UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended ~~June 30, 2014~~March 31, 2015


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-32697

American Apparel, Inc.

(Exact Name of Registrant as Specified in Its Charter)



Delaware	20-3200601
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

747 Warehouse Street, Los Angeles, California	90021
(Address of Principal Executive Offices)	(Zip Code)

Registrant's Telephone Number, ~~Including~~including area code: (213) 488-0226

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer” and “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o	Accelerated filer	x

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

At ~~August 1, 2014~~,May 6, 2015, the Registrant had issued and outstanding ~~175,533,788~~176,682,164 and ~~174,161,765~~176,376,508 shares of its common stock, respectively.

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AMERICAN APPAREL, INC.

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		Page
Part I-Financial Information		6
Item 1.	Financial Statements (unaudited)	6
	Consolidated Balance Sheets as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014	6
	Consolidated Statements of Operations and Comprehensive Loss for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~	7
	Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~	8
	~~Condensed~~ Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4441
Item 4.	Controls and Procedures	4541
Part II-Other Information		4541
Item 1.	Legal Proceedings	4542
Item 1A.	Risk Factors	4542
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4842
Item 3.	Defaults Under Senior Securities	4842
Item 4.	Mine Safety Disclosures	4842
Item 5.	Other Information	4842
Item 6.	Exhibits	4842

Signatures		5044

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Unless the context requires otherwise, all references in this ~~report~~Quarterly Report on Form 10-Q to the "Company," "Registrant," "we," and "our," ~~and "us"~~ refer to American Apparel, Inc., a Delaware corporation, together with its 100% owned subsidiary, American Apparel (USA) LLC, and its other direct and indirect subsidiaries.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the documents incorporated by reference herein, contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements in this Quarterly Report on Form 10-Q other than statements of historical fact are "forward-looking statements" for purposes of these provisions. Statements that include the use of terminology such as "may," "will," "expect," "believe," "plan," "estimate," "potential," "continue," or the negative thereof or other and similar expressions are forward-looking statements. In addition, in some cases, you can identify forward-looking statements by words or phrases such as "trend," ~~"potential,"~~ "opportunity," "comfortable," "anticipate," "current," "intention," "position," "assume," "outlook," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions.

Any statements that refer to projections of our future financial performance, anticipated growth and trends in our business, ~~our~~ goals, strategies, focuses and plans, and other characterizations of future events or circumstances, including statements expressing general expectations or beliefs, whether positive or negative, about future operating results or the development of our products and any statement of assumptions underlying any of the foregoing are forward-looking statements. Forward-looking statements in this report may include, without limitation, statements about:

consequences of the ~~suspension~~termination of Dov Charney ("Mr. Charney"), our former chief executive officer ~~including~~(or the ~~pending~~ internal investigation related ~~thereto,~~thereto), including any litigation or regulatory investigations, any alleged actions of Mr. Charney, or any impact on our sales or brand ~~and any future determinations that may be made with respect~~related thereto;

ability to hire and/or retain qualified employees, including ~~at the chief~~ executive ~~officer and other executive levels;~~officers;

our future financial condition, results of operations, plans and prospects, expectations, ~~goals and strategies for future growth,~~ operating improvements and cost savings, and the timing of any of the foregoing;

growth, expansion and acquisition prospects and strategies, the success of such strategies, and the benefits we believe can be derived from such strategies;

our ability to make debt ~~service payments and~~payments; ability to remain in compliance with financial covenants under financing ~~arrangements~~arrangements; and ability to obtain appropriate waivers or amendments with respect to any noncompliance;

liquidity and projected cash flows;

plans to make continued investments in advertising and marketing;

the outcome of investigations, enforcement actions and litigation matters, including exposure ~~which~~that could exceed expectations;

intellectual property rights and those of others, including actual or potential competitors, our personnel, consultants, and collaborators;

trends in raw material costs and other costs both in the industry and specific to ~~the Company;~~us;

the supply of raw materials and the effects of supply shortages on our financial condition, results of operations, and cash flows;

economic and political conditions;

currency fluctuations and the impact thereof;

overall industry and market performance;

operations outside the U.S.;

the impact of accounting pronouncements;

ability to maintain compliance with the listing requirements of NYSE MKT LLC;

ability to improve ~~manufacturing efficiency at our production facilities;~~

~~ability to improve~~ efficiency and control costs at our ~~distribution facility located in La Mirada, California;~~production and supply chain facilities; and

other assumptions described in this Quarterly Report on Form 10-Q underlying or relating to any forward-looking statements.

The forward-looking statements in this report speak only as of the date of this report and caution should be taken not to place undue reliance on any such forward-looking statements, which are qualified in their entirety by this cautionary statement. Forward-looking statements are subject to numerous assumptions, events, risks, uncertainties and other factors, including those that may be outside of our control and that change over time. As a result, actual results and/or the timing of events could differ materially from those expressed in or implied by the forward-looking statements and future results could differ materially from historical

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performance and those expressed in or implied by the forward-looking statements. Such assumptions, events, risks, uncertainties

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and other factors are found in ~~Item IA.~~"Item 1A. Risk ~~Factors~~Factors" in Part II and elsewhere in this Quarterly Report on Form 10-Q, ~~and~~ the Annual Report on Form 10-K for the year ended December 31, ~~2013,~~2014, as amended, and other reports and documents we file with the Securities and Exchange Commission (the "SEC") and include, without limitation, the following:

~~suspension and possible~~consequences of the termination of Mr. Charney, our former chief executive officer ~~and consequences related thereto, including~~(or the ~~pending~~ internal investigation related ~~thereto,~~thereto), including any litigation or regulatory investigations, any alleged actions of Mr. Charney, or any impact on our sales or brand ~~and any future determinations that may be made with respect~~related thereto;

changes in key personnel, our ability to hire and retain key personnel, and our relationship with our employees;

voting control by our ~~executive officers,~~ directors, lenders and other ~~affiliates;~~affiliates, including Standard General Group and Mr. Charney;

ability to successfully implement our strategic, operating, financial and personnel initiatives;

~~ability to effectively carry out and manage our strategy including growth and expansion in the U.S. and internationally;~~

ability to maintain the value and image of our brand and protect our intellectual property rights;

general economic conditions, geopolitical events, other regulatory changes, and inflation or deflation;

disruptions in the global financial markets;

the highly competitive and evolving nature of our ~~business~~industry in the U.S. and internationally;

risks associated with ~~the recent downturn in~~fluctuations and trends of consumer apparel spending in the U.S.;

changes in consumer preferences or demand for our products;

our ability to attract customers to our retail and online stores;

loss or reduction in sales to wholesale or retail customers or financial nonperformance by our wholesale customers;

seasonality and fluctuations in comparable store sales and wholesale net sales and associated margins;

ability to improve manufacturing efficiency at our production facilities;

changes in the price of materials and labor, including increases in the price of raw materials in the global market and minimum wages;

ability to pass on the added cost of raw materials and labor to customers;

~~changes in the price of raw materials in the global market and labor costs including increases in minimum wages;~~

ability to effectively manage inventory levels;

ability to operate our distribution facility located in La Mirada, California without further unanticipated costs or, negative sales impacts, including the ability to achieve, as and when planned, labor cost reductions;

risks that our suppliers or distributors may not timely produce or deliver products;

ability to renew leases on economic terms;

risks associated with our facilities being concentrated in one geographic area;

ability to identify new store locations ~~and negotiate new leases effectively; ability to open new stores and expand internationally;~~ and the availability of store locations at appropriate terms; ability to negotiate new store leases effectively; and ability to open new stores and expand internationally;

ability to generate or obtain from external sources sufficient liquidity for operations and debt service;

consequences of our significant indebtedness, including ~~relationship~~our relationships with ~~lenders;~~lenders, ability to comply with debt ~~agreements;~~agreements, ability to generate cash flow to ~~serve~~service our ~~debt;~~debt, and the risk of acceleration of borrowings thereunder as a result of noncompliance;

adverse changes in our credit ratings and any related impact on financial costs and structure;

continued compliance with U.S. and foreign government regulations and ~~legislation; and regulatory environments~~legislation, including environmental, immigration, labor, and occupational health and safety laws and regulations;

loss of U.S. import ~~protections;~~protections or changes in duties, tariffs and ~~quotas; other~~quotas, risks associated with our foreign operations and supply sources ~~under~~such as market ~~disruption;~~disruption, changes in import and export ~~laws;~~laws, and currency restrictions and exchange rate fluctuations;

litigation and other inquiries and investigations, including the risks that we, our officers or directors in cases where indemnification applies, will not be successful in defending any proceedings, lawsuits, disputes, claims or audits, and that exposure could exceed expectations or insurance coverage;

tax assessments by domestic or foreign governmental authorities, including import or export duties on our products and the applicable rates for any such taxes or duties;

ability to maintain compliance with the exchange rules of the NYSE MKT LLC;

the adoption of new accounting standards or changes in interpretations of accounting principles;

adverse weather conditions or natural disaster, including those which may be related to climate change;

technological changes in manufacturing, wholesaling, or retailing;

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the risk, including costs and timely delivery issues associated therewith, that information technology systems changes may disrupt our supply chain or operations and could impact cash flow and liquidity, and ability to upgrade information technology infrastructure and other risks associated with the systems that operate our online retail operations; and

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the risk of failure to protect the integrity and security of our information systems and ~~our~~ customers' information.

All forward-looking statements included in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statements.

