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<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> SPY Inc. (the
“<i>Company</i>”) happily designs, markets and distributes premium sunglasses, goggles and prescription frame eyewear.  In
1994, the Company began as a grassroots brand in Southern California with the goal of creating innovative and aesthetically progressive
eyewear, and, in doing so, the Company believes it has captured the imagination of the action sports market with authentic, distinctive,
performance-driven products under the SPY® brand.  Today, the Company believes the SPY® brand, symbolized by
the distinct “cross” logo, is a well recognized eyewear brand in its segment of the action sports industry, with a
reputation for its high quality products, style and innovation, most notably showcased in its Happy Lens™ technology.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The Company
was incorporated as Sports Colors, Inc. in California in August 1992, but had no operations until April 1994, when the Company
changed its name to Spy Optic, Inc.  In November 2004, the Company reincorporated in Delaware and changed its name to
Orange 21 Inc.  In February 2012, the Company changed its name from Orange 21 Inc. to SPY Inc. to better reflect the
focus of its business going forward.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The
Company operates through its subsidiaries and currently has one wholly-owned subsidiary incorporated in California, Spy Optic
Inc. (“<i>SPY North America</i>”), and one wholly-owned subsidiary incorporated in Italy, Spy Optic Europe S.r.l.
S.U. (“<i>SPY Europe</i>”). In March 2014, the Company received permission from the Italian government to dissolve
SPY Europe. The company expects to complete this process late in 2014, and does not anticipate any material expenses to
dissolve SPY Europe.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><i>Capital Resources</i></p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="background-color: white">During
the three-months ended March 31, 2014 and year ended December 31, 2013, the Company had positive cash flow from operations principally
as a result of a significant reduction in operating expenses and increases in gross profit. However, the Company has a history
of incurring significant negative cash flow from operations, operating and net losses, and has significant working capital requirements.
The Company anticipates that it will continue to have ongoing cash requirements to finance its seasonal and ongoing working capital
needs and net losses.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">           </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">           In
order to finance the Company's working capital requirements, the Company has relied and anticipates that it will continue to rely
on SPY North America’s credit line with BFI Business Finance (“<i>BFI</i>”) (the “<i>BFI Line of Credit</i>”)
and its credit facilities with Costa Brava Partnership III, L.P. (“<i>Costa Brava</i>”).  In addition, SPY
North America has relied on debt and equity financing from Harlingwood (Alpha), LLC (“<i>Harlingwood</i>”).  Costa
Brava and Harlingwood are related parties.  The total outstanding indebtedness of the Company was $23.9 million and $25.7
million at March 31, 2014 and December 31, 2013 respectively.  (See Note 7 “<i>Short-Term Debt</i> ”, Note
8<i> “Long-Term Debt”</i>, Note 11<i> “Related Party Transactions” </i>and Note 14<i> “Subsequent
Events”</i>).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt">The Company believes
it will have sufficient cash on hand and cash available under existing credit facilities to meet its operating requirements for
at least the next twelve months, if the Company is able to achieve some or a combination of the following factors: (i) achieve
its desired sales growth, (ii) continue the improvements in the management of working capital, and (iii) continue to manage and
operate the Company at reduced levels of sales, marketing, general and administrative, and other operating expenses.  However,
the Company will need to continue to access its existing credit facilities during the next twelve months to support its planned
operations and working capital requirements, and intends to (i) continue to borrow, to the extent available, from the BFI Line
of Credit, (ii) increase the level of outstanding principal due to Costa Brava by borrowing up to the maximum amount available,
including through the ongoing deferral of interest payments otherwise payable to Costa Brava, provided, in each case, that these
facilities remain available and on terms acceptable to the Company, and (iii) if necessary, raise additional capital through debt
or equity financings.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">The Company does not anticipate that it can
generate sufficient cash from operations to repay the amounts due under the BFI Line of Credit which is scheduled to renew in February
2015, and the borrowings from Costa Brava and Harlingwood due, as amended, in December 31, 2016 (see Note 14 <i>“Subsequent
Event”</i>), consisting of (i) $15.5 million aggregate original principal borrowings from Costa Brava and $1.5 million in
borrowings from Harlingwood as of March 31, 2014, (ii) an additional amount of approximately $4.8 million and $0.3 million, respectively,
of unpaid interest related to Costa Brava and Harlingwood loans, which was added to the principal balance of each respective borrowing
as of March 31, 2014, and (iii) future interest amounts added to the outstanding principal amounts due under the Harlingwood loans,
rather than paid in cash (“<i>Accrued PIK Interest</i>”). The Company will therefore need to renew the BFI Line of
Credit at its annual renewal in February 2015 and continue to extend the future maturity dates of the Costa Brava and Harlingwood
indebtedness. If the Company is unable to renew the BFI Line of Credit and extend future maturity dates of the Costa Brava and
Harlingwood indebtedness, it will need to raise substantial additional capital through debt or equity financing to continue its
operations. No assurances can be given that any such financing will be available to the Company on favorable terms, if at all.
