will serve until our next annual meeting or until his or her
successor  is duly  elected and  qualified.  Troy Carter  served on our board of
directors during our fiscal year ending December 31, 2008, but resigned from his
position effective as of April 2, 2008.

         We  do  not  have  a  separately  designated  audit,   compensation  or
nominating  committee of our board of directors  and the  functions  customarily
delegated to these  committees are performed by our full board of directors.  We
are not a "listed  company"  under SEC rules and are  therefore  not required to
have separate committees comprised of independent  directors.  We have, however,
determined that none of our current  directors are "independent" as that term is
defined in Section 4200 of the Marketplace Rules as required by the NASDAQ Stock
Market.  We have also determined that, while a member of our board of directors,
Troy Carter was "independent" in accordance with the aforementioned  definition.
As we do not  maintain  an audit  committee,  we do not have an audit  committee
"financial expert" within the meaning of Item 407(d) of Regulation S-K.


                                       68
<PAGE>


         We intend to establish an audit committee,  compensation committee, and
nominating  and corporate  governance  committee  following the expansion of our
board  to  include  at least  three  directors  who are  independent  under  the
applicable rules of the SEC and NASDAQ.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         Section 16(a) of the Securities  Exchange Act of 1934 requires that our
executive officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, file reports of ownership and changes
in ownership with the SEC. Executive  officers,  directors and  greater-than-ten
percent  stockholders  are  required by SEC  regulations  to furnish us with all
Section  16(a) forms they file.  Based solely on our review of the copies of the
forms received by us and written  representations from certain reporting persons
that they have complied with the relevant filing requirements,  we believe that,
during  the  year  ended  December  31,  2008,  all of our  executive  officers,
directors and greater-than-ten  percent  stockholders  complied with all Section
16(a)  filing  requirements,  with the  exception of Andrea  Sobel,  who did not
timely  file a  Form 3 and  who  did  not  timely  file  a  Form 4 to  report  a
transaction.

CODE OF ETHICS

         We have adopted a Code of Ethics applicable to all of our Board members
and to all of our employees,  including our Chief Executive Officer,  President,
Chief Financial Officer,  Chief Operating Officer and Vice President of Branding
and Licensing.  The Code of Ethics  constitutes a "code of ethics" as defined by
applicable  SEC rules and a "code of  conduct" as defined by  applicable  NASDAQ
rules.  The Code of Ethics has been publicly filed with the SEC as an exhibit to
this Annual  Report on Form 10-K.  Our code of ethics is posted on our  Internet
website located at www.peopleslib.com in the section titled "Investors." You may
also request a copy of the Code of Ethics by writing or calling us at:

         People's Liberation, Inc.
         Attn:  Investor Relations
         1212 S. Flower Street, 5th Floor
         Los Angeles, CA 90015
         (213) 745-2123

         Any waiver of the Code of Ethics pertaining to a member of our Board or
one of our  executive  officers  will be disclosed in a report on Form 8-K filed
with the SEC.


                                       69
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

         SUMMARY COMPENSATION TABLE

         The following table sets forth all compensation  earned for services to
us in all  capacities  for 2008 and 2007 as to each person  serving as our Chief
Executive  Officer and Chief Financial  Officer during 2008. The table also sets
forth all compensation  earned for services to us in all capacities for 2008 and
2007 as to our two most highly  compensated  executive  officers (other than our
Chief Executive Officer and Chief Financial Officer) whose compensation exceeded
$100,000  and who were  serving as  executive  officers at the end of 2008.  The
aforementioned  people are  collectively  referred  to as our  "named  executive
officers."

<TABLE>
<CAPTION>
                                                                          All
                                                                         Other
                                                             Option     Compen-
   Name and Principal                             Bonus      Awards     sation
        Position               Year    Salary      (1)        (2)         (7)       Total
----------------------------   ----   --------   --------   --------   --------   --------
<S>                            <C>    <C>        <C>        <C>        <C>        <C>
Colin Dyne (3)
  Chief Executive Officer ..   2008   $346,257   $ 75,000   $   --     $ 35,148   $456,405
                               2007   $125,010   $ 30,000       --     $216,261   $371,271

Darryn Barber (4)
  Chief Financial Officer ..   2008   $253,626   $ 22,500   $ 73,154   $ 21,777   $371,057
    and President ..........   2007   $213,698   $ 25,000   $ 55,856   $  8,660   $303,214

Thomas Nields (5)
  Chief Operating Officer ..   2008   $226,260   $ 22,500   $ 31,179   $ 19,512   $299,451
                               2007   $217,190   $ 20,000   $ 59,619   $  6,052   $302,861

Andrea Sobel (6)
  Vice President of Branding   2008   $125,779   $  7,500   $  9,072   $  9,482   $151,833
    and Licensing
</TABLE>

(1)  Represents cash bonuses paid to our named executive officers.
(2)  The amounts in this column  represent  the dollar  amounts  recognized  for
     financial  statement  reporting purposes in the applicable fiscal year with
     respect to stock options  granted in the applicable  fiscal year as well as
     prior  fiscal  years,  in  accordance  with  SFAS  123(R).  For  additional
     information  on the valuation  assumptions  with respect to option  grants,
     including  the options  granted in 2007 and 2008, please see Note 14 to our
     financial  statements for the years ended December 31, 2008 and 2007. These
     amounts do not reflect  the actual  value that may be realized by the named
     executive officers which depends on the value of our shares in the future.
(3)  Mr.  Dyne  became our Chief  Executive  Officer on May 21,  2007.  Prior to
     joining  us, Mr.  Dyne  provided  consulting  services  to us and  received
     consulting fees amounting to  approximately  $192,000 during the year ended
     December 31, 2007.
(4)  Mr. Barber became our Chief Financial  Officer on November 22, 2005 and our
     President on May 8, 2008. Mr. Barber was subject to an employment agreement
     which expired on November 21, 2007.
(5)  Mr.  Nields was named our Chief  Operating  Officer  effective  November 6,
     2006.
(6)  Ms.  Sobel  joined us in May 2008 as our Vice  President  of  Branding  and
     Licensing.  Ms.  Sobel has an  employment  agreement  with us, the terms of
     which are described hereafter.
(7)  Other  compensation  indicated  in the above table  consists of medical and
     disability insurance, consulting fees, and car allowances.

NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE

         We do not have a separate  compensation  committee and  therefore,  our
executive  compensation  program is administered by our Board of Directors.  The
Board is responsible for, among other  functions:  (1)  administering  our stock
incentive plan; and (2)  negotiating,  reviewing and awarding the annual salary,
bonus, stock options and other benefits of our executive officers.


                                       70
<PAGE>


     COMPENSATION PHILOSOPHY

         The  objectives  of our  executive  compensation  program  include  the
following:

         o        ALIGNMENT  -  to  align  the  interests  of   executives   and
                  shareholders through equity-based compensation awards;

         o        RETENTION - to attract,  retain and motivate highly qualified,
                  high performing executives to lead our growth; and

         o        PERFORMANCE - to provide  rewards that are dependant  upon the
                  executive's achievements and company performance.

     COMPENSATION ELEMENTS

         We  compensate  senior  executives  through  a variety  of  components,
including base salary,  annual incentives,  equity incentives,  and benefits and
perquisites,  in order to provide  our  employees  with an overall  compensation
package which we believe is competitive.  The mix and value of these  components
are impacted by a variety of factors,  such as negotiations of an executive with
us, the executive's  position within the company, and the overall performance of
the company and the  individual.  The purpose and key  characteristics  for each
component are described below.