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PART I-FINANCIAL INFORMATION


~~Item 1.~~	~~Financial Statements (unaudited)~~

Item 1. Financial Statements (unaudited)

American Apparel, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except ~~per-share~~per share amounts)

~~(unaudited)~~


	June 30, 2014			December 31, 2013			March 31, 2015				December 31, 2014
ASSETS							(unaudited)
Current assets:
Cash	$	10,160		$	8,676		$	20,914			$	8,343
Trade accounts receivable (net of allowances $2,592; $2,229)	26,214			20,701
Trade accounts receivable (net of allowances $353; $458)							21,915				25,298
Prepaid expenses and other current assets	15,832			15,636			13,258				16,442
Inventories, net	150,751			169,378			122,753				147,578
Income taxes receivable and prepaid income taxes	476			306			345				648
Deferred income taxes, net of valuation allowance	620			599			677				681
Total current assets	204,053			215,296			179,862				198,990
Property and equipment, net	61,659			69,303			44,168				49,317
Deferred income taxes, net of valuation allowance	2,317			2,426			2,256				2,194
Other assets, net	46,336			46,727			44,999				43,888
TOTAL ASSETS	$	314,365		$	333,752		$	271,285			$	294,389
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Cash overdraft	$	0		$	3,993		$	2,167			$	5,714
Revolving credit facilities and current portion of long-term debt	30,568			44,042			35,091				34,312
Accounts payable	34,818			38,290			33,582				35,554
Accrued expenses and other current liabilities	47,364			50,018			63,887				61,369
Fair value of warrant liability	16,489			20,954			11,731				19,239
Income taxes payable	1,897			1,742			1,881				2,063
Deferred income tax liability, current	1,233			1,241			1,215				1,045
Current portion of capital lease obligations	1,186			1,709			3,007				2,978
Total current liabilities	133,555			161,989			152,561				162,274
Long-term debt (net of unamortized discount $5,475; $5,779)	215,797			213,468
Long-term debt (net of unamortized discount $5,771; $5,965)							233,621				217,388
Capital lease obligations, net of current portion	4,172			5,453			1,217				1,982
Deferred tax liability	546			536			191				200
Deferred rent, net of current portion	15,137			18,225			12,461				13,346
Other long-term liabilities	12,760			11,485			15,540				14,715
TOTAL LIABILITIES	381,967			411,156			415,591				409,905
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $0.0001 par value per-share: authorized 1,000 shares; none issued	0			0			0				0
Common stock, $0.0001 par value per-share: authorized 230,000 shares; Issued 175,537; 113,469, Outstanding 174,052; 111,330	17			11
Common stock, $0.0001 par value per-share: authorized 230,000 shares; Issued 176,682; 176,566, Outstanding 176,261; 176,194							18			��	18
Additional paid-in capital	216,537			185,472			218,866				218,779
Accumulated other comprehensive loss	(3,904		)	(4,306		)	(9,368		)		(6,915		)
Accumulated deficit	(278,095		)	(256,424		)	(351,665		)		(325,241		)
Less: Treasury stock, 304 shares at cost	(2,157		)	(2,157		)	(2,157		)		(2,157		)
TOTAL STOCKHOLDERS' DEFICIT	(67,602		)	(77,404		)	(144,306		)		(115,516		)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	314,365		$	333,752		$	271,285			$	294,389

See accompanying ~~condensed~~ notes to condensed consolidated financial statements.

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American Apparel, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except ~~per-share~~per share amounts)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014
Net sales	$	162,397		$	162,236		$	299,493		$	300,296		$	124,263		$	137,096
Cost of sales	80,010			78,366			145,132			143,558			76,801			65,122
Gross profit	82,387			83,870			154,361			156,738			47,462			71,974
Selling expenses	52,443			57,790			106,505			113,253
General and administrative expenses (including related party charges of $222; $227, $382; $444)	27,135			27,994			52,044			55,798
Selling and distribution expenses													45,472			54,062
General and administrative expenses (including related party charges of $155; $160)													24,862			24,909
Retail store impairment	229			0			728			78			58			499
Income (loss) from operations	2,580			(1,914		)	(4,916		)	(12,391		)
Loss from operations													(22,930		)	(7,496		)
Interest expense	10,019			8,220			20,058			19,434			9,781			10,039
Foreign currency transaction loss	0			158			132			871			625			132
Unrealized loss (gain) on change in fair value of warrants	8,202			(5,498		)	(4,465		)	18,147
Loss on extinguishment of debt	0			32,101			0			32,101
Other expense (income)	60			(11		)	52			(16		)
Unrealized gain on change in fair value of warrants													(7,508		)	(12,667		)
Other income													(141		)	(8		)
Loss before income taxes	(15,701		)	(36,884		)	(20,693		)	(82,928		)	(25,687		)	(4,992		)
Income tax provision	504			620			978			1,087			737			474
Net loss	$	(16,205	)	$	(37,504	)	$	(21,671	)	$	(84,015	)	$	(26,424	)	$	(5,466	)

Basic and diluted loss per-share	$	(0.09	)	$	(0.34	)	$	(0.14	)	$	(0.76	)
Weighted-average basic and diluted shares outstanding	173,643			110,241			152,987			110,080
Basic and diluted net loss per-share ^(a)													$	(0.15	)	$	(0.05	)
Weighted-average basic and diluted shares outstanding ^(a)													176,259			111,554

Net loss (from above)	$	(16,205	)	$	(37,504	)	$	(21,671	)	$	(84,015	)	$	(26,424	)	$	(5,466	)
Other comprehensive income (loss) items:
Other comprehensive loss items:
Foreign currency translation	873			(726		)	402			(2,230		)	(2,453		)	(471		)
Other comprehensive income (loss), net of tax	873			(726		)	402			(2,230		)
Other comprehensive loss, net of tax													(2,453		)	(471		)
Comprehensive loss	$	(15,332	)	$	(38,230	)	$	(21,269	)	$	(86,245	)	$	(28,877	)	$	(5,937	)

(a) The dilutive impact of incremental shares is excluded from loss position in accordance with U.S. generally accepted accounting principles ("GAAP")

See accompanying ~~condensed~~ notes to condensed consolidated financial statements.

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American Apparel, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers	$	295,135		$	297,293		$	127,242		$	136,815
Cash paid to suppliers, employees and others	(276,024		)	(305,435		)	(123,460		)	(130,984		)
Income taxes paid	(902		)	(724		)	(158		)	(403		)
Interest paid	(16,938		)	(5,067		)	(671		)	(1,521		)
Other	32			30			129			8
Net cash provided by (used in) operating activities	1,303			(13,903		)
Net cash provided by operating activities							3,082			3,915

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(7,087		)	(13,637		)	(1,120		)	(3,958		)
Proceeds from sale of fixed assets	29			30			0			30
Restricted cash	178			1,756
Net cash used in investing activities	(6,880		)	(11,851		)	(1,120		)	(3,928		)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft	(3,993		)	4,117			(3,547		)	(3,989		)
Repayments of expired revolving credit facilities, net	0			(28,513		)	0			(14,557		)
(Repayments) borrowings under current revolving credit facilities, net	(13,457		)	29,830
Repayments of term loans and notes payable	(53		)	(25,507		)
Repayment of Lion term loan	0			(144,149		)
Issuance of Senior Secured Notes	0			199,820
Borrowings under current revolving credit facilities, net							781			0
Borrowings (repayments) of term loans and notes payable							14,997			(50		)
Payments of debt issuance costs	(699		)	(11,651		)	(323		)	(372		)
Net proceeds from issuance of common stock	28,446			0			0			28,554
Payment of payroll statutory tax withholding on share-based compensation associated with issuance of common stock	(301		)	(2,119		)	0			(125		)
Repayments of capital lease obligations	(1,828		)	(1,081		)	(736		)	(137		)
Net cash provided by financing activities	8,115			20,747			11,172			9,324

Effect of foreign exchange rate on cash	(1,054		)	(502		)	(563		)	(1,304		)
Net increase (decrease) in cash	1,484			(5,509		)
CASH, beginning of period	8,676			12,853
CASH, end of period	$	10,160		$	7,344
Net increase in cash							12,571			8,007
Cash, beginning of period							8,343			8,676
Cash, end of period							$	20,914		$	16,683

See accompanying ~~condensed~~ notes to condensed consolidated financial statements.

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American Apparel, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2015			2014
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net loss	$	(21,671	)	$	(84,015	)	$	(26,424	)	$	(5,466	)
Depreciation and amortization of property and equipment, and other assets	13,418			12,417			5,332			6,715
Retail store impairment	728			78			58			499
Loss on disposal of property and equipment	76			15
Share-based compensation expense	2,658			6,816			103			1,115
Unrealized (gain) loss on change in fair value of warrants	(4,465		)	18,147
Unrealized gain on change in fair value of warrants							(7,508		)	(12,667		)
Amortization of debt discount and deferred financing costs	1,264			3,126			742			597
Loss on extinguishment of debt	0			32,101
Accrued interest paid-in-kind	2,078			4,653			1,062			1,030
Foreign currency transaction loss	132			871			625			132
Allowance for inventory shrinkage and obsolescence	818			1,346			(1,075		)	121
Bad debt expense	517			301			77			139
Deferred income taxes	108			39			24			0
Deferred rent	(3,141		)	(1,120		)	(912		)	(2,222		)
Changes in cash due to changes in operating assets and liabilities:
Trade accounts receivables	(4,876		)	(3,304		)	2,902			(420		)
Inventories							23,895			5,445
Prepaid expenses and other current assets	(107		)	(4,040		)	2,853			2,288
Inventories	18,118			(1,809		)
Other assets	(157		)	(3,737		)	(1,816		)	(235		)
Accounts payable	(2,560		)	(5,562		)	(1,636		)	2,424
Accrued expenses and other liabilities	(1,603		)	9,483			4,701			4,349
Income taxes receivable / payable	(32		)	291			79			71
Net cash provided by (used in) operating activities	$	1,303		$	(13,903	)
Net cash provided by operating activities							$	3,082		$	3,915

NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired, and included in accounts payable	$	628		$	2,767		$	77		$	1,040

See accompanying ~~condensed~~ notes to condensed consolidated financial statements.