The inability to obtain debt or equity financing in a timely manner and in amounts sufficient to fund the Company’s operations,
or the inability to renew the BFI Line of Credit or to extend future maturity dates of the Costa Brava and Harlingwood indebtedness,
if necessary, would have an immediate and substantial adverse impact on the Company’s business, financial condition and results
of operations.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><i>Basis of Presentation</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The accompanying
Consolidated Financial Statements of SPY Inc. and its wholly owned subsidiaries have been prepared in accordance with generally
accepted accounting principles (“<i>GAAP</i>”) in the United States.  In the opinion of management, the Consolidated
Financial Statements contain all adjustments, consisting of normal recurring items, considered necessary for a fair presentation
of the Company’s financial position, results of operations and cash flows.  The Consolidated Financial Statements
contained in this Form 10-Q should be read in conjunction with the Consolidated Financial Statements contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 2013.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><i> Recently
Issued Accounting Principles</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> There are no
recently issued accounting principles subsequent to the Company’s disclosure in the Annual Report on Form 10-K for the year
ended December 31, 2013, which would have a significant impact on the Company’s Consolidated Financial Statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><i>Basis of Presentation</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The accompanying
Consolidated Financial Statements of SPY Inc. and its wholly owned subsidiaries have been prepared in accordance with generally
accepted accounting principles (“<i>GAAP</i>”) in the United States.  In the opinion of management, the Consolidated
Financial Statements contain all adjustments, consisting of normal recurring items, considered necessary for a fair presentation
of the Company’s financial position, results of operations and cash flows.  The Consolidated Financial Statements
contained in this Form 10-Q should be read in conjunction with the Consolidated Financial Statements contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 2013.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><i> Recently
Issued Accounting Principles</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> There are no
recently issued accounting principles subsequent to the Company’s disclosure in the Annual Report on Form 10-K for the year
ended December 31, 2013, which would have a significant impact on the Company’s Consolidated Financial Statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Basic loss
per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.  Diluted
loss per share is calculated by including the additional shares of common stock issuable upon the conversion of convertible debt
and the exercise of outstanding options and warrants, using the treasury stock method.  The following table lists the
potentially dilutive equity instruments, each convertible into one share of common stock, used in the calculation of diluted loss
per share for the periods presented:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
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<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
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<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p></td></tr>
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<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2013</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="5" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
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<td style="width: 78%; padding-left: 27pt; text-align: justify; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">Weighted average common shares outstanding – basic</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; padding-left: 27pt; text-align: right; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">13,222</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; padding-left: 27pt; text-align: right; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">13,115</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Assumed conversion of dilutive stock options, warrants and convertible debt</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted average common shares outstanding – dilutive</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">13,222</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">13,115</font></td></tr>
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<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The following
potentially dilutive instruments were not included in the diluted per share calculation for the periods presented as their inclusion
would have been antidilutive:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="5" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Shares Issuable through Exercise or Conversion of:</b></font></td>
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<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2013</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="5" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
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<td style="vertical-align: top; width: 1%; padding-left: 27pt; text-align: justify; line-height: 115%; text-indent: -27pt"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3,052</font></td>
<td style="vertical-align: top; width: 1%; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,790</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">244</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">244</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Convertible debt</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,240</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,133</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5,536</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5,167</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt">  The following table lists the
potentially dilutive equity instruments, each convertible into one share of common stock, used in the calculation of diluted loss
per share for the periods presented:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="5" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2013</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="5" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%; padding-left: 27pt; text-align: justify; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">Weighted average common shares outstanding – basic</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; padding-left: 27pt; text-align: right; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">13,222</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; padding-left: 27pt; text-align: right; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">13,115</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Assumed conversion of dilutive stock options, warrants and convertible debt</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted average common shares outstanding – dilutive</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">13,222</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">13,115</font></td></tr>
</table>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The following
potentially dilutive instruments were not included in the diluted per share calculation for the periods presented as their inclusion
would have been antidilutive:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="5" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Shares Issuable through Exercise or Conversion of:</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2013</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="5" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; width: 78%; padding-left: 27pt; text-align: justify; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">Stock options</font></td>
<td style="vertical-align: top; width: 1%; padding-left: 27pt; text-align: justify; line-height: 115%; text-indent: -27pt"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3,052</font></td>
<td style="vertical-align: top; width: 1%; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,790</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">244</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">244</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Convertible debt</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,240</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,133</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5,536</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5,167</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