     BASE SALARY

         Base salary  provides  executives  with a steady  income  stream and is
based  upon the  executive's  level of  responsibility,  experience,  individual
performance and contributions to our overall success.

     ANNUAL INCENTIVE BONUSES

         Annual incentive bonuses are a variable performance-based  component of
compensation.  The primary  objective of an annual incentive bonus is to align a
portion of total pay  opportunities  for  executives  to the  attainment  of our
company's performance goals, as well as performance goals of the individual.

     EQUITY INCENTIVES

         Equity   incentives   are  intended  to  align  senior   executive  and
shareholder  interests  by  linking  a portion  of  executive  pay to  long-term
shareholder  value  creation and  financial  success  over a multi-year  period.
Equity incentives are also provided to our executives to attract and enhance the
retention  of  executives  and  other  key  employees  and to  facilitate  stock
ownership by our senior executives.  The Board considers  individual and company
performance when determining long-term incentive opportunities.

     HEALTH & WELFARE BENEFITS

         The named  executive  officers  participate in a variety of retirement,
health and welfare,  and paid time-off benefits designed to enable us to attract
and retain our  workforce in a competitive  marketplace.  Health and welfare and
paid  time-off  benefits  help  ensure  that we have a  productive  and  focused
workforce.


                                       71
<PAGE>


     SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS

         We do not have a formal plan for  severance or  separation  pay for our
employees and officers, with the exception of Andrea Sobel (as further described
below).  In the  future,  we may  include  severance  provisions  in  employment
agreements  of our  executive  officers  that could be triggered in the event of
involuntary termination without cause or in the event of a change in control.

     OTHER BENEFITS

         In order to attract and retain highly qualified executives,  we provide
some of our named executive officers with automobile  allowances that we believe
are  consistent  with  current  market   practices.   Our  executives  also  may
participate in our 401(k) plan.

     PROCESS FOR SETTING EXECUTIVE COMPENSATION

         When making pay determinations for named executive officers,  the Board
may consider factors  including:  (1) actual company  performance as compared to
pre-established   goals,  (2)  individual  executive  performance  and  expected
contribution to our future success,  (3) changes in economic  conditions and the
external  marketplace and (4) the recommendation of our Chief Executive Officer.
The Board may also  consider  compensation  information  from data gathered from
annual reports and proxy  statements  from  companies  that the Board  generally
considers  comparable  to our company.  Ultimately,  our Board uses its judgment
when determining how much to pay our executive  officers and attempts to set the
pay for our executive  officers at levels that it believes are  competitive  and
necessary to attract and retain  talented  executives  capable of achieving  our
long-term objectives.

      COMPENSATION FOR FISCAL YEAR ENDED DECEMBER 31, 2008

         In the  fiscal  year  ended  December  31,  2008,  we  compensated  our
executive  officers  through a combination of a base salary,  a cash bonus,  and
options to purchase shares of our common stock.  In addition,  we provided other
perquisites to our executive officers,  which consisted of medical insurance and
car allowances.

         Beginning in the second quarter of 2007, each of our executive officers
was earning a base salary of $200,000,  which the Board considered to be low, in
an effort to  conserve  cash and improve our  operating  performance.  Effective
April 1, 2008, after  negotiations with our Chief Executive  Officer,  our Board
resolved to increase the annual salary of Colin Dyne to $395,000, and the annual
salaries of Darryn Barber and Tom Nields to $250,000 and $235,000, respectively.
The salary  increases  were  provided to align the base salary  component of our
executive officer  compensation to levels the Board believed were appropriate at
the time.  Effective as of February 1, 2009, the Board, in consultation with our
Chief  Executive  Officer and Chief Financial  Officer,  resolved to temporarily
reduce the base salaries of each of our named executive  officers by 10% through
April 30, 2009. The reduction in salary was made to improve our future operating
cash flow in view of the changes in current economic conditions.

         Bonuses  paid to our senior  management  team in the fiscal  year ended
December  31,  2008 were  generally  low,  and were  determined  by our Board of
Directors  based on the  performance  of the company and the executive  officer.
During 2008, aside from an employment  agreement entered into with Andrea Sobel,
we were not party to any written employment  agreements with our named executive
officers.  The following is a description  of the material  terms of each of our
named executive officer's employment arrangements with us:


                                       72
<PAGE>


     COLIN DYNE

         On May 21,  2007,  our Board of Directors  appointed  Colin Dyne as our
Chief  Executive  Officer and  Co-Chairman  of the Board of Directors.  Mr. Dyne
received an annual  salary of $200,000 from January 1 through March 31, 2008 and
$395,000  from April 1, 2008 through  January 31, 2009.  On February 1, 2009, we
temporarily  reduced all  officer  salaries  by 10%,  resulting  in a new annual
salary  base of $355,500  for Mr. Dyne  through  April 30,  2009.  Mr. Dyne also
receives medical  insurance  reimbursements  and an auto allowance of $2,000 per
month. Annual bonuses are determined at the discretion of the Board of Directors
and  amounted to $75,000 and $30,000 for the years ended  December  31, 2008 and
2007, respectively.

     DARRYN BARBER

         Mr.  Barber  became our Chief  Financial  Officer on November 22, 2005.
From January 1 through March 31, 2008,  Mr. Barber  received an annual salary of
$200,000,  which was increased to $250,000 on April 1, 2008 as described  above.
On May 8, 2008,  our Board  expanded the role of Mr. Barber to focus on business
development,  international  expansion and growth of the company's  portfolio of
brands both organically and via acquisition, in addition to his responsibilities
as Chief  Financial  Officer  of the  company.  In  connection  with  his  added
responsibilities,  Mr. Barber was appointed as our President,  his annual salary
was increased to $275,000 per annum,  and he was awarded a monthly car allowance
of $1,500.  As discussed above, on February 1, 2009, we temporarily  reduced all
officer  salaries by 10%,  resulting in a new annual salary base of $247,500 for
Mr. Barber  through April 30, 2009. Mr. Barber also receives  medical  insurance
reimbursements.  Mr. Barber's annual bonuses amounted to $22,500 and $25,000 for
the years ended December 31, 2008 and 2007, respectively.

     THOMAS NIELDS

         On November  8, 2006,  Mr.  Nields was  appointed  our Chief  Operating
Officer.  Mr.  Nields  earned a base salary of $200,000  from  January 1 through
April 8, 2008, which was subsequently  increased to $235,000 as described above.
On  February  1, 2009,  we  temporarily  reduced  all  officer  salaries by 10%,
resulting in a new annual salary base of $211,500 for Mr.  Nields  through April
30, 2009. Mr. Nields also receives medical insurance  reimbursements and an auto
allowance of $1,200 per month.  Mr. Nields'  annual bonuses  amounted to $22,500
and $20,000 for the years ended  December  31, 2008 and 2007,  respectively.  On
August 8, 2008, we also awarded Mr. Nields an option to purchase  250,000 shares
of our common stock at an exercise price of $0.40 per share.

     ANDREA SOBEL

          On May 22, 2008,  Andrea  Sobel was  appointed  our Vice  President of
Branding and Licensing.  Ms. Sobel entered into an employment agreement with the
company on May 16, 2008. Pursuant to the agreement,  Ms. Sobel is employed on an
"at-will" basis, and will be paid a base salary of $200,000 per annum.  Pursuant
to the terms of her  employment  agreement,  Ms.  Sobel was granted an option to
purchase  200,000  shares of our common stock at an exercise  price of $0.40 per
share. During the first year of her employment,  Ms. Sobel will be entitled to a
bonus in the amount of three percent (3%) of license  royalties  received by the
company.  The employment agreement also provides that Ms. Sobel will receive all
operative  employee  compensation,  fringe  benefit  and  perquisite,  and other
benefit and welfare  plans or  arrangements  of the company  then in effect from
time to time and in which similarly  situated  executive officers of the company
generally are entitled to participate.  If at any time prior to May 16, 2011, we
terminate Ms.  Sobel's  employment  without cause and Ms. Sobel delivers to us a
signed  settlement  agreement  and general  release,  we will pay Ms.  Sobel the
equivalent  of six months  base  salary,  at her then  current  rate of pay.  On
February 1, 2009, we temporarily  reduced all officer salaries by 10%, resulting
in a new annual  salary base of $180,000 for Ms. Sobel  through  April 30, 2009.