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American Apparel, Inc. and Subsidiaries

~~Condensed~~ Notes to Condensed Consolidated Financial Statements

(in thousands, except ~~per-share~~per share amounts)

(unaudited)

Note 1. Organization and Business

American Apparel, Inc. ~~and~~including its subsidiaries (collectively the "Company") is a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel products and designs. The Company manufactures and sells clothing and accessories for women, men, children and babies. The Company sells its products through the wholesale distribution channel supplying t-shirts and other casual wear to distributors and screen printers, as well as ~~direct~~directly to customers through its retail stores located in the U.S. and internationally. In addition, the Company operates an online retail e-commerce website. At ~~June 30, 2014~~March 31, 2015, the Company operated a total of ~~247~~239 retail stores in 20 ~~countries;~~countries including the U.S.~~, Canada,~~ and 18 ~~other countries.~~Canada.

~~The~~ Company Highlights

Recent Developments - On ~~June 18, 2014, the Board of Directors suspended Dov Charney as President and Chief Executive Officer ("CEO") as well as Chairman of the Board of Directors.~~

~~In connection with the suspension of Mr. Charney,~~May 11, 2015, the Company ~~might be deemed~~anticipates to ~~have triggered~~announce that it has commenced a $10,000 "at-the-market" offering program. Under the program, the Company may, from time to time and at its discretion, offer and sell shares of its common stock having an ~~event~~aggregate gross sales price of ~~default under~~up to $10,000. The Company intends to use the ~~loan agreement (the "Lion Loan Agreement") with~~net proceeds generated through the program for working capital and general corporate purposes.

On March 6, 2015, a member appointed by Lion Capital LLP ("Lion")~~. On July 16, 2014, Lion assigned its rights and obligations as a lender under the Lion Loan Agreement to an entity affiliated with Standard General Group ("Standard General").~~

Standard General has waived any default under the Lion Loan Agreement that may have resulted or which might result from Mr. Charney not being the CEO of the Company and has agreed to amend the Lion Loan Agreement (the "Standard General Amendment").

~~In connection with a Nomination, Standstill and Support Agreement with Standard General and Mr. Charney dated July 9, 2014, five directors, including Mr. Charney,~~ resigned from the ~~Company's~~ Board of Directors (the "Board"), ~~effective as of August 2, 2014,~~ and ~~five new directors were appointed to~~on March 24, 2015, the Board ~~three of which were~~elected a member designated by ~~Standard General and two of which were appointed by the mutual agreement of Standard General and the Company.~~Lion to fill that vacancy.

Liquidity - As of ~~June 30, 2014~~March 31, 2015, the Company had ~~$10,160~~$20,914 in cash, $35,080~~$30,554~~outstanding on a ~~$50,000~~$50,000 asset-backed revolving credit facility with Capital One Business Credit Corp. ("Capital One" and such facility, the "Capital One Credit Facility") and ~~$16,891~~$11,179 of availability for additional borrowings. On May 6, 2015, the Company had $5,150 of availability for additional borrowings under the Capital One Credit Facility. On April 14, 2015, the Company paid $13,803 in interest on its senior secured notes (the "Notes").

InOn March ~~2014,~~25, 2015, the Company entered into the ~~Fifth~~Sixth Amendment to the Capital One Credit Facility ~~(the "Fifth~~("the Sixth Amendment") which (i) waived any defaults under the Capital One Credit Facility due to the failure to meet the obligation to maintain the maximum leverage ratio and minimum adjusted EBITDA required for the measurement periods ended December 31, 2014, as defined in the credit agreement, (ii) waived the obligation to maintain the minimum fixed charge coverage ~~and~~ratios, maximum leverage ratios and minimum adjusted EBITDA required for the ~~three~~twelve months ~~ended December 31, 2013 and~~ending March 31, ~~2014. Based on~~2015, (iii) included provisions to permit the ~~Fifth Amendment,~~Company to enter into the ~~interest rates on borrowings~~Standard General Credit Agreement (as defined below), (iv) reset financial covenants relating to maintaining minimum fixed charge coverage ratios, maximum leverage ratios and minimum adjusted EBITDA and (v) permitted the Company to borrow $15,000 under the Standard General Credit Agreement.

Standard General informed the Company that it entered into an agreement with Capital One that could result in it purchasing all of the loans and commitments outstanding under the Capital One Credit Facility ~~equal to LIBOR plus~~ ~~5.0%~~by September 30, 2015 or ~~the bank's prime rate plus~~ ~~4.0%~~ atearlier under certain other circumstances.

On March 25, 2015, one of the Company's option and are subject to specified borrowing requirements and covenants. In addition, the Fifth Amendment reset a minimum fixed charge coverage ratio, a maximum leverage ratio, and a maximum capital expenditures allowed, and added a minimum EBITDA covenant. For the three months ended ~~June 30, 2014~~subsidiaries borrowed $15,000 under an unsecured credit agreement with Standard General Group ("Standard General"), dated as of March 25, 2015 (the "Standard General Credit Agreement"). The Standard General Credit Agreement is guaranteed by the Company, ~~was required~~bears interest at 14% per annum, and will mature on October 15, 2020. The proceeds of such loan provided additional liquidity to ~~maintain a minimum fixed charge coverage ratio of not less than 0.85 to 1.00~~the Company as contemplated by the Nomination, Standstill and ~~achieve a minimum EBITDA of~~ ~~$9,000~~Support Agreement, dated July 9, 2014 (the "Standstill Agreement").

The Company ~~was in compliance with~~believes that it has sufficient financing commitments to meet funding requirements for the ~~covenant at~~ ~~June 30, 2014~~.next twelve months.

Management's Plan - In accordance with the Standstill Agreement, five new directors joined the Company in August 2014. Subsequently, the Board hired new senior management, including the Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), and General Counsel, as well as other additions to the management team. Together, the new board of directors and new management team are focused on implementing a turnaround strategy and enhancing the Company's corporate governance policies and practices. The Company ~~continues~~has started implementing additional operational and financial processes and disciplines to ~~develop initiatives intended to increase sales, reduce costs or~~ improve ~~liquidity. Beginning with the fourth quarter of 2013,~~liquidity and profitability. To that end, the Company ~~instituted various programs~~added new members to ~~reduce costs such as payroll~~the executive team in the areas of planning and ~~related costs associated with manufacturing~~forecasting, operations, marketing, merchandising planning, product development and ~~administrative overhead.~~e-commerce. The ~~Company also limited capital expenditures starting the first quarter of 2014. In addition, the~~ Company continues to drive productivity ~~improvements~~ from its ~~new~~ distribution center, reduce inventory, ~~reductions, other~~reduce labor ~~cost reductions,~~costs, and ~~consolidation of~~consolidate its administrative and manufacturing functions. ~~Efforts~~Additionally, new members were added to ~~identify additional ways to reduce costs~~the legal and ~~improve productivity are ongoing.~~human resources departments and the Company has introduced a new code of ethics.

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Although the Company has made ~~significant improvements~~progress under these programs, the Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. The Company's cash flows are dependent upon meeting future sales growth projections and reducing certain expenses. Accordingly, there can be no assurance that the Company's planned operational improvements will be successful.

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Note 2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The condensed consolidated financial statements include the accounts of American Apparel, Inc. and its 100% owned subsidiaries. The condensed consolidated financial statements have been prepared in accordance with ~~U.S. generally accepted accounting principles ("GAAP")~~GAAP for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. All intercompany balances and transactions have been eliminated upon consolidation.

The financial data of the Company included herein is unaudited. The condensed consolidated financial statements do not contain certain information that was included in the annual financial statements included in the Company's Annual Report on Form 10-K for the year ended December ~~13, 2013.~~31, 2014. Readers are urged to review the Company's Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 as well as other publicly filed documents for more complete descriptions and discussions. In the opinion of management, the condensed consolidated financial statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company's financial position, the results of operations, and cash flows for the periods presented. The operating results and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

~~All intercompany balances and transactions have been eliminated upon consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.~~

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates include: revenue recognition, inventory valuation and obsolescence; valuation and recoverability of long-lived assets, including the values assigned to goodwill, intangible assets, and property and equipment; fair value calculations, including derivative liabilities; contingencies, including accruals for the outcome of current litigation and assessments and self-insurance; and income taxes, including uncertain income tax positions and recoverability of deferred income taxes and any limitations as to net operating losses ("NOL")~~; and cash flow projections in assessing future performance related to financial standards requiring a prospective analysis in valuing and classifying assets and liabilities.~~. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash (the amounts of which may, at times, exceed Federal Deposit Insurance Corporation limits on insurable amounts) and trade accounts receivable (including credit card receivables) relating substantially to the Company's U.S. Wholesale segment. Cash is managed within established guidelines, and the Company mitigates its risk by investing through major financial institutions. The Company had approximately ~~$7,843~~$19,665 and $~~7,374~~6,361 held in foreign banks at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014, respectively.

Concentration of credit risk with respect to trade accounts receivable is limited by performing on-going credit evaluations of its customers and adjusting credit limits based upon payment history and the customer's current credit worthiness. The Company also maintains an insurance policy for certain customers based on a customer's credit rating and established limits. Collections and payments from customers are continuously monitored. ~~As of June 30, 2014,~~ ~~two~~Two customers in the Company's U.S. Wholesale segment combined accounted for ~~18.5%~~ ~~and 10.3%~~36.0% of ~~the Company's~~its total trade accounts ~~receivable. As~~receivable as of ~~December~~March 31, ~~2013, one~~2015. One customer in the Company's U.S. Wholesale segment combined accounted for ~~14.2%~~16.6% of ~~the Company’s~~its total trade accounts ~~receivable.~~receivable as of December 31, 2014. The Company maintains an allowance for doubtful accounts which is based upon historical experience and specific customer collection issues that have been identified. While bad debt expenses have historically been within expectations and allowances established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past.