13222000
13115000
13222000
13115000
5536000
2240000
2133000
3052000
2790000
244000
244000
5167000
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 27pt; text-indent: 0.5in"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Accumulated
other comprehensive income represents the results of operations adjusted to reflect all items recognized under accounting standards
as components of comprehensive income.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The components
of accumulated other comprehensive income, net of tax, are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2014</b></p></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2013</b></p></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="5" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 79%; padding-left: 27pt; text-align: justify; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">Equity adjustment from foreign currency translation</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">422</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">275</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 45pt; text-align: justify; line-height: 115%; text-indent: -45pt"><font style="font: 10pt Times New Roman, Times, Serif">Unrealized gain on foreign currency exposure of net investment in foreign operations</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">97</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">245</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-align: justify; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">Accumulated other comprehensive income</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">519</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">520</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 27pt; text-indent: 0.5in">The components of accumulated
other comprehensive income, net of tax, are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2014</b></p></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2013</b></p></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="5" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 79%; padding-left: 27pt; text-align: justify; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">Equity adjustment from foreign currency translation</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">422</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">275</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 45pt; text-align: justify; line-height: 115%; text-indent: -45pt"><font style="font: 10pt Times New Roman, Times, Serif">Unrealized gain on foreign currency exposure of net investment in foreign operations</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">97</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">245</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-align: justify; line-height: 115%; text-indent: -27pt"><font style="font: 10pt Times New Roman, Times, Serif">Accumulated other comprehensive income</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">519</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">520</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
520000
519000
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Accounts receivable
consisted of the following:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2014</b></p></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2013</b></p></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="5" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 79%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Trade receivables</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7,810</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8,539</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less allowance for doubtful accounts</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(332)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(369)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less allowance for returns</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(1,856)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(1,627)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts receivable, net</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5,622</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,543</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">  <b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Accounts receivable
consisted of the following:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2014</b></p></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2013</b></p></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="5" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 79%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Trade receivables</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7,810</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8,539</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less allowance for doubtful accounts</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(332)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(369)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less allowance for returns</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(1,856)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(1,627)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts receivable, net</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5,622</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,543</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">  <b> </b></p>
8539000
7810000
369000
332000
1627000
1856000
6543000
5622000
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Inventories
consisted of the following:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2014</b></p></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2013</b></p></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="6" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">17</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">11</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,619</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,097</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less allowance for excess and obsolete inventory</font></td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(292)</font></td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">        (236)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Inventories, net</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,344</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5,872</font></td></tr>
</table>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Inventories
consisted of the following:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2014</b></p></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2013</b></p></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="6" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">17</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">11</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,619</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,097</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less allowance for excess and obsolete inventory</font></td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(292)</font></td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">        (236)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Inventories, net</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,344</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5,872</font></td></tr>
</table>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
11000
17000
6097000
4619000
236000
292000
5872000
4344000
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">SPY North America
has a Loan and Security Agreement with BFI with a maximum borrowing limit of $7.0 million.  The maximum availability
was $5.2 million and $5.1 million at March 31, 2014 and December 31, 2013, respectively, of which SPY North America had borrowed
$1.7 million and $4.0 million, respectively, as of those dates. The BFI Line of Credit renews annually in February for one
additional year unless otherwise terminated by either SPY North America or BFI. The Company had $3.5 million and $1.1 million in
unused availability as of March 31, 2014 and December 31, 2013, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Actual borrowing
availability under the BFI Line of Credit is based on eligible trade receivable and inventory levels of SPY North America, subject
to the following limitations: (i) up to 80% of eligible United States accounts receivable, (ii) 80% of eligible Canadian receivables,