                                       73
<PAGE>


Ms. Sobel also receives medical insurance  reimbursements  and an auto allowance
of $500 per month.  Ms.  Sobel's  annual  bonus  amounted to $7,500 for the year
ended December 31, 2008.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2008

         The following table presents information  regarding outstanding options
held by our named  executive  officers  as of the end of our  fiscal  year ended
December 31, 2008. None of the named executive officers exercised options during
the fiscal year ended December 31, 2008.

<TABLE>
<CAPTION>
                                 Number of Securities Underlying
                                     Unexercised Options (#)
-------------------------- -------------------------------------------- ---------------------- ----------------------
                                                                           Option Exercise       Option Expiration
          Name                 Exercisable           Unexercisable             Price ($)                Date
-------------------------- --------------------- ---------------------- ---------------------- ----------------------
<S>                              <C>                    <C>                     <C>              <C>
Colin Dyne                          --                     --                     --                     --
-------------------------- --------------------- ---------------------- ---------------------- ----------------------
Darryn Barber (1)                300,000                   --                   $1.25              July 7, 2016
                                 150,000                   --                   $0.46              June 5, 2017
                                  66,667                 33,333                 $0.38             August 7, 2017
                                 180,000                270,000                 $0.50            November 14, 2017
-------------------------- --------------------- ---------------------- ---------------------- ----------------------
Tom Nields (2)                    60,417                 39,583                 $1.25              June 22, 2016
                                 150,000                   --                   $0.46              June 5, 2017
                                  66,667                 33,333                 $0.38             August 7, 2017
                                  31,250                218,750                 $0.40             August 7, 2018
-------------------------- --------------------- ---------------------- ---------------------- ----------------------
Andrea Sobel (3)                    --                  200,000                 $0.40              May 16, 2018
-------------------------- --------------------- ---------------------- ---------------------- ----------------------
</TABLE>

(1)  On  August 7,  2007,  our Board of  Directors  approved  an award to Darryn
     Barber of options to  purchase  100,000  shares of our  common  stock.  The
     options  vested 50% on August 1, 2008,  and the remaining 50% vest in equal
     monthly installments  thereafter through August 1, 2009. As of December 31,
     2008, 66,667 shares were vested.

     On November  14, 2007,  our Board of Directors  approved an award to Darryn
     Barber of options to  purchase  450,000  shares of our  common  stock.  The
     options vest in quarterly  installments  of 45,000  beginning  February 14,
     2008 through May 14, 2010.  As of December  31, 2008,  180,000  shares were
     vested.

(2)  On June 22, 2006, our Board of Directors approved an award to Mr. Nields of
     options to purchase  100,000 shares of our common stock. The options vested
     25%  after  one  year,   and  the  remaining  75%  vest  in  equal  monthly
     installments  thereafter  through  July 1, 2010.  As of December  31, 2008,
     60,417 shares were vested.

     On August 7, 2007,  our Board of Directors  approved an award to Mr. Nields
     of options to  purchase  100,000  shares of our common  stock.  The options
     vested 50% on August 1, 2008,  and the  remaining 50% vest in equal monthly
     installments  thereafter  through  August 1, 2009. As of December 31, 2008,
     66,667 shares were vested.

     On August 7, 2008,  our Board of Directors  approved an award to Mr. Nields
     of options to purchase 250,000 shares of our common stock. The options vest
     in eight  quarterly  installments  of  31,250  beginning  November  7, 2008
     through August 7, 2010. As of December 31, 2008, 31,250 shares were vested.

(3)  On May 16, 2008,  our Board of Directors  approved an award to Ms. Sobel of
     options to purchase  200,000  shares of our common stock.  The options vest
     50%  on  May  1,  2009,  and  the  remaining  50%  vest  in  equal  monthly
     installments thereafter through October 1, 2010.


                                       74
<PAGE>


DIRECTOR COMPENSATION

         The following table presents information regarding compensation paid to
our non-employee directors for our fiscal year ended December 31, 2008.

                       Fees Earned                    All Other
                        or Paid in      Option      Compensation
       Name                Cash       Awards (5)         (2)           Total
-------------------   ------------   ------------   ------------   ------------
Dean Oakey (1) ....   $     10,000   $      3,235   $       --     $     13,235
Susan White (2) ...   $     10,000   $      3,235   $     52,955   $     66,190
Troy Carter (3) ...   $      2,500   $        592   $       --     $      3,092
Kenneth Wengrod (4)   $     10,000   $      4,670   $       --     $     14,670


(1)  Mr. Oakey has been a member of our Board of Directors  since November 2005.
     On June 26, 2008, Mr. Oakey was granted an option to purchase 30,000 shares
     of our common  stock at a per share  exercise  price of $0.30.  This option
     vests monthly through June 26, 2009 and has a term of ten years.  Mr. Oakey
     did not  exercise  any of his option  awards  during the fiscal  year ended
     December 31, 2008.
(2)  Ms. White joined our Board of Directors on May 21, 2007.  On June 26, 2008,
     Ms.  White was  granted an option to purchase  30,000  shares of our common
     stock at a per share  exercise  price of $0.30.  This option vests  monthly
     through  June  26,  2009 and has a term of ten  years.  Ms.  White  did not
     exercise any of her options during the fiscal year ended December 31, 2008.
     Ms.  White also  provided  consulting  services to the Company and received
     $52,955 of consulting fees during the fiscal year ended December 31, 2008.
(3)  Mr.  Carter joined our Board of Directors on May 21, 2007 and resigned from
     this  position on April 2, 2008.  Mr.  Carter did not  exercise  any of his
     options during the fiscal year ended December 31, 2008.
(4)  Mr.  Wengrod  joined our Board of Directors on September  21, 2007. On June
     26, 2008,  Mr.  Wengrod was granted an option to purchase  30,000 shares of
     our common stock at a per share exercise price of $0.30.  This option vests
     monthly through June 26, 2009 and has a term of ten years.  Mr. Wengrod did
     not exercise any of his options  during the fiscal year ended  December 31,
     2008.
(5)  The amounts in this column  represent  the dollar  amounts  recognized  for
     financial  statement  reporting purposes in the applicable fiscal year with
     respect to stock options  granted in the applicable  fiscal year as well as
     prior  fiscal  years,  in  accordance  with  SFAS  123(R).  For  additional
     information  on the valuation  assumptions  with respect to option  grants,
     including  the options  granted in 2008 and 2007,  please see Note 2 to our
     financial  statements for the years ended December 31, 2008 and 2007. These
     amounts  do not  reflect  the  actual  value  that may be  realized  by the
     Directors which depends on the value of our shares in the future.

         The general policy of our Board is that  compensation  for non-employee
directors should be a mix of cash and equity based  compensation.  We do not pay
management  directors for Board  service in addition to their  regular  employee
compensation.  Currently,  we pay our  non-employee  directors  an annual fee of
$10,000.  Our directors are also reimbursed for travel expenses  associated with
attendance at Board meetings.  There were no reimbursements  for travel expenses
for the fiscal year ended December 31, 2008.