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Fair Value Measurements

The financial instruments recorded in the consolidated balance sheets include cash, trade accounts receivable (including credit card receivables), accounts payable, revolving credit facilities, senior secured notes, term loans and warrants. Due to their short-term maturity, the carrying values of cash, trade accounts receivables, and accounts payable ~~and accrued expenses~~ approximate their fair market values. In addition, the carrying amount of the revolving credit facility from Capital One approximates its fair value because of the variable market interest rate charged to the Company.

The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price. Accordingly, when market observable data is not readily available, the Company's own assumptions are used to reflect those that market participants would be presumed to

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use in pricing the asset or liability at the measurement date. Assets and liabilities recorded on the consolidated balance sheets at fair value are categorized based on the level of judgment associated with inputs used to measure their fair value and the level of market price observability, as follows:

Level 1 – Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date.

Level 2 – Pricing inputs are other than unadjusted quoted prices in active markets, which are based on the following:

•Quoted prices for similar assets or liabilities in active markets;

•Quoted prices for identical or similar assets or liabilities in non-active markets; or

•Either directly or indirectly observable inputs as of the reporting date.

Level 3 – Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation. The valuation policies and procedures underlying are determined by the Company's accounting and finance team and are approved by the ~~Chief Financial Officer.~~CFO.

In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.

The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer.

As of ~~June 30, 2014~~March 31, 2015, there were no transfers between Levels 1, 2, and 3 of the fair value hierarchy.

Summary of Significant Valuation Techniques

Level 2 Measurements:

Senior secured notes: Estimated based on quoted prices for identical senior secured notes in non-active market.

Level 3 Measurements:

Term ~~notes (Lion Loan Agreement)~~loans: Estimated using a projected discounted cash flow analysis based on unobservable inputs including principal and interest payments and discount rate. A yield rate was estimated using yields rates for publicly traded debt instruments of comparable companies with similar features. An increase or decrease in the stock price and the discount rate assumption can significantly decrease or increase the fair value of team loans. See Note 8.

Warrants: Estimated using the Binomial Lattice option valuation model. Significant observable and unobservable inputs include stock price, exercise price, annual risk free rate, term, and expected volatility. An increase or decrease in these inputs could significantly increase or decrease the fair value of the warrant. See Notes 8 and 11.

Indefinite-lived assets - goodwill: Estimated using a projected discounted cash flow analysis based on unobservable inputs including gross profit, discount rate, working capital requirements, capital expenditures, depreciation and terminal value assumptions. An increase or decrease in the discount rate assumption and/or the terminal value assumption, in isolation, can have a significant effect on the fair value of the reporting unit.

Retail stores: Estimated using a projected discounted cash flow analysis based on unobservable inputs including gross profit and discount rate. The key assumptions used in the estimates of projected cash flows were sales, gross margins, and payroll costs.

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These forecasts were based on historical trends and take into account recent developments as well as the Company's plans and intentions. An increase or decrease in the discount rate assumption and/or projected cash flows, in isolation, can significantly decrease or increase the fair value of the assets, which would have an effect on the impairment recorded.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of its assets and liabilities, and are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined that such amounts will more likely than not go unrealized. Significant weight is given to evidence that can be objectively verified. The determination to record a valuation allowance is based on the recent history of cumulative losses and current operating performance and includes an assessment of the degree to which any losses are driven by items that are unusual in nature or incurred to improve future profitability. In addition, the Company reviews changes in near-term market conditions and any other factors arising during the period which may impact its future operating

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results. If it becomes more likely than not that a tax asset will be realized, any related valuation allowance of such assets would be reversed.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. Management believes that adequate provisions have been made for all years, but the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company's tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs.

The Company's foreign domiciled subsidiaries are subject to foreign income taxes on earnings in their respective jurisdictions. The Company elected to have its foreign subsidiaries, except for its subsidiaries in Brazil, Canada, China, Ireland, Italy, South Korea, and Spain, consolidated in the Company's U.S. federal income tax return. The Company is generally eligible to receive tax credits on its U.S. federal income tax return for most of the foreign taxes paid by the Company's subsidiaries included in the U.S. federal income tax return.

For financial statement purposes, the Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company's measurement of its expected tax benefits is recognized in its financial statements. Gross unrecognized tax benefits are included in current liabilities in the consolidated balance sheets, and interest and penalties on unrecognized tax benefits are recorded in the income tax provision in the consolidated statements of operations.

Recently Issued Accounting Standards ~~Updates~~

In ~~June 2014,~~April 2015, the Financial Accounting Standards Board ("FASB") issued a new standard ~~on accounting~~that requires an entity to determine whether a cloud computing arrangement contains a software license. If the arrangement contains a software license, the entity would account for ~~share-based payments. The new standard clarifies that entities should treat performance targets that can be met after~~ the requisite service period of a share-based payment award as performance conditions that affect vesting. As such, the performance target should not be reflected in estimating the grant date fair value of the award. The new standard also clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributablefees related to the ~~period~~software license element in a manner consistent with how the acquisition of other software licenses is accounted for. If the arrangement does not contain a software license, the customer would account for ~~which~~ the ~~requisite~~arrangement as a service ~~has already been rendered.~~contract. The new standard will be effective for fiscal years ~~and interim periods within those fiscal years,~~ beginning after December 15, ~~2015. Early adoption is permitted. The Company is in the process of evaluating the impact of adoption on the Company's condensed consolidated financial statements.~~

In May 2014, the FASB issued a new standard on recognizing revenue in contracts with customers. The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The new standard creates a five-step process to recognize revenue that requires entities to exercise judgment when considering contract terms and relevant facts and circumstances. The new standard also requires expanded disclosures surrounding revenue recognition. The new standard will be effective for fiscal years2015, and interim periods ~~within those~~in fiscal years beginning after December 15, 2016. The Company is in the process of evaluating the impact of adoption on the Company's ~~condensed~~consolidated financial statements.

In April 2015, the FASB issued a new standard on simplifying the presentation of debt issuance costs. The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this new standard. The new standard will be effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company is in the process of evaluating the impact of adoption on the Company's consolidated financial statements.

Other recently issued accounting standards are not expected to have a material effect on the Company's ~~condensed~~ consolidated financial statements.

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Note 3. Inventories

The components of inventories are as follows:


	June 30, 2014			December 31, 2013			March 31, 2015			December 31, 2014
Raw materials	$	18,580		$	23,199		$	16,131		$	17,738
Work in process	3,084			2,596			3,279			2,805
Finished goods	132,693			146,361			111,007			135,813
	154,357			172,156			130,417			156,356
Less reserve for inventory shrinkage and obsolescence	(3,606		)	(2,778		)	(7,664		)	(8,778		)
Total, net of reserves	$	150,751		$	169,378		$	122,753		$	147,578

Inventories consist of material, labor, and overhead, and are stated at the lower of cost or market. Cost is primarily determined on the first-in, first-out (FIFO) method. ~~For the three and six months ended June 30, 2014 and~~ ~~2013~~, noNo supplier provided more than 10% of the Company's raw material ~~purchases.~~purchases as of March 31, 2015 and December 31, 2014.

The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors and records lower of cost or market reserves for such identified excess and slow-moving inventories. The Company ~~had a lower of cost or market reserve for excess and slow-moving inventories of~~ ~~$1,928~~ ~~and~~ ~~$1,951~~ at ~~June 30, 2014~~ ~~and~~ ~~December 31, 2013, respectively.~~

~~The Company~~also establishes ~~a reserve~~reserves for inventory shrinkage for each of its retail locations and warehouse based on the historical results of physical inventory cycle counts.

The Company had a lower of cost or market reserves for excess and slow-moving inventories of $6,653 and $6,684 at March 31, 2015 and December 31, 2014, respectively. As part of its valuation analysis of inventory, the Company identified certain slow-moving, second quality finished goods and raw materials inventory for additional reserves in the fourth quarter of 2014. Inventory shrinkage reserves were ~~$1,678~~$1,011 and ~~$827~~$2,094 as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~,2014, respectively.

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Note 4. Property and Equipment

Depreciation and amortization expense relating to property and equipment (including capitalized leases) is recorded in cost of sales and general and administrative expenses in the consolidated statements of operations. Depreciation and amortization expenses were ~~$6,703~~$5,332 and ~~$6,386~~$6,715 for the three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013, respectively, and $13,418 and $12,417 for the six months ended June 30, 2014 and 2013,~~ respectively.

Based on ~~the Company's~~its retail store impairment analysis, itthe Company recorded impairment charges of ~~$229~~$58 and $0$499 for the three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013, respectively, and $728 and $78 for the six months ended June 30, 2014 and 2013, respectively.~~2014.