(iii) 50% of eligible United States inventory, provided, however, such amount does not exceed 50% of eligible United States and
Canadian accounts receivable and does not exceed the maximum inventory borrowing amount of $2.5 million, and (iv) advances against
eligible foreign accounts receivable (excluding Canadian accounts receivable) up to $0.4 million.  Borrowings under the
BFI Line of Credit bear interest at a rate per annum equal to the prime rate, as reported in the Western Edition of The Wall Street
Journal, plus 1.75%, with a minimum monthly interest charge of $2,000. The interest rate was 5.0% per annum
at March 31, 2014. The Company and SPY North America granted BFI a security interest in substantially all of SPY North America’s
assets, and substantially all of the Company’s accounts receivable and inventories to secure BFI’s position under the
BFI Line of Credit.  Additionally, the obligations under the BFI Line of Credit are guaranteed by SPY Inc.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> The BFI Line
of Credit imposes certain covenants on SPY North America, including, but not limited to, covenants requiring SPY North America
to provide certain periodic reports to BFI, to inform BFI of certain changes in the business, to refrain from incurring additional
debt in excess of $100,000 and to refrain from paying dividends.  The BFI Line of Credit also contains cross default
provisions. BFI may declare SPY North America in default if SPY North America experiences a material adverse change in its business,
financial condition, or in its ability to perform the obligations owed under the BFI Line of Credit.  BFI’s prior
consent, which BFI will not unreasonably withhold, is required in the event that SPY North America seeks additional debt financing,
including debt financing subordinate to BFI.  SPY North America has also established bank accounts in BFI’s name
in the United States and Canada into which collections on accounts receivable and other collateral are deposited (the “<i>Collateral
Accounts</i>”).  Pursuant to the deposit control account agreements between BFI and SPY North America, BFI is entitled
to sweep all amounts deposited into the Collateral Accounts and apply the funds to outstanding obligations under the BFI Line of
Credit; provided that BFI is required to distribute to SPY North America any amounts remaining after payment of all amounts due
under the BFI Line of Credit.  SPY North America was in compliance with all covenants under the BFI Line of Credit at
March 31, 2014.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> Costa Brava Term Note</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> SPY North
America issued a promissory note to Costa Brava in the principal amount of $7.0 million (“<i>Costa Brava Term
Note</i>”), which amount was outstanding at each of March 31, 2014 and December 31, 2013 (excluding Accrued PIK Interest
of $2.4 million and $2.1 million, respectively). As of March 31, 2014, approximately $264,000 of accrued interest was
reclassified to accrued liabilities and was paid in April 2014. The Costa Brava Term Note was amended in
April 2014 to extend the due date from April 1, 2015 to December 31, 2016.  The Costa Brava Term Note is
subordinate to the BFI Line of Credit, pursuant to the terms of a debt subordination agreement between Costa Brava and
BFI.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> Interest
attributable to the Costa Brava Term Note accrues daily at a rate equal to 12% per annum.  On January 1, 2012, SPY
North America began adding Accrued PIK Interest as an addition to the outstanding principal amount due, rather than making
interest payments in cash.  The Costa Brava Term Note, as amended, also requires that SPY North America pay a
facility fee equal to 1% of the outstanding principal amount in cash (without giving effect to the Accrued PIK Interest) in
June 2014. The Company has approximately $17,000 in accrued expenses and other liabilities related to facility fee as
of March 31, 2014 and the total facility fee of $70,000 is due in June 2014.  In April 2014, the Costa Brava Term
Note was amended to reduce the interest rate from 12% to 7% and to eliminate the facility fee, both of which are effective
July 1, 2014. Effective with the amendment, the Company will no longer add Accrued PIK Interest to the outstanding principal
and will begin making quarterly cash payments starting in June 2014.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> During the
term of the Costa Brava Term Note, Costa Brava may, at its discretion, convert up to $2,250,000 of the principal amount of the
Costa Brava Term Note (excluding the Accrued PIK Interest) into shares of the Company’s common stock at a conversion price
of $2.25 per share. In April 2014, the Costa Brava Term Note was amended to increase the amount Costa Brava may convert from $2,250,000
to $6,000,000 and reduce the conversion price from $2.25 to $2.00. (See Note 11<i> “Related Party Transactions”
</i>and Note 14<i> “Subsequent Events”</i>).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> Costa Brava Line of Credit</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> SPY North America
has an additional $9.0 million line of credit from Costa Brava (“<i>Costa Brava Line of Credit</i>”) of which $8.5
million was outstanding at March 31, 2014 and December 31, 2013 (excluding Accrued PIK Interest of $2.4 million and $2.1 million,
respectively). As of March 31, 2014, approximately $316,000 of accrued interest was reclassified to accrued liabilities and
the amount was paid in April 2014. The Costa Brava Line of Credit was amended in April 2014 to extend the maturity date from April
1, 2015 to December 31, 2016. The Costa Brava Line of Credit is subordinate to BFI Line of Credit, pursuant to the terms of a debt
subordination agreement between Costa Brava and BFI.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Interest on
the outstanding borrowings under the Costa Brava Line of Credit accrues daily at a rate equal to 12% per annum.  On
January 1, 2012, SPY North America began paying monthly interest payments in kind, as an addition to the outstanding principal
amount due, rather than making interest payments in cash.  Monthly interest accrued prior to January 1, 2012 was paid
in cash. In April 2014, the Costa Brava Line of Credit was amended to reduce the interest rate from 12% to 7% and to
eliminate the facility fee, both of which are effective July 1, 2014. Effective with the amendment, the Company will no longer add Accrued PIK Interest to the outstanding principal and will begin
making quarterly cash payments starting in June 2014.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">           In
addition, the Costa Brava Line of Credit, as amended, requires that SPY North America pay a facility fee in June 2014
calculated as the lesser of (i) 1% of the average daily outstanding principal amount owed under the note (excluding
Accrued PIK Interest) for the 365 day period ending on such payment date or (ii) $90,000.  The Company has
approximately $66,000 in accrued expenses and other liabilities related to facility fee as of March 31, 2014 and the total
facility fee of $85,000 is due in June 2014.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> Costa Brava Loans</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The total outstanding
borrowings under all credit facilities entered into with Costa Brava at March 31, 2014 and December 31, 2013 was $15.5 million
(excluding $4.8 million and $4.2 million of Accrued PIK Interest, respectively).  The Costa Brava Term Loan and Costa
Brava Line of Credit are pari passu with respect to the rights and preferences of the Harlingwood Notes (defined below).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> Harlingwood Convertible Debt</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> In 2012, SPY
North America entered into convertible note purchase agreements with Harlingwood under which SPY North America issued two promissory
notes to Harlingwood in the principal amounts of $1.0 million and $0.5 million (“<i>Harlingwood Notes</i>”).  Total
outstanding borrowings under the Harlingwood Notes at each of March 31, 2014 and December 31, 2013 were $1.5 million (excluding
Accrued PIK Interest of $0.3 million and $0.2 million, respectively).  As of March 31, 2014, approximately $52,000 of
accrued interest was reclassified to accrued liabilities and the amount was paid in April 2014. The Harlingwood Notes were
amended in April 2014 to extend the maturity date from April 1, 2015 to December 31, 2016.  The Harlingwood Notes are subordinate
to the amounts owed by SPY North America under the BFI Line of Credit, pursuant to the terms of a debt subordination agreement
between Harlingwood and BFI.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"> The Harlingwood Notes accrue interest