         We do not have a formal  policy  with  regard to  option  grants to our
Board of  Directors.  However,  when a director is elected or  appointed  to our
Board, we generally  follow a practice of granting an option to such director to
purchase up to 30,000  shares of our common  stock,  with the size of the option
grant being determined based on the number of months the new director will serve
as a  director  in the  fiscal  year in  which  the  option  grant  is  awarded.
Thereafter,  we  generally  issue  annual  option  grants  to  all  non-employee
directors  to  purchase  up to 30,000  shares.  In June 2008,  our  non-employee
directors, Mr. Oakey, Ms. White and Mr. Wengrod, received 30,000 options each to
purchase shares of our common stock.


                                       75
<PAGE>


         We are party to a consulting  arrangement with Susan White, a member of
our Board of Directors, pursuant to which Ms. White provides image and marketing
consulting  services to us. During the year ended December 31, 2008, we paid Ms.
White approximately $53,000 for such consulting services.

2005 STOCK INCENTIVE PLAN

         Our 2005 Stock  Incentive  Plan was  adopted on  November  23, 2005 and
became effective on January 5, 2006. A total of 5,500,000 shares of common stock
have been reserved for issuance  upon exercise of awards  granted under the 2005
Stock Incentive Plan. Any shares of common stock subject to an award,  which for
any reason expires or terminates  unexercised,  are again available for issuance
under the 2005 Stock Incentive Plan.

         Our 2005 Stock  Incentive Plan will  terminate  after 10 years from the
date on which our board  approved the plan,  unless it is terminated  earlier by
our board.  The plan  authorizes  the award of stock options and stock  purchase
grants.

         Our 2005  Stock  Incentive  Plan is  administered  by our full board of
directors.  To the extent we expand our board of directors,  we intend to form a
compensation  committee,  all  of the  members  of  which  will  be  independent
directors under  applicable  federal  securities  laws and outside  directors as
defined  under  applicable  federal  tax  laws.  Following  its  formation,  the
compensation  committee  will have the  authority to construe and  interpret the
plan, grant awards and make all other determinations  necessary or advisable for
the administration of the plan.

         Our 2005 Stock  Incentive Plan provides for the grant of both incentive
stock options that qualify  under  Section 422 of the Internal  Revenue Code and
nonqualified  stock  options.  Incentive  stock  options may be granted  only to
employees  of ours or any parent or  subsidiary  of ours.  All awards other than
incentive  stock options may be granted to our employees,  officers,  directors,
consultants,  independent  contractors  and  advisors  of ours or any  parent or
subsidiary  of ours.  The exercise  price of incentive  stock options must be at
least equal to the fair market  value of our common  stock on the date of grant.
The exercise price of incentive stock options granted to 10%  shareholders  must
be at least  equal to 110% of that value.  The  exercise  price of  nonqualified
stock options will be determined by our board of directors  when the options are
granted.

         In  general,  options  will vest over a four-year  period.  The term of
options granted under our 2005 Stock Incentive Plan may not exceed 10 years.

         Awards  granted  under  our  2005  Stock  Incentive  Plan  may  not  be
transferred  in any  manner  other  than by will or by the laws of  descent  and
distribution  or as  determined  by our  board of  directors.  Unless  otherwise
restricted  by  our  board  of  directors,  nonqualified  stock  options  may be
exercised  during  the  lifetime  of the  optionee  only  by the  optionee,  the
optionee's  guardian or legal  representative or a family member of the optionee
who has acquired the option by a permitted transfer. Incentive stock options may
be exercised  during the  lifetime of the  optionee  only by the optionee or the
optionee's  guardian or legal  representative.  Options  granted  under our 2005
Stock  Incentive  Plan  generally  may be exercised for a period of three months
after  the  termination  of the  optionee's  service  with us or any  parent  or
subsidiary  of  ours.   Options  will  generally   terminate   immediately  upon
termination of employment for cause.

         The purchase price for restricted stock will be determined by our board
of directors or  compensation  committee,  as applicable,  at the time of grant.
Stock  bonuses  may be  issued  for past  services  or may be  awarded  upon the
completion of services or performance goals.

         If we are  subject to a sale,  merger,  consolidation,  reorganization,
liquidation or change in control,  our Board of Directors may take actions which
include  (but shall not be limited  to)  establishing,  amending  or waiving the
type,  terms,  conditions  or duration  of, or  restrictions  on rights so as to


                                       76
<PAGE>


provide for earlier,  later,  extended or additional time for exercise and other
modifications.  In addition,  the Board of Directors  may take such actions with
respect to all  participants,  to certain  categories of participants or only to
individual  participants in the plan. Moreover,  the Board of Directors may take
such  action  before or after  granting  rights to which the action  relates and
before or after any public  announcement  with  respect  to such  sale,  merger,
consolidation,  reorganization,  liquidation  or change in  control  that is the
reason for such action.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY

         Delaware  law provides  that  directors  of a  corporation  will not be
personally  liable for monetary  damages for breach of their fiduciary duties as
directors, except for:

         o        any breach of their duty of loyalty to the  corporation or its
                  stockholders;

         o        acts  or  omissions   not  in  good  faith  or  which  involve
                  intentional misconduct or a knowing violation of law;

         o        unlawful  payments of dividends or unlawful stock  repurchases
                  or redemptions; or

         o        any  transaction  from which the director  derived an improper
                  personal benefit.

         Article Fifth, paragraph D of our articles of incorporation states that
no director shall have personal liability to us or our stockholders for monetary
damages for breach of fiduciary duty as a director.  However, the provision does
not  eliminate  or limit the  liability  of a director (i) for any breach of the
director's duty of loyalty to us or our stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law,  (iii) under section 174 of the Delaware  General  Corporations  law, or
(iv) for any transaction  from which the director  derived an improper  personal
benefit.

         Article IX, Section 1 of our bylaws states that we shall  indemnify any
person who was, or is threatened to be, made a party to any threatened,  pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or  investigative  by reason of the fact that he is or was a Director,  officer,
employee  or agent of the  company,  or is or was  serving at the request of the
company  as  a  Director,   officer,  employee  or  agent  of  another  company,
partnership,   joint  venture,  trust  or  other  enterprise,  against  expenses
(including  attorneys'  fees),  judgments,  fines and amounts paid in settlement
actually and reasonably  incurred by him in connection with such action, suit or
proceeding,  to the extent and under the circumstances  permitted by the General
Corporation Law of the State of Delaware.  Such indemnification  (unless ordered
by a court) shall be made as authorized in a specific case upon a  determination
that  indemnification of the Director,  officer,  employee or agent is proper in
the  circumstances  because he has met the  applicable  standards of conduct set
forth  in  the  General   Corporation  Law  of  the  State  of  Delaware.   Such
determination  shall be made (1) by the Board of Directors by a majority vote of
a quorum  consisting of Directors  who were not parties to such action,  suit or
proceeding,  or (2) if such quorum is not  obtainable,  or even if  obtainable a
quorum of disinterested  Directors so directs, by independent legal counsel in a
written opinion, or (3) by our stockholders.

         In  addition  to  the  indemnification  required  in  our  articles  of
incorporation and bylaws, we have entered into indemnity agreements with each of
our current officers, directors and a key employee. These agreements provide for
the  indemnification  of our  directors,  officers  and  key  employee  for  all
reasonable  expenses and  liabilities  incurred in connection with any action or
proceeding  brought against them by reason of the fact that they are or were our
agents. We believe these indemnification provisions and agreements are necessary
to attract and retain qualified directors, officers and key employees.