Note 5. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities are as follows:


	June 30, 2014		December 31, 2013		March 31, 2015		December 31, 2014
Compensation, bonuses and related taxes	$	8,865	$	11,773	$	13,466	$	13,026
Accrued interest	5,842		6,064		13,239		5,932
Workers' compensation and other self-insurance reserves (Note 14)	6,623		6,383		7,164		6,760
Sales, value and property taxes	2,002		3,868
Taxes and duties					4,263		6,102
Gift cards and store credits	6,600		7,391		7,266		8,462
Loss contingencies	2,479		1,177		1,753		2,360
Deferred revenue	578		1,258		948		962
Deferred rent	3,385		3,363		3,016		3,422
Other	10,990		8,741		12,772		14,343
Total accrued expenses and other current liabilities	$	47,364	$	50,018	$	63,887	$	61,369

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Note 6. Revolving Credit Facilities and Current Portion of Long-Term Debt

The following table presents revolving credit facilities and current portion of long-term debt:


	Lender	Expiration	June 30, 2014		December 31, 2013		Lender	Expiration	March 31, 2015		December 31, 2014
Revolving credit facility	Capital One	April 14, 2018	$	30,554	$	43,526	Capital One	April 14, 2018	$	35,080	$	34,299
Revolving credit facility	Bank of Montreal	March 31, 2014	0		443
Current portion of long-term debt			14		73				11		13
Total			$	30,568	$	44,042			$	35,091	$	34,312

The Company incurred interest ~~charges~~expense of ~~$10,019~~$9,781 and ~~$8,220~~$10,039 for the three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013, respectively, and $20,058 and $19,434 for the six months ended June 30, 2014 and 2013,~~ respectively, for all outstanding borrowings. The ~~interest charges~~interests subject to capitalization were not significant for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013.~~2014.

Revolving Credit Facility - Capital One

InThe Company had $35,080 and $34,299 outstanding on a $50,000 asset-backed revolving credit facility with Capital One as of March 31, 2015 and December 31, 2014, ~~the Company entered into the Fifth Amendment to the~~respectively. The amount available for additional borrowings on March 31, 2015 was $11,179. The Capital One Credit Facility ~~which waived~~matures on April 14, 2018 and is subject to a January 15, 2018 maturity if excess availability is less than $15,000 at the ~~obligation~~time of notice to ~~maintain~~Capital One that an "applicable high yield discount obligation" redemption will be required pursuant to Section 3.01(e) of the ~~minimum fixed charge coverage and maximum leverage ratios for~~Indenture governing the ~~three months ended December 31, 2013 and March 31, 2014. Based on the Fifth Amendment, the~~Notes. The interest rates on borrowings under the Capital One Credit Facility are equal to LIBOR plus 5.0% or the bank's prime rate plus 4.0% at the Company's option and are subject to specified borrowing requirements and covenants. ~~In addition,~~

On March 25, 2015, the ~~Fifth~~Company entered into the Six Amendment ~~reset a~~which (i) waived any defaults under the Capital One Credit Facility due to the failure to meet the obligation to maintain the maximum leverage ratio and minimum adjusted EBITDA required for the measurement periods ended December 31, 2014, as defined in the credit agreement, (ii) waived the obligation to maintain the minimum fixed charge coverage ~~ratio, a~~ratios, maximum leverage ~~ratio,~~ratios and ~~a maximum capital expenditures allowed and added a~~ minimum adjusted EBITDA ~~covenant. For~~required for the ~~three~~twelve months ended ~~June 30, 2014~~,March 31, 2015, (iii) included provisions to permit the Company ~~was required~~ to ~~maintain a~~enter into the Standard General Credit Agreement, (iv) reset financial covenants relating to maintaining minimum fixed charge coverage ~~ratio~~ratios, maximum leverage ratios and minimum adjusted EBITDA and (v) permitted the Company to borrow $15,000 under the Standard General Credit Agreement.

Standard General informed the Company that it entered into an agreement with Capital One that could result in it purchasing all of ~~not less than 0.85 to 1.00~~the loans and ~~achieve a minimum EBITDA of~~ ~~$9,000. The Company was in compliance with~~commitments outstanding under the ~~covenants at~~ ~~June~~Capital One Credit Facility by September 30, ~~2014~~.2015 or earlier under certain other circumstances.

The Capital One Credit Facility is secured by a lien on substantially all of the assets of the Company's domestic subsidiaries and equity interests in certain of the Company's foreign subsidiaries, subject to some restrictions. It requires that the Company maintain a lockbox arrangement and contains certain subjective acceleration clauses. In addition, Capital One may adjust the advance restriction and criteria for eligible inventory and accounts receivable at its discretion. The Capital One Credit Facility contains cross-default provisions whereby an event of default under the Senior Notes Indenture (the "Indenture") or other indebtedness, in each case of an amount greater than a specified threshold, would cause an event of default under the Capital One Credit Facility. As of ~~June 30, 2014,~~March 31, 2015, the Company had ~~$1,230~~$1,080 of outstanding letters of credit secured against the Capital One Credit Facility.

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~~The Company had~~ ~~$30,554~~ ~~and~~ ~~$43,526~~ ~~outstanding on a~~ ~~$50,000~~ ~~asset-backed revolving credit facility with Capital One as of~~ ~~June 30, 2014~~ ~~and December 31, 2013, respectively. The amount available for additional borrowings on June 30, 2014 was~~ ~~$16,891. The Capital One Credit Facility matures on~~ ~~April 14, 2018~~ ~~and is subject to a~~ ~~January 15, 2018~~ ~~maturity if excess availability is less than~~ ~~$15,000~~ at the time of notice to Capital One that an Applicable High Yield Discount Obligation redemption will be required pursuant to Section 3.01(e) of the Indenture governing the Notes (as defined in Note 7).

~~Revolving Credit Facility - Bank of Montreal~~

The Company's 100% owned Canadian subsidiaries had a revolving credit facility with Bank of Montreal. Outstanding amounts under this credit facility were repaid, and the agreement expired on March 31, 2014.

Note 7. Long-Term Debt

Long-term debt consists of the following:


	June 30, 2014			December 31, 2013			March 31, 2015			December 31, 2014
Senior Secured Notes due 2020 ^(a)	$	205,647		$	203,265		$	209,315		$	208,084
Lion Loan Agreement ^(b)	9,865			9,865
Standard General Loan Agreement ^(b)							9,074			9,049
Standard General Credit Agreement							15,000			0
Other	299			411			243			268
Total long-term debt	215,811			213,541			233,632			217,401
Current portion of debt	(14		)	(73		)	(11		)	(13		)
Long-term debt, net of current portion	$	215,797		$	213,468		$	233,621		$	217,388

______________________

(a) Includes accrued interest paid in-kind of ~~$5,122~~$8,295 and ~~$3,044~~$7,233 and net of unamortized discount of ~~$5,475~~$4,980 and ~~$5,779~~$5,149 at March 31, 2015 and December 31, 2014, respectively.

(b) Net of unamortized discount of $791 and $816 at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, respectively.

~~(b) Includes accrued interest paid in-kind of $365 at both~~ ~~June 30, 2014~~ ~~and December 31, 2013.~~

Senior Secured Notes due 2020

OnThe Company has outstanding Notes issued at 97% of the $206,000 par value on April 4, ~~2013, the Company issued the senior secured notes (the "Notes") in an aggregate principal amount of~~ ~~$206,000~~ at ~~97%~~ ~~of par value.~~2013. The Notes mature on April 15, 2020 and bear interest at 15% per annum, of which 2% is payable in-kind until April 14, 2018 and in cash on subsequent interest dates. Interest on the Notes, of approximately ~~$13,500~~$13,900 per payment period in ~~2014~~2015, is payable semi-annually, in arrears, on April 15 and October ~~15 of each year, beginning on October 15, 2013.~~15. On April 14, ~~2014,~~2015, the Company paid ~~$13,390~~$13,803 in interest on the Notes.

On or after April 15, 2017, the Company may, at its option, redeem some or all of the Notes at a premium, decreasing ratably over time to zero as specified in the Indenture, plus accrued and unpaid interest to, but not including, the redemption date. Prior to April 15, 2017, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Notes with the net cash proceeds of certain equity offerings at a redemption price of 113% of the aggregate principal amount of the redeemed notes plus accrued and unpaid interest to, but not including, the redemption date. In addition, at any time prior to April 15, 2017, the Company may, at its option, redeem some or all of the Notes by paying a "make whole" premium, plus accrued and unpaid interest to, but not including, the redemption date. If the Company experiences certain change of control events, the holders of the Notes will have the right to require the Company to purchase all or a portion of the Notes at a price in cash equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest to, but not including, the date of purchase. In addition, the Company is required to use the net proceeds of certain asset sales, if not used for specified purposes, to purchase some of the Notes at 100% of the principal amount, plus accrued and unpaid interest to, but not including, the date of purchase. On each interest payment date after April 4, 2018, the Company will be required to redeem, for cash, a portion of each Note then outstanding equal to the amount necessary to prevent such Note from being treated as an "applicable high yield discount obligation" within the meaning of the Internal Revenue Code. The redemption price will be 100% of the principal amount plus accrued and unpaid interest thereon on the date of redemption.

The Notes are guaranteed, jointly and severally, on a senior secured basis by the Company's existing and future domestic subsidiaries. The Notes and the related guarantees are secured by a first-priority lien on the Company's and its domestic subsidiaries' assets (other than the Credit Facility Priority Collateral, as defined below, subject to some exceptions and permitted liens). The Notes and the related guarantees also are secured by a second-priority lien on all of Company's and its domestic subsidiaries' cash, trade accounts receivable, inventory and certain other assets (collectively, the "Credit Facility Priority Collateral"), subject to certain exceptions and permitted liens. The Notes and the guarantees, respectively, rank equal in right of payment with the Company's and its domestic subsidiaries' senior indebtedness, including indebtedness under the Capital One Credit Facility, before giving effect to collateral arrangements.

The Notes impose certain limitations on the ability of the Company and its domestic subsidiaries to, among other things, and subject to a number of important qualifications and exceptions, incur additional indebtedness or issue disqualified capital stock

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or preferred stock (with respect to restricted subsidiaries), grant liens, make payments in respect of their capital stock or certain indebtedness, enter into transactions with affiliates, create dividend or other payment restrictions affecting subsidiaries, merge or consolidate with any other person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. The Company must annually report to the trustee on compliance with such limitations. The Notes also contain cross-default provisions whereby a payment default or acceleration of any indebtedness in an aggregate amount greater than a specified threshold would cause an event of default with respect to the Notes.