at the rate of 12% per annum.  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt">The $1.0 million
promissory note requires a facility fee equal to the lesser of $10,000 or 1% of the average daily outstanding principal amount
due under the Harlingwood Notes (without giving effect to the Accrued PIK Interest).   SPY North America paid $20,000
to Harlingwood for initial aggregate facility fees in 2012.  Facility fees are due in advance on the respective anniversary
date of the $1.0 million promissory note until maturity.  The $0.5 million promissory note has a facility fee of $10,000.
The Company paid $10,000 and $10,000 to Harlingwood in September 2013 and January 2014, respectively related to facility fees on
the Harlingwood Notes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The principal
amount due under the Harlingwood Notes (including Accrued PIK Interest) is convertible into shares of the Company’s common
stock at $1.40 per share, subject to adjustment for stock splits or stock dividends.  The Harlingwood Notes contain standard
representations, warranties and reporting requirements that are customary for financings of this type, and cross default provisions
with respect to the Costa Brava indebtedness.  SPY North America was in compliance with all covenants under the Harlingwood
Notes at March 31, 2014. The Harlingwood Notes are pari passu with the respect to the rights and preferences of Costa Brava
Term Note and Costa Brava Line of Credit.  (See Note 11<i> “Related Party Transactions”</i> and Note 14<i>
“Subsequent Events”</i>).</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> Long-Term Debt</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Notes payable
at March 31, 2014 consist of the following:<b>        </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><b>                          </b></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; width: 89%; line-height: 115%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Costa Brava Term Loan, as amended (subordinated debt, of which up to $2.25 million is convertible into shares of common stock at a conversion price of $2.25 per share.)  Effective April 30, 2014, up to $6.0 million is convertible into shares of Common Stock at a conversion price of $2.00 per share.  </font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF">$</p></td>
<td style="vertical-align: top; width: 9%">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: #CCEEFF">10,579</p></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Costa Brava Line of Credit (subordinated debt)</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: white; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: white">9,137</p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Harlingwood Notes (subordinated convertible debt, all of which is convertible into shares of common stock at a conversion price of $1.40 per share )</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: #CCEEFF">1,736</p></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Secured note payable for vehicle purchases, 4.69% interest rate with monthly payments of $1,400 due through December 2015, secured by vehicles</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: white; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: white">28</p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Subtotal</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: #CCEEFF">21,480</p></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less current portion</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: white; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: white">16</p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Notes payable, less current portion</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF">$</p></td>
<td style="vertical-align: top; border-bottom: black 2.25pt double">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: #CCEEFF">21,464</p></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"> Notes payable at March 31, 2014
consist of the following:<b>        </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><b>                          </b></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; width: 89%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Costa Brava Term Loan, as amended (subordinated debt, of which up to $2.25 million is convertible into shares of common stock at a conversion price of $2.25 per share.)  Effective April 30, 2014, up to $6.0 million is convertible into shares of Common Stock at a conversion price of $2.00 per share.  </font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF">$</p></td>
<td style="vertical-align: top; width: 9%">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: #CCEEFF">10,579</p></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Costa Brava Line of Credit (subordinated debt)</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: white; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: white">9,137</p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Harlingwood Notes (subordinated convertible debt, all of which is convertible into shares of common stock at a conversion price of $1.40 per share )</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: #CCEEFF">1,736</p></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Secured note payable for vehicle purchases, 4.69% interest rate with monthly payments of $1,400 due through December 2015, secured by vehicles</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: white; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: white">28</p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Subtotal</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: #CCEEFF">21,480</p></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less current portion</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: white; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: white">16</p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Notes payable, less current portion</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF">$</p></td>
<td style="vertical-align: top; border-bottom: black 2.25pt double">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: right; background-color: #CCEEFF">21,464</p></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The Company’s
financial instruments include cash, accounts receivable and payable, short-term borrowings, accrued liabilities, other short-term
liabilities, capital leases, notes payable and related party debt.  The carrying amount of these instruments approximates
fair value because of their short-term nature.  The carrying value of the Company’s long-term debt, including the
current portion approximates fair value as of March 31, 2014.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> </i></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> <i>Stock Option Activity</i></font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Shares</b></font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Average</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Exercise </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Price</b></p></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Average</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Remaining</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Contractual</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Term</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(years)</b></p></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Aggregate</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Intrinsic </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Value</b></p></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options outstanding at December 31, 2013</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3,090,801</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1.76</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">110,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1.39</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercised</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(120,000)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">0.81</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Expired</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(29,167)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1.07</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Forfeited</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options outstanding at March 31, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3,051,634</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1.79</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7.01</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">335</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options exercisable at March 31, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,994,147</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2.02</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.98</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">235</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Intrinsic value