         A stockholder's  investment may be adversely  affected to the extent we
pay the costs of settlement and damage awards against  directors and officers as
required by these indemnification  provisions.  At present,  there is no pending
litigation or proceeding  involving any of our directors,  officers or employees


                                       77
<PAGE>


regarding  which  indemnification  by us is  sought,  nor  are we  aware  of any
threatened litigation that may result in claims for indemnification.

         Insofar as indemnification for liabilities arising under the Securities
Act  may  be  permitted  to  directors,   officers,  key  employees  or  persons
controlling us pursuant to the foregoing provisions, we have been informed that,
in the opinion of the SEC,  this  indemnification  is against  public  policy as
expressed in the Securities Act and is therefore unenforceable.

ITEM 12. SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT  AND
         RELATED STOCKHOLDER MATTERS

         The following  table  presents  information  regarding  the  beneficial
ownership of our common stock as of March 2, 2009 by:

         o        each  of  the  executive   officers   listed  in  the  summary
                  compensation table;

         o        each of our directors;

         o        all of our directors and executive officers as a group; and

         o        each  shareholder  known to us to be the  beneficial  owner of
                  more than 5% of our common stock.

         Beneficial  ownership is determined in accordance with the rules of the
SEC  and  generally   includes  voting  or  investment  power  with  respect  to
securities.  Unless otherwise indicated below, to our knowledge, the persons and
entities  named in the table  have sole  voting and sole  investment  power with
respect to all shares  beneficially  owned,  subject to community  property laws
where applicable. Shares of our common stock subject to options from the Company
that are currently  exercisable or  exercisable  within 60 days of March 2, 2009
are deemed to be outstanding and to be beneficially  owned by the person holding
the options for the purpose of computing the percentage ownership of that person
but are not treated as  outstanding  for the purpose of computing the percentage
ownership of any other person.


                                       78
<PAGE>


         The information  presented in this table is based on 36,002,563  shares
of our common stock  outstanding on March 2, 2009.  Unless otherwise  indicated,
the  address of each of the  executive  officers  and  directors  and 5% or more
shareholders  named  below is c/o  People's  Liberation,  Inc.,  1212 S.  Flower
Street, 5th Floor, Los Angeles, CA 90015.

<TABLE>
<CAPTION>
                                                             NUMBER OF
                                                               SHARES          PERCENTAGE
                                                            BENEFICIALLY        OF SHARES
NAME OF BENEFICIAL OWNER                                        OWNED          OUTSTANDING
-------------------------------------------------------     ------------     --------------
<S>                                                           <C>                 <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Colin Dyne (1) ........................................        7,731,560          21.5%
   Director, Chief Executive Officer and Secretary
Darryn Barber (2) .....................................          895,060           2.4%
   Chief Financial Officer
Thomas Nields (3) .....................................          660,857           1.8%
   Chief Operating Officer
Andrea Sobel (4) ......................................          100,000             *
   Chief Operating Officer
Dean Oakey (5) ........................................          456,983           1.3%
   Director
Susan White (6) .......................................           49,000             *
   Director
Kenneth Wengrod (7) ...................................           49,000             *
   Director
Named Directors and officers as a group (7 persons) (8)        9,942,460          26.4%

5% SHAREHOLDERS:
Microcapital Fund LP and Microcapital Fund Ltd (9) ....        2,595,000           7.1%
Gerard Guez (10) ......................................       10,698,387          29.7%
Bristol Investment Fund Ltd (11) ......................        2,903,700           8.1%
</TABLE>

----------
*  Less than 1%

(1)      Consists of 7,731,560 shares of common stock.

(2)      Consists  of  132,560  shares of common  stock and  762,500  options to
         purchase common stock.

(3)      Consists  of  290,024  shares of common  stock and  370,833  options to
         purchase common stock.

(4)      Consists of 100,000 options to purchase common stock.

(5)      Consists of 93,483 shares of common stock, warrants to purchase 278,500
         shares of common stock and options to purchase  85,000 shares of common
         stock.

(6)      Consists of 49,000 options to purchase common stock.

(7)      Consists of 49,000 options to purchase common stock.

(8)      Consists  of  8,247,627  shares of common  stock,  warrants to purchase
         278,500 shares of common stock and options to purchase 1,416,333 shares
         of common stock

(9)      Consists of  1,333,600  shares of common stock and warrants to purchase
         533,440  shares of common stock at an exercise price of $2.00 per share
         owned by  Microcapital  Fund LP and 461,400  shares of common stock and
         warrants  to  purchase  266,560  shares of common  stock at an exercise
         price of $2.00  owned by  Microcapital  Fund  Ltd.  Ian P.  Ellis,  the
         general  partner of  MicroCapital  Fund LP and as  Director  of Fund of
         Microcapital Fund Ltd.,  exercises voting and investment authority over
         the shares held by these companies. The address of Microcapital Fund LP
         and Microcapital Fund Ltd is 201 Post Street, San Francisco, California
         94108.


                                       79
<PAGE>


(10)     Consists of 10,698,387  shares of common  stock.  On December 10, 2007,
         Gerard Guez entered into a purchase agreement with Daniel Guez, whereby
         Gerard Guez purchased  10,698,387 shares of common stock held by Daniel
         Guez.  The address of Gerard Guez is 9000 Sunset  Boulevard,  Penthouse
         West Hollywood, CA 90069.

(11)     Consists  of  2,903,700  shares  of  common  stock.  Paul  Kessler,  as
         Director,  exercises  voting and  investment  authority over the shares
         held by this company.  The address of Bristol  Investment Fund, Ltd. is
         Caledonian  House,  69 Dr.  Roy's Drive,  P.O.  Box 1043,  Grand Cayman
         KY1-1102, Cayman Islands.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table sets forth certain information regarding our equity
compensation plans as of December 31, 2008.

<TABLE>
<CAPTION>
                          NUMBER OF SECURITIES TO            WEIGHTED-AVERAGE             NUMBER OF SECURITIES
                          BE ISSUED UPON EXERCISE            EXERCISE PRICE OF           REMAINING AVAILABLE FOR
                          OF OUTSTANDING OPTIONS,          OUTSTANDING OPTIONS,       FUTURE ISSUANCE UNDER EQUITY
                            WARRANTS AND RIGHTS             WARRANTS AND RIGHTS             COMPENSATION PLANS
                        ----------------------------   ----------------------------   ----------------------------
<S>                             <C>                               <C>                          <C>
Equity compensation
plans approved by
security holders ....           5,216,000                         $ 1.29                       2,784,000

Equity compensation
plans not approved by
security holders ....           1,065,000                         $ 0.93                            --

Total ...............           6,281,000                         $ 1.23                       2,784,000
</TABLE>


MATERIAL  FEATURES  OF  INDIVIDUAL  EQUITY  COMPENSATION  PLANS NOT  APPROVED BY
STOCKHOLDERS

         Sanders Morris Harris Inc. acted as placement  agent in connection with
our  capital  raise,  which we  completed  on  November  23,  2005.  In  partial
consideration for their services as placement agent, we issued to Sanders Morris
Harris and its  employees,  Dean Oakey and Jonah Sulak,  warrants to purchase an
aggregate of 625,000  shares of common  stock at an exercise  price of $1.25 per
share. The warrants are fully vested and have a term of 5 years.