As of ~~June 30, 2014~~March 31, 2015, the Company was in compliance with the required covenants of the Indenture.

~~Lion~~

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Standard General Loan Agreement

The term loans under the Lion Loan Agreement are scheduled to mature on October 4, 2018 and bear interest at 20% per annum. Interest under the Lion Loan Agreement is payable in cash or in-kind. The interest was being paid in cash.

On July 7, 2014, Lion issued a notice of acceleration to the Company under the Lion Loan Agreement as a result of the Board of Directors' decision to suspend Mr. Charney as CEO of the Company (see Note 1). The notice accelerated and declared the amounts outstanding under the Lion Loan Agreement and any accrued interest immediately due and payable. On July 14, 2014, Lion issued a notice rescinding the notice of accelerations.

~~In connection with the suspension of Mr. Charney, the Company might be deemed to have triggered an event of default under the loan agreement (the "Lion Loan Agreement") with Lion Capital LLP ("Lion").~~ On July 16, 2014, Lion assigned its rights and obligations as a lender ~~under the Lion Loan Agreement~~ to an entity affiliated with Standard General ~~Group ("Standard General"~~(the "Standard General Loan Agreement"). On September 8, 2014, the Company entered into an amendment of the Standard General ~~has waived any default~~Loan Agreement to lower the applicable interest rate to 17%, extend the maturity to April 15, 2021, and make certain other technical amendments. The principal amount of the term loan is $9,865. Interest under the ~~Lion~~loan agreement is payable quarterly in cash or, to the extent permitted by the Company's other debt agreements, in-kind.

Standard General Credit Agreement

On March 25, 2015, as contemplated by the Standstill Agreement, one of the Company's subsidiaries borrowed $15,000 under the Standard General Credit Agreement. The Standard General Credit Agreement is guaranteed by the Company, bears interest at 14% per annum, and will mature on October 15, 2020. Interest under the credit agreement is payable quarterly in cash or, to the extent permitted by the Company's other debt agreements, in-kind.

The Standard General Credit Agreement contains customary defaults, including cross event of default to the Notes and the Standard General Loan Agreement ~~that may have resulted or which might result from Mr. Charney not being~~and cross acceleration to other indebtedness above a threshold amount.

If the ~~CEO~~Company experiences certain change of control events, the Company is required to offer to prepay the Standard General Credit Agreement at 101% of the outstanding principal amount plus accrued and unpaid interest on the date of the prepayment. The Company ~~and has agreed~~will be required to ~~amend~~prepay loans under the ~~Lion Loan Agreement.~~

.Standard General Credit Agreement to the extent necessary to avoid the loan being characterized as an "applicable high yield discount obligation" within the meaning of the Internal Revenue Code by June 30, 2020.

Note 8. Fair Value of Financial Instruments

The Company's financial instruments at fair value are measured on a recurring basis. Related unrealized gains or losses are recognized in unrealized ~~loss (gain)~~gain on change in fair value of warrants in the consolidated statements of operations. For additional disclosures regarding methods and assumptions used in estimating fair values of these financial instruments, see Note 2.

The following tables present carrying amounts and fair values of the Company's financial instruments as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. The Company did not have any assets or liabilities categorized as Level 1 as of ~~June 30, 2014~~March 31, 2015.


		June 30, 2014					March 31, 2015
		Carrying Amount		Fair Value			Carrying Amount		Fair Value
Senior Secured Notes due 2020	Level 2 Liability	$	205,647	$	198,018	Level 2 Liability	$	209,315	$	217,164
Lion Loan Agreement	Level 3 Liability	9,865		9,372
Standard General Loan Agreement						Level 3 Liability	9,074		9,790
Standard General Credit Agreement						Level 3 Liability	15,000		15,000
Lion Warrant	Level 3 Liability	(a)		16,489		Level 3 Liability	(a)		11,731
		$	215,512	$	223,879		$	233,389	$	253,685

		December 31, 2013					December 31, 2014
		Carrying Amount		Fair Value			Carrying Amount		Fair Value
Senior Secured Notes due 2020	Level 2 Liability	$	203,265	$	191,065	Level 2 Liability	$	208,084	$	211,538
Lion Loan Agreement	Level 3 Liability	9,865		9,773
Standard General Loan Agreement						Level 3 Liability	9,049		8,868
Lion Warrant	Level 3 Liability	(a)		20,954		Level 3 Liability	(a)		19,239
		$	213,130	$	221,792		$	217,133	$	239,645

______________________

(a) No cost is associated with these liabilities (see Note 11).

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The following table presents a summary of changes in fair value of the ~~activity of Level~~Lion Warrant (Level 3 ~~inputs measured~~financial liabilities) which are marked to market on a recurring basis:


	Three Months Ended June 30,					Six Months Ended June 30, 2014					Three Months Ended March 31,
	2014		2013			2014			2013		2015			2014
Beginning balance	$	8,287	$	40,886		$	20,954		$	17,241	$	19,239		$	20,954
Adjustments included in earnings ^(a)	8,202		(5,498		)	(4,465		)	18,147		(7,508		)	(12,667		)
Balance at June 30,	$	16,489	$	35,388		$	16,489		$	35,388
Balance at March 31											$	11,731		$	8,287

______________________

(a) The amount of total gains or losses for the period attributable to the change in unrealized gains or losses relating to liabilities held at the reporting date. The unrealized gains or losses are recorded in unrealized ~~loss (gain)~~gain on change in fair value of warrants in the consolidated statements of operations.

At ~~June 30, 2014~~March 31, 2015, the Company did not have any nonrecurring fair value measurements of nonfinancial assets or nonfinancial liabilities.

Note 9. Income Taxes

Income taxes for the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~ were computed using an effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management.

The Company incurred losses from operations for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013.~~2014. Based upon these results and the recent history of cumulative losses for the prior three years, as well as trends in the Company's performance projected through ~~2014,~~2015, the Company's management believes that it is more likely than not deferred tax assets in certain jurisdictions are not fully realizable. Accordingly, the Company will not record any income tax benefits in the condensed consolidated financial statements until it is determined that the Company will generate sufficient taxable income in the respective jurisdictions to realize the deferred income tax assets. As a result of the analysis, the Company determined that a full valuation allowance against the net deferred tax assets in certain jurisdictions, primarily in the U.S., and partial valuation allowances in certain foreign jurisdictions, is required.

The ~~Internal Revenue Code, Section 382, as amended, imposes annual limitation on the utilization of NOL carryforwards, other tax carryforwards, and certain built-in losses upon an ownership change. The~~ Company ~~performed an analysis determining it was more likely than not that an ownership change had not occurred through December 31, 2013, and accordingly, NOL carryforwards through such date are not~~is subject to an annual Section 382 limitation. On March 31, 2014, the Company completed a public offering of 61,645 shares of its common stock. On June 25, 2014 Standard General entered into an agreement with Mr. Charney to purchase shares of the Company's common stockU.S. federal income tax as well as income tax in multiple state and then loan Mr. Charney the funds necessary to acquire those shares from Standard General. On June 27, 2014, Standard General sold 27,351 shares of the Company's common stock to Mr. Charney. As of June 30, 2014, the Company has not completed an analysis whether an ownership change occurred under Section 382, which, if it did occur, could substantially limit its ability in the future to utilize its NOLs and other tax carryforwards.

~~The Internal Revenue Service completed its audit on the Company's tax year 2011, and there was no assessment.~~foreign jurisdictions. Tax years that remain subject to ~~audits~~examination by the Internal Revenue Service are 2012 through ~~2013.~~2014. The Company's state and foreign tax returns are open to audit ~~under similar statute of limitations~~ for the calendar years ~~2008~~2009 through ~~2013.~~2014.

Note 10. Related Party Transactions

Personal Guarantees by Mr. Charney

As of ~~June 30, 2014~~,March 31, 2015, Mr. Charney ~~had~~ personally guaranteed the Company's obligations ~~of the Company~~ under ~~three~~two property leases aggregating ~~$10,130~~ ~~in obligations. Additionally, Mr. Charney had personally guaranteed the obligations of the Company with~~ ~~three~~ ~~vendors aggregating~~ ~~$1,970. The personal guarantees will expire on December 31, 2014.~~$4,446.

Lease Agreement ~~Between~~between the Company and a Related Party

The Company ~~is party to~~has an operating lease expiring in November 2016 for its knitting facility with American Central Plaza LLC, which is partially owned by Mr. Charney and Marty Bailey, the Company's Chief Manufacturing ~~Officer ("CMO").~~Officer. Mr. Charney holds an 18.75% ownership interest in American Central Plaza LLC while ~~the CMO~~Mr. Bailey holds a 6.25% interest. The remaining members of American Central Plaza LLC are not affiliated with the Company. Rent expenses (including property taxes and insurance payments) related to this lease were ~~$207~~$155 and ~~$155~~$104 for ~~the~~ three months ended March 31, 2015 and 2014, respectively.

Agreements between Mr. Charney and Standard General

As of March 31, 2015, Mr. Charney owned 42.3% of the Company's outstanding common stock, and Mr. Charney and Standard General collectively controlled the right to vote such common stock as described below.