is defined as the difference between the relevant current market value of the Company’s common stock and the grant price
for options with exercise prices less than the market values on such dates.  During the three months ended March 31,
2014, there were 120,000 stock options exercised.  The Company received cash proceeds of $97,600 related to the stock
options exercised in 2014. No options were exercised during the three months ended March 31, 2013.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The weighted-average
estimated fair value of employee stock options granted during the three months ended March 31, 2014 and 2013 was $0.86 and
$0.90, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><i> Restricted
Stock Award Activity</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The Company
periodically issues restricted stock awards to certain directors and key employees, subject to certain vesting requirements based
on future service.  Fair value is calculated using the Black-Scholes option-pricing valuation model (single option approach).  There
were no restricted stock awards issued during the three months ended March 31, 2014. However, the Company awarded 19,161 fully
vested, non-restricted shares at a $1.37 weighted-average grant date fair value during the three months ended March 31, 2014.  These
shares were issued to certain members of the Company’s board of directors in lieu of cash payment for quarterly board fees.  The
expense related to these shares was $26,250 during the three months ended March 31, 2014, and was recorded in general and administrative
expense.</p>
<p style="font: 11pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font-size: 10pt"> </font><font style="font-size: 12pt"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The Company
recognized the following share-based compensation expense during the three months ended March 31, 2014 and 2013:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="6" style="vertical-align: bottom">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2013</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="6" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; width: 79%; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Stock options</b></font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 8%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 8%; line-height: 115%"> </td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">General and administrative expense</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">99</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">119</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Cost of sales</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Selling and marketing</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">34</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">38</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Shipping and warehouse</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Research and development</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total share-based compensation for stock options</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">142</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">166</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Restricted stock</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">General and administrative expense (Board of Directors fees in lieu of cash payments)</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26</font></td>
<td style="vertical-align: top; padding-bottom: 1.5pt">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in">  </p></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total share-based compensation for restricted stock</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26 </font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total Share-based compensation expense</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">168</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">192</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Total unrecognized
share-based compensation expense for outstanding stock option awards at March 31, 2014 is approximately $0.5 million, which will
be recognized over a weighted average remaining life of 1.7 years.<b>  </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> </i></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> <i>Stock Option Activity</i></font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Shares</b></font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Average</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Exercise </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Price</b></p></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Average</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Remaining</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Contractual</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Term</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(years)</b></p></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Aggregate</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Intrinsic </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Value</b></p></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options outstanding at December 31, 2013</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3,090,801</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1.76</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">110,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1.39</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercised</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(120,000)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">0.81</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Expired</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(29,167)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1.07</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Forfeited</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options outstanding at March 31, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3,051,634</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1.79</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7.01</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">335</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: bottom; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options exercisable at March 31, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,994,147</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2.02</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.98</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">235</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt">The Company recognized the following
share-based compensation expense during the three months ended March 31, 2014 and 2013:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="6" style="vertical-align: bottom">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2013</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="6" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; width: 79%; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Stock options</b></font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 8%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 8%; line-height: 115%"> </td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">General and administrative expense</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">99</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">119</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Cost of sales</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Selling and marketing</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">34</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">38</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Shipping and warehouse</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Research and development</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total share-based compensation for stock options</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">142</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">166</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Restricted stock</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">General and administrative expense (Board of Directors fees in lieu of cash payments)</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26</font></td>