         Effective October 1, 2007, we entered into a consulting  agreement with
Europlay  Capital  Advisors,  LLC. Under the terms of the consulting  agreement,
Europlay  Capital  Advisors  will be our  exclusive  financial  advisor to raise
capital and provide other financial  advisory and investment banking services to
us for a term of one year. In  conjunction  with the  consulting  agreement,  we
issued to Europlay  Capital Advisors a warrant to purchase 250,000 shares of our
common  stock at an  exercise  price of $0.50 per  share.  The  warrant is fully
vested and has a term of five years. No proceeds were received by us as a result
of the warrant issuance.

         On November 13, 2007, we issued a warrant to purchase 150,000 shares of
our common stock to William Rast  Enterprises,  LLC. The warrant has an exercise
price of $0.40,  vested  immediately  and has a term of five years.  No proceeds
were received by us as a result of the warrant issuance.


                                       80
<PAGE>


ITEM 13. CERTAIN   RELATIONSHIPS   AND  RELATED   TRANSACTIONS,   AND   DIRECTOR
         INDEPENDENCE

         Other than the employment  arrangements  described  above in "Executive
Compensation" and the transactions described below, since January 1, 2007, there
has not been,  nor is there  currently  proposed,  any  transaction or series of
similar transactions to which we were or will be a party:

         o        in which the amount involved exceeds the lesser of $120,000 or
                  1% of the average of our assets at year-end for the last three
                  completed fiscal years; and

         o        in which any  director,  executive  officer,  shareholder  who
                  beneficially owns 5% or more of our common stock or any member
                  of  their  immediate  family  had or  will  have a  direct  or
                  indirect material interest.

TRANSACTIONS WITH OFFICERS AND DIRECTORS AND 5% SHAREHOLDERS

         Colin Dyne  became our Chief  Executive  Officer  and a director of the
company on May 21, 2007. Colin Dyne is a significant  stockholder and has served
as a consultant to the company since December 2005,  advising on strategic sales
initiatives.  We paid  $192,000 in  consulting  fees to Mr. Dyne during the year
ended December 31, 2007.  There were no consulting  fees paid to Mr. Dyne during
the year ended December 31, 2008.

         Mr.  Dyne also  serves as a member of the Board of  Directors  of Talon
International,  Inc.  (OTCBB:  TALN),  owner of Talon zippers.  Mr. Dyne founded
Tag-It,  Inc.,  a  subsidiary  of Talon,  in 1991.  Mr.  Dyne  served as Talon's
President from inception and as its Chief  Executive  Officer from 1997 to 2005.
During the years ended  December 31, 2008 and 2007,  we purchased  trim products
from Talon amounting to approximately $536,000 and $395,000, respectively.

         Kenneth Wengrod,  a member of our Board of Directors,  currently serves
as President of FTC Commercial  Corp., a company which he founded in 2002 and in
which he continues to hold a minority equity  position.  We are party to various
factoring agreements with FTC as further described in Note 4 to the consolidated
financial  statements.   As  of  December  31,  2008,  total  factored  accounts
receivable  included in due to factor  amounted to  approximately  $4.1 million.
Outstanding  advances as of December  31, 2008  amounted to  approximately  $3.5
million, and are included in the due to factor balance.

         We are party to a consulting  arrangement  with Susan White pursuant to
which Ms. White provides image and marketing  consulting  services to us. During
the years ended December 31, 2008 and 2007, we have paid Ms. White approximately
$53,000 and $94,000 for such consulting services.

PROMOTERS AND CONTROL PERSONS

         On December  15, 2004,  Keating  Reverse  Merger Fund,  LLC, a Delaware
limited liability company,  David L. Hadley (our former chief executive officer)
and Natural  Technologies,  Inc., an Arizona corporation entered into a purchase
agreement  pursuant to which certain  shareholders of the company sold 5,625,287
shares (on a pre-reverse  stock split basis) of the common stock of the company,
representing  approximately  70.99% of the outstanding shares of common stock of
the company,  to Keating  Reverse  Merger Fund,  LLC, for an aggregate  purchase
price of $375,000.

         On January 31,  2005,  we entered  into an  Assumption  Agreement  with
Global Medical  Technologies,  Inc., Natural  Technologies,  Inc. and Mr. Hadley
pursuant  to which we  contributed  all of the  shares  of  common  stock of our
inactive  subsidiaries,  Century  Pacific  Financial  Corp. and Century  Pacific
Investment Management Corporation,  to Global Medical Technologies,  Inc. Global
Medical  Technologies,  Inc.  agreed to  assume  all of our  liabilities  and to
indemnify  us for any loss we incur with  respect to such  assumed  liabilities.
Global Medical,  Natural Technologies,  and Mr. Hadley also released us from all
obligations and claims.  In February 2005, we distributed all of the outstanding


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shares of common stock of Global Medical Technologies,  Inc. on a pro rata basis
to our stockholders.  Following the distribution,  Global Medical  Technologies,
Inc.  continued to operate its medical equipment  reconditioning  business as an
independent  company.  After this distribution,  we existed as a "shell company"
under the name of Century  Pacific  Financial  Corporation  with nominal  assets
whose sole business was to identify,  evaluate and investigate various companies
to acquire or with which to merge.

         On February 16, 2005,  we received a  non-interest  bearing,  unsecured
demand loan from Keating Reverse Merger Fund in the amount of $50,000 to provide
working  capital for operating  expenses.  On June 28, 2005 we issued  5,000,000
restricted common shares (on a pre-reverse stock split basis) in full payment of
the $50,000 note payable to Keating  Reverse  Merger  Fund.  We granted  Keating
Reverse Merger Fund piggyback registration rights with respect to these shares.

         On November 22, 2005, we consummated  an exchange  transaction in which
we acquired all of the  outstanding  ownership  interests of Bella Rose,  LLC, a
California limited liability company ("Bella Rose") and Versatile Entertainment,
Inc., a California corporation  ("Versatile") from their respective shareholders
and members, in exchange for an aggregate of 2,460,106.34 shares of our series A
convertible preferred stock which, on January 5, 2006, converted into 26,595,751
shares of our common stock on a post reverse  stock split basis.  At the closing
of the exchange  transaction,  Versatile and Bella Rose became our  wholly-owned
subsidiaries.  The exchange  transaction  was accounted for as a reverse  merger
(recapitalization)  with  Versatile  and Bella Rose deemed to be the  accounting
acquirers, and People's Liberation, Inc. the legal acquirer.

         On November 22,  2005,  we entered  into a certain  financial  advisory
agreement with Keating Securities,  LLC under which Keating Securities,  LLC was
compensated by us for its advisory  services  rendered to us in connection  with
the closing of the exchange transaction with Versatile  Entertainment,  Inc. and
Bella Rose,  LLC. The  transaction  advisory fee was $350,000,  with the payment
thereof made at the closing of the exchange transaction.

         Kevin R. Keating,  a former  director of the company,  is the father of
the principal member of Keating Investments,  LLC. Keating  Investments,  LLC is
the  managing  member of Keating  Reverse  Merger Fund and is also the  managing
member and 90% owner of Keating  Securities,  LLC, a  registered  broker-dealer.
Kevin Keating resigned from our Board of Directors on May 21, 2007.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

         Effective November 30, 2005,  Grobstein,  Horwath & Company, LLP became
our principal  independent  accounting firm. All audit work was performed by the
full time employees of Grobstein, Horwath & Company, LLP. Our board of directors
does not have an audit  committee.  The  functions  customarily  delegated to an
audit  committee  are  performed  by our full board of  directors.  Our board of
directors approves in advance,  all services  performed by Grobstein,  Horwath &
Company,  LLP. Our board of directors  has  considered  whether the provision of
non-audit  services is compatible with  maintaining  the principal  accountant's
independence,  and has approved  such  services.  The  personnel  of  Grobstein,
Horwath & Company joined with Crowe Horwath LLP. As a result of this event,  the
Company's client relationship with Grobstein,  Horwath & Company has ceased and,
effective  February 20, 2009,  Crowe Horwath LLP became the Company's  principal
independent accounting firm.