On June ~~30,~~25, 2014, Mr. Charney entered into a letter agreement with Standard General in which, if Standard General was able to acquire at least 10% of the Company's outstanding shares, Standard General would loan Mr. Charney the funds needed for him to purchase those acquired shares from Standard General (the "SG-Charney Loan"). Between June 26, 2014 and ~~2013, respectively,~~June 27, 2014, Standard General acquired 27,351 of the Company's outstanding shares, and ~~$311~~Mr. Charney purchased those shares at a price of $0.715 per share using the proceeds from the SG-Charney Loan. According to Mr. Charney's Schedule 13D/A, dated June 25, 2014, the loan bears interest at 10% per annum, payable in-kind and ~~$310 for~~matures on July 15, 2019, with no prepayment penalty. The loan is collateralized by the ~~six months ended June 30, 2014 and 2013, respectively.~~newly acquired shares as well as by Mr. Charney's original shares of the Company's outstanding common stock.

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~~Payments~~According to ~~Morris Charney~~

~~Morris Charney ("~~Mr. ~~M. Charney") is the father of~~Charney's Schedule 13D/A, dated June 25, 2014, on July 9, 2014, Mr. Charney and ~~served~~Standard General, on behalf of one or more of its funds, entered into a cooperation agreement (the "Cooperation Agreement"), which provides, among other things, that neither Mr. Charney nor Standard General will vote the common stock owned by Mr. Charney except in a manner approved by the parties in writing, except that, notwithstanding the terms of the Standstill Agreement, Mr. Charney may vote certain of his shares in favor of his own election to the Board and may vote all of such shares pursuant to the Investment Voting Agreement, dated March 13, 2009. In the Standstill Agreement, however, Mr. Charney agreed not to serve as a director of American Apparel Canada Wholesale Inc. and a director of American Apparel Canada Retail Inc until June 28, 2014. Day to day operations of these two Canadian subsidiaries are handled by their management and employees, none of whom performs any policy making functions for the Company. ~~Management~~In addition, Mr. Charney agreed to enter into warrant agreements with Standard General that would give Standard General the right exercisable, on or prior to July 15, 2017, to purchase from Mr. Charney 32,072 shares (consisting of ~~American Apparel sets~~ the ~~policies~~27,351 shares purchased by using the proceeds from the SG-Charney Loan and 10% of Mr. Charney's 47,209 original shares).

Warrants held by Lion

See Note 11 for ~~American Apparel and its subsidiaries as~~ a ~~whole. Mr. M. Charney did not perform any policy making functions for~~description of the warrants issued by the Company or any of its subsidiaries. Instead, Mr. M. Charney only provided architectural consulting services primarily for stores located in Canada. Mr. M. Charney was paid architectural consulting and director fees amounting to ~~$15~~ ~~and $72 for the three months ended June 30, 2014 and 2013, respectively, and $71 and $134 for the six months ended June 30, 2014 and 2013, respectively.~~Lion.

Loans held by Standard General

See Note 7 for a description of ~~loans made by Lion~~the Standard General Loan Agreement assigned to Standard General on July 16, 2014 and Standard General Credit Agreement between the Company and ~~Note 11 for a description of warrants issued by the Company to Lion.~~Standard General in March 2015.

Note 11. Stockholders' Deficit

~~Public~~Rights Plan

On December 21, 2014, the Board adopted a stockholders rights plan, as amended (the "Rights Plan"). Under the Rights Plan, the Company declared a dividend of one preferred share purchase right for each share of its common stock held by shareholders of record as of January 2, 2015. Each right entitles the registered holder to purchase from the Company a unit consisting of one ten-thousandth of a share (a "Unit") of Series B Junior Participating Preferred Stock, par value $0.0001 per share, at a purchase price of $3.25 per Unit, subject to adjustment.

At-The-Market Offering

On ~~March 31, 2014,~~May 11, 2015, the Company ~~completed~~anticipates to announce that it has commenced a ~~public~~$10,000 "at-the-market" offering ~~of approximately 61,645~~program. Under the program, the Company may, from time to time and at its discretion, offer and sell shares of its common stock ~~at $0.50 per share for~~having an aggregate gross sales price of up to $10,000. The Company intends to use the net proceeds ~~of $28,446.~~generated through the program for working capital and general corporate purposes.

Common Stock Warrants

As a result of the public offering in March 2014, Lion received the right to purchase an additional 2,905 shares of the Company's common stock, and the exercise price of all of Lion held warrants (the "Lion Warrants") was adjusted from $0.75 per share to $0.66 per share. Such adjustments were required by the terms of the existing Lion Warrants. As of ~~June 30, 2014~~March 31, 2015, Lion held warrants to purchase 24,511 shares of the Company's common stock, with an exercise price of $0.66 per share. These warrants will expire on February 18, 2022.

The Lion Warrants, as amended, contain certain anti-dilution protections in favor of Lion providing for proportional adjustment of the warrant price and, under certain circumstances, the number of shares of the Company's common stock issuable upon exercise of the Lion ~~Warrant,~~Warrants, in connection with, among other things, stock dividends, subdivisions and combinations and the issuance of additional equity securities at less than fair market value, as well as providing for the issuance of additional warrants to Lion in the event of certain equity sales or debt for equity exchanges. The Company expects that the 2015 at-the-market program will result in an adjustment to both number of shares and exercise price of the Lion Warrants.

As of ~~June 30, 2014~~March 31, 2015, the fair value of the 24,511 Lion Warrants, estimated using the Binomial Lattice option valuation model, was ~~$16,489~~$11,731 and was recorded as a current liability in the consolidated balance sheets. The calculation assumed a stock price of ~~$0.90~~,$0.70, exercise price of ~~$0.66~~,$0.66, volatility of ~~71.55%~~72.20%, annual risk free interest rate of ~~2.23%~~1.71%, a contractual remaining term of ~~7.8~~7.0 years and no dividends. There was no common stock warrants activity for the three months ended March 31, 2015.

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The following table presents a summary of common stock warrants activity as of ~~June 30, 2014:~~March 31, 2015:

Shares
(in thousands)
Weighted-Average Exercise Price
Weighted-Average Contractual Life
(in years)
Outstanding - January 1, 2014 21,606
$ 0.75
8.2
Issued ^(a)
24,511
$ 0.66
8.0
Forfeited ^(a)
(21,606 ) $ 0.75
0.0
Expired 0
$ 0.00
0.0
Outstanding - June 30, 2014 24,511
$ 0.66
7.8
Fair value - June 30, 2014 $ 16,489



	Shares (in thousands)		Weighted-Average Exercise Price		Weighted-Average Contractual Life (in years)
Outstanding - January 1, 2015	24,511		$	0.66	7.2
Issued	0
Forfeited	0
Expired	0
Outstanding - March 31, 2015	24,511		$	0.66	7.0
Fair value - March 31, 2015	$	11,731

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(a) Issued and forfeited warrants ~~represents~~represent repriced shares.

Earnings Per Share

The Company presents earnings per share ("EPS") utilizing a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and reflects net loss divided by the weighted-average shares of common stock outstanding for the period presented. Diluted EPS includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The Company had common stock under various options, warrants and other agreements at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013.~~2014. The ~~weighted-average~~ effects of ~~40,018~~approximately 33,565 and ~~53,451~~40,385 shares at ~~June 30, 2014~~March 31, 2015 and 2014, respectively,~~2013, respectively,~~ were excluded from the ~~calculations~~calculation of net loss per sharefor ~~the~~ three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014 ~~and~~ ~~2013~~ because their impact would have been anti-dilutive.

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A summary of the potential stock issuances under various options, warrants and other agreements that could have a dilutive effect on the shares outstanding for the three months ended March 31 are as follows:


	June 30,		2015	2014
	2014	2013
SOF warrants	0	1,000
Lion warrants	24,511	21,606	24,511	24,511
Shares issuable to Mr. Charney based on market conditions ^(a)	13,611	20,416	6,806	13,611
Contingent shares issuable to Mr. Charney based on market conditions^(b)	0	2,112
Contingent shares issuable to Mr. Charney based on performance conditions^(c)	0	5,000
Employee options and restricted shares	1,896	3,317	2,248	2,263
	40,018	53,451	33,565	40,385

______________________

(a) Charney Anti-Dilution Rights pursuant to the April 26, 2011 Investor Purchase Agreement, of which each 6,805 expired unexercised on April 15, ~~2014.~~

~~(b) Pursuant to the March 24, 2011 conversion of debt to equity, which expired unexercised on March 24, 2014.~~

~~(c) Pursuant to Mr. Charney's employment agreement commenced April 1, 2012~~2015 and 2014 (Note 12).

Note 12. Share-Based Compensation

The American Apparel, Inc. 2011 Omnibus Stock Incentive Plan (the "2011 Plan") authorizes the granting of a variety of incentive awards, the exercise or vesting of which would allow up to an aggregate of 17,500 shares of the Company's common stock to be acquired by the holders of such awards and authorizes up to 3,000 shares that may be awarded to any one participant during any calendar year. The purpose of the 2011 Plan is to provide an incentive to selected employees, directors, independent contractors, and consultants of the Company or its affiliates, and provides that the Company may grant options, stock appreciation rights, restricted stock, and other stock-based and cash-based awards. As of ~~June 30, 2014~~March 31, 2015, there were approximately ~~12,993~~12,548 shares available for future grants under the 2011 Plan.

The Company has identified a clerical discrepancy in its records pertaining to the total historic number of shares issued in connection with grants of common stock to non-executive employees under its stock incentive plans. The Company has not yet determined the full impact of the discrepancy but anticipates that it may result in a non-material change in the number of outstanding shares of common stock reported by the Company.