<td style="vertical-align: top; padding-bottom: 1.5pt">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; background-color: #CCEEFF; text-indent: 0.5in">  </p></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total share-based compensation for restricted stock</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26 </font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 9pt; text-indent: -9pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total Share-based compensation expense</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">168</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">192</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
99000
119000
26000
26000
5000
5000
34000
38000
140000
1000
1000
169000
153000
3000
3000
102000
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> Promissory Notes with Shareholder,
Costa Brava</i></p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> See Note 8
“<i>Long-Term Debt</i>” to the Consolidated Financial Statements regarding promissory notes held by Costa Brava, an
entity that owned, at March 31, 2014, approximately 47.6%, or 51.3% on an as converted basis, of the Company’s common stock.  The
Chairman of the Company’s Board of Directors, Seth Hamot, is the President and sole member of Roark, Rearden & Hamot,
LLC, which is the sole general partner of Costa Brava.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The total outstanding
borrowings under all promissory notes the Company has entered into with Costa Brava at March 31, 2014 and December 31, 2013
was $20.3 million (including $4.8 million Accrued PIK Interest) and $19.7 million (including $4.2 million Accrued PIK Interest),
respectively.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><i> Convertible
Notes with Shareholder, Harlingwood</i></p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> See Note 8,
“<i>Long-Term Debt</i>” to the Consolidated Financial Statements regarding $1.5 million in total promissory notes held
by Harlingwood, an entity that owned, at March 31, 2014, approximately 5.3%, or 13.6% on an as converted basis, of the Company’s
common stock.  Mr. Fir Geenen, a member of the Company’s Board of Directors, is the manager of a limited liability
company that manages Harlingwood.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The total outstanding
borrowings under all promissory notes issued by the Company to Harlingwood at March 31, 2014 and December 31, 2013 was $1.8
million (including $0.3 million Accrued PIK Interest) and $1.7 million (including less than $0.2 million Accrued PIK Interest),
respectively.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i>Operating Leases</i></p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The
Company’s corporate headquarters totals 32,551 square feet and is located in Carlsbad, California.  Effective
November 2010, the Company entered into an amended lease for this facility with average monthly rent payments of
approximately $29,000 per month.  In April 2013, the Company amended this lease to (i) extend the expiration date
to December 31, 2019, and (ii) give the Company the right to terminate the lease commencing on April 1, 2015 with nine-months
written notice.  The monthly rent payments after 2014 will increase by 3% per year. The Company also leases
approximately 6,500 square feet of a facility in Varese, Italy with monthly lease payments effective March 2013 of
€1,500 per month. On March 10, 2014, the Company elected to terminate its lease in Italy, effective September 10,
2014. In addition, the Company leases an office space totaling approximately 400 square feet in Vancouver, Canada at a
monthly rate of CAD$1,352 (approximately $1,312).  The Company also leases certain computer equipment and
vehicles.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Total rent
expense was approximately $106,000 and $105,000 for the three months ended March 31, 2014 and 2013, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Future minimum
rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year
are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Year Ending December 31,</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; line-height: 115%"> </td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; width: 89%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2014</font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">326</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2015</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">393</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2016</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">398</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">409</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">420</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Thereafter</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">411</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,357</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> Capital Leases</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> Future minimum
lease payments under capital leases at March 31, 2014 are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 5in; text-indent: 0.5in"><b>  </b></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Year Ending December 31,</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">57</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2015</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">76</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2016</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">23</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total minimum lease payments</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">156</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Amount representing interest</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(10)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Present value of minimum lease payments</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">146</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less current portion</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">71</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Noncurrent portion</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">75</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i>Athlete Contracts</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">At March 31,
2014, the Company has entered into endorsement contracts with certain athletes to actively wear and endorse the
Company’s products.  Payments under these contracts total approximately $258,000, $145,000 and $83,000 in
2014, 2015 and 2016, respectively, and may include additional performance-based incentives and/or product-specific sales
incentives.  At March 31, 2014, the Company also had pending endorsement contracts with certain athletes to
actively wear and endorse the Company’s products, with payments totaling approximately $547,000.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i>Litigation</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> From time to
time the Company may be party to lawsuits in the ordinary course of business.  The Company is not currently a party to
any material legal proceedings, which it believes will have a material adverse impact on its financial position.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"> Future minimum rental payments
required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Year Ending December 31,</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; line-height: 115%"> </td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; width: 89%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2014</font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">326</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2015</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">393</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2016</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">398</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">409</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">420</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Thereafter</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">411</font></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,357</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"> Future minimum lease payments under