     AUDIT FEES

         Fees for audit and review  services  provided by  Grobstein,  Horwath &
Company, LLP totaled  approximately  $150,000 during the year ended December 31,
2008,  including  fees  associated  with the  December  31, 2007 audit,  and the
reviews of our quarterly  financial  statements  for the periods ended March 31,
2008, June 30, 2008 and September 30, 2008.

         Fees for audit and review  services  provided by  Grobstein,  Horwath &
Company, LLP totaled  approximately  $146,000 during the year ended December 31,
2007,  including  fees  associated  with the  December  31, 2006 audit,  and the
reviews of our quarterly  financial  statements  for the periods ended March 31,
2007, June 30, 2007 and September 30, 2007.


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<PAGE>


     AUDIT-RELATED FEES

         Audit-related services amounted to approximately $70,000 and related to
the audit of the  financial  statements  of J.  Lindeberg  USA Corp.,  an entity
acquired in part by the Company during the year ended  December 31, 2008.  There
were no audit-related services provided for the year ended December 31, 2007.

     TAX FEES

         Fees for tax services  provided by  Grobstein,  Horwath & Company,  LLP
during the year ended December 31, 2008 amounted to approximately  $32,000.  Tax
services provided during the year ended December 31, 2008 primarily consisted of
the  preparation  of the  Federal  and State tax returns for the Company and its
subsidiaries and other tax compliance services.

         Fees for tax services  provided by  Grobstein,  Horwath & Company,  LLP
during the year ended December 31, 2007 amounted to approximately  $27,000.  Tax
services provided during the year ended December 31, 2007 primarily consisted of
the  preparation  of the  Federal  and State tax returns for the Company and its
subsidiaries and other tax compliance services.

     ALL OTHER FEES

         No other fees were  incurred  during the years ended  December 31, 2008
and 2007 for services provided by Grobstein, Horwath & Company, LLP.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)      Documents filed as part of this report

         1.       FINANCIAL STATEMENTS.

                  See Index to  Financial  Statements  in Item 8 of this  Annual
         Report on Form 10-K, which is incorporated herein by reference.

         2. FINANCIAL STATEMENT SCHEDULES.

                  All  financial  statement  schedules  are omitted  because the
         information  in  inapplicable  or  presented  in the Notes to Financial
         Statements.

                  a.       Exhibits. See Item 15(b) below.

(b)      Exhibits.  We have  filed,  or  incorporated  into  this  Form  10-K by
         reference,  the exhibits listed on the  accompanying  Index to Exhibits
         immediately following the signature page of this Form 10-K.

(c)      Financial Statement Schedule. See Item 15(a) above.


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<PAGE>


                                   SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  the  Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                     PEOPLE'S LIBERATION, INC.


Date: March 31, 2009                       /S/ DARRYN BARBER
                                     ------------------------------------------
                                     By:   Darryn Barber
                                     Its:  Chief Financial Officer and President
                                           (Principal Financial and Accounting
                                           Officer)

                                POWER OF ATTORNEY

         The undersigned directors and officers of People's Liberation,  Inc. do
hereby  constitute and appoint Colin Dyne and Darryn  Barber,  and each of them,
with full power of  substitution  and  resubstitution,  as their true and lawful
attorneys  and agents,  to do any and all acts and things in our name and behalf
in our  capacities  as  directors  and  officers  and to  execute  any  and  all
instruments  for us and in our names in the capacities  indicated  below,  which
said  attorney  and  agent,  may deem  necessary  or  advisable  to enable  said
corporation to comply with the  Securities  Exchange Act of 1934, as amended and
any  rules,   regulations  and  requirements  of  the  Securities  and  Exchange
Commission,  in  connection  with this  Annual  Report on Form  10-K,  including
specifically but without  limitation,  power and authority to sign for us or any
of us in our names in the  capacities  indicated  below,  any and all amendments
(including  post-effective  amendments)  hereto,  and we do  hereby  ratify  and
confirm all that said attorneys and agents, or either of them, shall do or cause
to be done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

         NAME                           TITLE                           DATE
         ----                           -----                           ----

   /S/ COLIN DYNE            Chief Executive Officer,             March 31, 2009
-----------------------          Secretary, and Director
     Colin Dyne                  (Principal Executive
                                 Officer)

  /S/ DARRYN BARBER          Chief Financial Officer and          March 31, 2009
-----------------------          President (Principal
    Darryn Barber                Financial and
                                 Accounting Officer)

   /S/ SUSAN WHITE           Director                             March 31, 2009
-----------------------
     Susan White

   /S/ KEN WENGROD           Director                             March 31, 2009
-----------------------
     Ken Wengrod

   /S/ DEAN OAKEY            Director                             March 31, 2009
-----------------------
     Dean Oakey


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<PAGE>


                                INDEX TO EXHIBITS

EXHIBIT
NUMBER                                  EXHIBIT TITLE
-------        -----------------------------------------------------------------

2.1            Contribution  Agreement,  effective  as of July 1,  2008,  by and
               among J.  Lindeberg,  USA, LLC,  Bella Rose, LLC and J. Lindeberg
               USA Corp. (1)

3.1            Amended and Restated  Certificate  of  Incorporation  of People's
               Liberation, Inc. (2)

3.10           Bylaws of People's Liberation, Inc.(3)

4.1            2005 People's Liberation, Inc. Option Plan. (3) **

10.1           Form of Indemnity Agreement. (3)

10.2           Factor Agreement  entered into on October 14, 2004 by and between
               Versatile and FTC Commercial Corp. (3)

10.3           Amendment No. 1 To Factoring  Agreement between Versatile and FTC
               Commercial Corp. dated September 30, 2005 (4)

10.4           Factoring  Agreement  entered into by and between  Bella Rose and
               FTC Commercial Corp. dated October 12, 2005 (4)

10.5           Registration  Rights  Agreement dated November 23, 2005 among the
               Registrant   and  Sanders   Morris   Harris  Inc.  as  agent  and
               attorney-in-fact for the Investors identified therein. (4)

10.6           Form of Common Stock Purchase Warrant. (4)

10.7           Amended  and  Restated  Limited   Liability   Company   Operating
               Agreement of William Rast Licensing,  LLC, dated as of January 1,
               2007 by and between Bella Rose, LLC and William Rast Enterprises,
               LLC (5)

10.8           Amended  and  Restated  Limited   Liability   Company   Operating
               Agreement of William Rast  Sourcing,  LLC, dated as of January 1,
               2007 by and between Bella Rose, LLC and William Rast Enterprises,
               LLC (5)

10.9           Factoring  Agreement  entered  into  on  October  1,  2006 by and
               between William Rast Sourcing, LLC and FTC Commercial Corp. (6)

10.10          Letter  Agreement by and between  William Rast Sourcing,  LLC and
               FTC Commercial Corp. dated October 1, 2006 (6)

10.11          Letter Agreement by and between Versatile Entertainment, Inc. and
               FTC Commercial Corp. dated September 1, 2006. (6)

10.12          Amendment No. 1 to Inventory Loan Facility Agreement entered into
               on October 1, 2006 by and between Versatile  Entertainment,  Inc.
               and FTC Commercial Corp. (6)

10.13          Letter  Agreement by and between  Bella Rose,  LLC d/b/a  William
               Rast and FTC Commercial Corp. dated September 1, 2006. (6)