capital leases at March 31, 2014 are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 5in; text-indent: 0.5in"><b>  </b></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Year Ending December 31,</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">57</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2015</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">76</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2016</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">23</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total minimum lease payments</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">156</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Amount representing interest</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(10)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Present value of minimum lease payments</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">146</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less current portion</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">71</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Noncurrent portion</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">75</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"></p>
77000
71000
92000
75000
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt">Operating segments
are defined as components of an enterprise about which separate financial information is available that is evaluated regularly
by the Company’s management in deciding how to allocate resources and in assessing performance.  The Company designs,
produces and distributes sunglasses, snow and motocross goggles, prescription frames, and branded apparel and accessories for the
action sports, snow sports and lifestyle markets.</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"> The Company
markets its products in North America and internationally.  Revenue is attributed to the location to which the product
is shipped.  Beginning on January 1, 2013, substantially all sales to international customers were made by SPY North
America.  During and prior to 2012, substantially all sales to international customers were made by SPY Europe.  Identifiable
assets are based on location of domicile:</p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>North America</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(U.S. and</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Canada)</b></p></td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>International (Europe,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Asia Pacific</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>And Latin</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>America)</b></p></td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Consolidated</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td colspan="9" style="line-height: 115%"> </td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="8" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2014</b></p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; width: 67%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net sales</font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7,982</font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,210</font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">9,192</font></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td colspan="9" style="line-height: 115%"> </td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="8" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2013</b></p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net sales</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8,209</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">799</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">9,008</font></td></tr>
</table>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>March 31, 2014</b></font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2013</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="5" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="width: 78%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Tangible long-lived assets:</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">U.S. and Canada</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">394</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">438</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Europe and Asia Pacific</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">394</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">438</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>North America</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(U.S. and</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Canada)</b></p></td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>International (Europe,</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Asia Pacific</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>And Latin</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>America)</b></p></td>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Consolidated</b></font></td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="2" style="vertical-align: bottom; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td colspan="9" style="line-height: 115%"> </td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="8" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2014</b></p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; width: 67%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net sales</font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7,982</font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,210</font></td>
<td style="vertical-align: top; width: 1%; line-height: 115%"> </td>
<td style="vertical-align: top; width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">9,192</font></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td colspan="9" style="line-height: 115%"> </td></tr>
<tr>
<td style="vertical-align: bottom; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td colspan="8" style="vertical-align: bottom; border-bottom: black 1pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2013</b></p></td></tr>
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net sales</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8,209</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">799</font></td>
<td style="vertical-align: top; line-height: 115%"> </td>
<td style="vertical-align: top; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="vertical-align: top; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">9,008</font></td></tr>
</table>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 12pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>March 31, 2014</b></font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2013</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="5" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(Thousands)</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="width: 78%; padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Tangible long-lived assets:</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">U.S. and Canada</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">394</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">438</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Europe and Asia Pacific</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 27pt; text-indent: -27pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">394</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">438</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
9192000
7982000
8209000
1210000
799000
9008000
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt">In April 2014,
the Costa Brava Term Note, Costa Brava Line of Credit and Harlingwood Notes were amended to extend the respective maturity
dates from April 1, 2015 to December 31, 2016 (See Note 8 “<i>Long-term Debt</i>”).  Additionally, the
interest rates on the Costa Brava Term Note and Costa Brava Line of Credit were reduced from 12% to 7%, and the facility fees
were eliminated, effective July 1, 2014. The Costa Brava Term Note was also amended to increase the amount that Costa Brava
may, at its discretion, convert (excluding the Accrued PIK Interest) into shares of the Company’s common stock from
$2,250,000 to $6,000,000 and to reduce the conversion price from $2.25 to $2.00. Effective with the Costa Brava Term Note and
Costa Brava Line of Credit, the Company will no longer add Accrued PIK Interest to the outstanding principal and will begin making
quarterly cash payments starting in June 2014.</p>
<p style="margin: 0pt"></p>
258000
547000
145000
83000
100000
264000
316000
52000
15500000
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4800000
300000
1500000
3000
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-45000
91000
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43000
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23000
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9192000
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16000
4024000
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1000