10.14          Employment  Agreement of Daniel Guez dated January 12, 2007.  (7)
               **

10.15          Addendum  entered into as of May 21, 2007 by and between People's
               Liberation, Inc. and Daniel S. Guez. (8) **

10.16          Amended and Restated  Employment  Agreement  dated as of the 19th
               day of June, 2007 by and between  People's  Liberation,  Inc. and
               Daniel S. Guez. (9) **


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<PAGE>


10.17          Separation  Agreement  dated  October  5,  2007,  by and  between
               People's Liberation, Inc. and Daniel S. Guez. (10)

10.18          Registration  Rights  Agreement  dated September 28, 2007, by and
               among  People's  Liberation  and the investors  identified on the
               signature pages thereof. (11)

10.19          Form of Warrant issued to Europlay Capital  Advisors,  LLC, dated
               October 1, 2007. (11)

10.20          Form of Warrant  issued to William Rast  Enterprises,  LLC, dated
               November 13, 2007. (11)

10.21          First  Amendment to Amended and Restated  Operating  Agreement of
               William  Rast  Sourcing,  LLC dated as of November  9, 2007,  and
               effective as of April 1, 2007, by and between Bella Rose, LLC and
               William Rast Enterprises, LLC. (12)

10.22          First  Amendment to Amended and Restated  Operating  Agreement of
               William  Rast  Licensing,  LLC dated as of November 9, 2007,  and
               effective as of April 1, 2007, by and between Bella Rose, LLC and
               William Rast Enterprises, LLC. (12)

10.23          Consulting  Agreement  entered  into on February 1, 2007,  by and
               between Versatile Entertainment, Inc. and Akari Enterprises, LLC.
               (12)

10.24          Amendment No. 1 to Inventory Loan Facility Agreement entered into
               as of October 23, 2007, by and between FTC  Commercial  Corp. and
               William Rast Sourcing, LLC. (12)

10.25          Amendment No. 2 to Inventory Loan Facility Agreement entered into
               as of October 23, 2007 by and between FTC  Commercial  Corp.  and
               Versatile Entertainment, Inc. (12)

10.26          Engagement Letter by and between People's Liberation and Europlay
               Capital Advisors dated October 1, 2007. (12)(13)

10.27          Design Services Agreement between William Rast Sourcing,  LLC and
               Paris68, LLC dated February 27, 2008. (14)

10.28          Employment Agreement by and between People's Liberation, Inc. and
               Andrea Sobel dated May 16, 2008. (15) **

10.29          Operating  Agreement of J.  Lindeberg  USA, LLC,  effective as of
               July 1, 2008, by and among J. Lindeberg USA, LLC, Bella Rose, LLC
               and J. Lindeberg USA Corp. (1)

10.30          JL Sweden  Services  Agreement,  effective as of July 1, 2008, by
               and between J. Lindeberg AB and J. Lindeberg USA, LLC. (1)

10.31          Management Services  Agreement,  effective as of July 1, 2008, by
               and between People's Liberation,  Inc. and J. Lindeberg USA, LLC.
               (1)

10.32          Trademark License Agreement, effective as of July 1, 2008, by and
               between J. Lindeberg AB and J. Lindeberg USA, LLC. (1)

10.33          Factoring  Agreement,  dated  August 6, 2008,  by and  between J.
               Lindeberg USA, LLC and FTC Commercial Corp. (1)

10.34          Inventory Loan Facility  Agreement,  dated August 6, 2008, by and
               between J. Lindeberg USA, LLC and FTC Commercial Corp. (1)


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<PAGE>


10.35          Form of Guaranty  entered into in favor of FTC  Commercial  Corp.
               (1)

10.36          Letter  Agreement,  dated  December  16,  2008,  by  and  between
               Charlotte Russe Holding,  Inc. and its  wholly-owned  subsidiary,
               Charlotte  Russe  Merchandising,   Inc.,  the  Company,  and  the
               Company's wholly-owned subsidiary Versatile  Entertainment,  Inc.
               (17)

10.37          Standard  Office  Lease,  dated  January 22, 2009, by and between
               1212 Flower Real Estate, LLC and People's Liberation, Inc.

10.38          Standard  Industrial/Commercial  Multi-Tenant Lease- Gross, dated
               January 22, 2009, by and between 1212 Flower Real Estate, LLC and
               People's Liberation, Inc.

10.39          Addendum to Standard  Industrial/Commercial  Multi-Tenant  Lease-
               Gross,  dated  January 22, 2009,  by and between 1212 Flower Real
               Estate, LLC and People's Liberation, Inc.

14.1           People's Liberation, Inc. Code of Ethical Conduct. (16)

21.1           Subsidiaries of People's Liberation, Inc.

23.1           Consent of Independent Registered Public Accounting Firm.

23.2           Consent of Independent Registered Public Accounting Firm.

24.1           Power of Attorney (included on signature page)

31.1           Certification   of  Principal   Executive   Officer  pursuant  to
               Securities  Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted
               pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

31.2           Certification   of  Principal   Financial   Officer  pursuant  to
               Securities  Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted
               pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

32.1           Certification  of  Principal   Executive  Officer  and  Principal
               Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted
               pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

(1)  Incorporated  by referenced to our Current Report on Form 8-K (dated August
     6, 2008), filed on August 12, 2008.

(2)  Incorporated  by referenced  to our Current  Report on Form 8-K (dated July
     14, 2008), filed on July 18, 2008.

(3)  Incorporated by reference to our Registration  Statement on Form SB-2 (File
     No. 333-130930), filed on January 9, 2006.

(4)  Incorporated by reference to our Current Report on Form 8-K (dated November
     22, 2005), filed November 25, 2005.

(5)  Incorporated  by reference to our Current  Report on Form 8-K (dated May 8,
     2007), filed with the Securities and Exchange Commission on May 14, 2007.

(6)  Incorporated  by reference to our Current Report on Form 10-KSB filed March
     16, 2007.

(7)  Incorporated  by reference to our Current Report on Form 8-K (dated January
     12, 2007), filed on January 17, 2007.

(8)  Incorporated  by reference to our Current Report on Form 8-K (dated May 21,
     2007), filed on May 24, 2007.

(9)  Incorporated by reference to our Current Report on Form 8-K (dated June 19,
     2007), filed on June 25, 2007.

(10) Incorporated  by reference to our Current Report on Form 8-K (dated October
     2, 2007),  filed with the Securities and Exchange  Commission on October 9,
     2007.

(11) Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
     filed with the Securities and Exchange Commission on November 14, 2007.

(12) Incorporated by reference to our Registration  Statement on Form SB-2 (File
     No. 333-147684) filed on November 28, 2007.

(13) Certain  portions of this agreement have been omitted and filed  separately
     with the  Securities and Exchange  Commission  pursuant to a request for an
     order granting  confidential  treatment pursuant to Rule 406 of the General
     Rules and Regulations under the Securities Act of 1933, as amended.

(14) Incorporated  by reference to our Current Report on Form 10-KSB filed March
     24, 2008.

(15) Incorporated  by reference to our Current Report on Form 8-K (dated May 16,
     2008), filed with the Securities and Exchange Commission on May 22, 2008.


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<PAGE>


(16) Incorporated  by reference to our Current Report on Form 10-KSB filed March
     7, 2006.

(17) Certain  portions of this agreement have been omitted and filed  separately
     with the  Securities and Exchange  Commission  pursuant to a request for an
     order granting  confidential  treatment pursuant to Rule 24b-2 of the Rules
     and Regulations under the Securities and Exchange Act of 1934, as amended.


** Each a management contract or compensatory plan or arrangement required to be
filed as an exhibit to this annual report on Form 10-K.


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