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Restricted Share Awards - The following table presents a summary of the restricted share awards activity as of ~~June 30, 2014:~~March 31, 2015:


	Shares (in thousands)		Weighted-Average Grant Date Fair Value Per-Share		Weighted-Average Remaining Vesting Period (in years)	Shares (in thousands)		Weighted-Average Grant Date Fair Value Per Share		Weighted-Average Remaining Vesting Period (in years)
Non-vested - January 1, 2014	1,850		$	1.46	0.9
Non-vested - January 1, 2015						103		$	1.17	0.3
Granted	704		$	0.68		116		$	0.69
Vested	(1,077	)	$	0.93		(67	)	$	1.05
Forfeited	(281	)	$	1.65		0		$	0.00
Non-vested - June 30, 2014	1,196		$	1.43	0.6
Non-vested - March 31, 2015						152		$	0.86	0.1

On January 2, 2015, the Company issued quarterly stock grants to six directors for services performed ranging from approximately 10 to 19 shares each based on grant date fair value of $1.05 per share. On April 2, 2015, the Company issued quarterly stock grants to six directors for services performed ranging from approximately 15 to 29 shares each based on the grant date fair value of $0.69 per share.

Vesting of the restricted share awards ~~to employees are generally either immediately upon grant or over a period of~~ ~~three~~ to ~~five years~~ ~~of continued service by the employee in equal annual installments. Vesting~~ is immediate in the case of members of the ~~Board of Directors.~~Board. Share-based compensation is recognized over the vesting period based on the grant-date fair value.

Restricted Stock Units - The following table presents a summary of the restricted stock units activity as of March 31, 2015:



	Shares (in thousands)	Weighted-Average Grant Date Fair Value Per Share		Weighted-Average Remaining Vesting Period (in years)
Non-vested - January 1, 2015	0	$	0.00	0.0
Granted	1,123	$	0.71
Vested	0	$	0.00
Forfeited	0	$	0.00
Non-vested - March 31, 2015	1,123	$	0.71	1.7

On March 30, 2015, the Company granted 973 shares of restricted stock units to certain employees under the 2011 Plan. These awards will vest, subject to each employee's continued service, over three years, with one-third of the total number of shares subject to each award vesting on the first anniversary of the date of grant. In addition, the Company granted a one-time award of restricted stock units for 150 shares of common stock each to three senior management in recognition of their services to the Company, which vested on April 15, 2015. The fair value of the restricted share grant was determined based on the market price on the date of grant. Share-based compensation is recognized over the vesting period based on the grant-date fair value.

Stock Option Awards - The following table presents a summary of the stock option activity as of ~~June 30, 2014:~~March 31, 2015:

Shares
(in thousands)
Weighted-Average Exercise Price
Weighted-Average Contractual Remaining Life
(in years)
Aggregate Intrinsic Value
Outstanding - January 1, 2014 700
$ 0.82
7.8
Granted 0

Forfeited 0

Expired 0

Outstanding - June 30, 2014 700
$ 0.82
7.3 $ 56
Vested - June 30, 2014 700
$ 0.82
7.3 $ 56
Non-vested - June 30, 2014 0
$ 0.00



	Shares (in thousands)	Weighted-Average Exercise Price		Weighted-Average Contractual Remaining Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding - January 1, 2015	0	$	0.00	0.0
Granted	973	$	0.71
Exercised	0	$	0.00
Forfeited	0	$	0.00
Expired	0	$	0.00
Outstanding - March 31, 2015	973	$	0.71	10.0	$	0
Vested - March 31, 2015	0	$	0.00	0.0	$	0
Non-vested - March 31, 2015	973	$	0.71	10.0	$	0

On March 30, 2015, the Company awarded stock options for 973 shares of its common stock to certain employees under the 2011 Plan. These awards will vest, subject to each employee's continued service, over three years, with one-third of the total number of shares subject to each award vesting on the first anniversary of the date of grant. The fair value of the stock option awards is estimated using the Black-Scholes option pricing model at the grant date.

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As of March 30, 2015, the fair value of stock options was $375. The calculation assumed a stock price of $0.71, exercise price of $0.71, volatility of 60.59%, annual risk free interest rate of 0.93%, expected option life of 6 years and no dividends.

Share-Based Compensation Expense - The Company recorded share-based compensation expenses of ~~$1,543~~$103 and ~~$3,263~~$1,115 for the three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013, respectively, and $2,658 and $6,816 for the six months ended June 30, 2014 and 2013,~~ respectively, related to its share-based compensation awards that are expected to vest. No amounts have been capitalized. As of ~~June 30, 2014~~March 31, 2015, unrecorded compensation cost related to non-vested awards was ~~$2,218~~,$1,086, which is expected to be recognized through ~~2017~~.2018.

Mr. Charney Anti-Dilution Rights - ~~The Company recorded share-based compensation expense (included~~On December 16, 2014, the Board terminated Dov Charney for cause in accordance with the ~~above) associated with Mr. Charney's certain~~terms of his employment agreement. Despite the termination, the unexercised anti-dilution rights of ~~$687~~ ~~and $2,071 for~~remain exercisable under the ~~three months ended~~ ~~June 30, 2014~~ ~~and 2013, respectively, and~~ ~~$1,376~~ ~~and $4,142 for the six months ended June 30, 2014 and 2013, respectively. As of~~ ~~June 30, 2014, unrecorded~~2011 Investor Purchase Agreement but are immediately vested. The remaining unrecognized compensation cost ~~related to non-vested awards~~of $233 was recognized as of December 31, 2014.~~$608, which is expected to be recognized through 2015. On April 15, 2014, the last day of the first measurement period, the~~ The Company determined that the ~~vesting~~issuing requirements for ~~such period~~the first and second measurement periods were not met and ~~as a result,~~each 6,805 ~~of the 20,416~~ anti-dilution rights expired ~~unexercised.~~

~~Mr. Charney Performance-Based Award~~ ~~- Effective~~unexercised on April ~~1, 2012, the Company provided Mr. Charney the rights to~~ ~~7,500~~ ~~shares of the Company's stock which were issuable~~ ~~three~~ ~~equal installments,~~ ~~one~~ ~~per each measurement period, only upon the achievement of certain EBITDA targets for each of fiscal 2012, 2013~~15, 2015 and 2014. ~~The fair value of the award was based on the grant-date share price of $0.75 per share. For 2012, the Company achieved the target EBITDA and Mr. Charney received~~ ~~2,500~~ shares, but did not achieve the target EBITDA for 2013. For 2014, the achievement of the performance condition was not considered probable as of June 30, 2014. As of June 30, 2014, there was no unrecorded compensation cost related to this EBITDA award. The Company recorded share-based compensation expense of $0 and $391 for the three months ended June 30, 2014 and 2013, respectively, and $0 and $1,250 for the six months ended June 30, 2014 and 2013, respectively.

~~Non-Employee Directors~~ - ~~On July 1, April 1 and January 2, 2014, the Company issued a quarterly stock grant to each non-employee director for services performed of approximately 11,~~ 20 ~~and~~ 8 ~~shares of the Company's common stock, based on grant date fair values of $0.87,~~ ~~$0.50~~ ~~and~~ ~~$1.21~~ ~~per share, respectively.~~

Note 13. Commitments and Contingencies

Operating Leases

The Company conducts retail operations under operating leases that expire at various dates through ~~November 2023.~~2034. The Company's primary manufacturing facilities and executive offices are currently under a long-term lease that expires on July 31, ~~2019~~.2019. The rent expenses (including real estate taxes and common area maintenance costs) were ~~$18,328~~$16,895 and ~~$19,462~~$19,012 for the three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013, respectively, and $37,340 and $39,364 for the six months ended June 30, 2014 and 2013,~~ respectively. The Company did not incur any significant contingent rent during these periods. Rent expense is allocated to cost of sales for production-related activities, selling expenses for retail stores, and the remainder to general and administrative expenses in the consolidated statements of operations.

Customs and Duties

The Company is subject to, and has recorded charges related to, customs and audit settlements and contingencies in various foreign jurisdictions. Should the Company fail to resolve these matters on acceptable terms, they could result in material liability.

Real Estate Matter

The landlord for the Company's headquarters and manufacturing facility in Los Angeles, California has identified certain alleged breaches under its lease. The Company is currently ~~under audit by German customs for years 2009 through 2011. The German customs issued retroactive assessments on~~engaging with the ~~Company's imports of~~ ~~$4,958~~ ~~at the~~ ~~June 30, 2014~~ ~~exchange rates (assessment was issued in Euros). The size of the retroactive assessments are largely due~~landlord to member countries of the European Union who have limited rights to impose retaliatory duties on U.S. origin goods, based upon the World Trade Organization's dispute settlement procedures and the related arbitrator rulings. Consequently, the German customs are attempting to impose a substantially higher tariff rate than the original rate thatresolve this dispute. Should the Company ~~had paid on the imports, approximately doubling the amount of the tariff that the Company would have~~fail to pay. Despite the ongoing appeals of the German customs assessment, German customs has indicated it will begin collection enforcement proceedings if the Company does not soon reach acceptable payment terms for the amounts assessed. Negotiations as to payment terms are ongoing.

The Company believes that it has valid arguments to challenge the merit of the German customs assessment and has filed litigation in German courts to contest such assessment. At this time, the outcome of legal proceedings against the Company is subject to significant uncertainty. No assurance can be made thatresolve this matter ~~will not~~on acceptable terms, they could result in a material ~~financial exposure, which could have a material effect on the Company's financial condition, results of operations, and cash flows.~~

~~Charney Investigation~~

In connection with the June 18, 2014 suspension of the Company's CEO, Dov Charney, a committee of the Board of Directors is charged with investigating potential misconduct by Mr. Charney. As the investigation is ongoing, no assurance can be made regarding the outcome of the investigation.

~~Tuan Phan OSHA Matter~~

In 2011, an industrial accident at the Company's facility in Orange County, California resulted in the fatality of a Company employee. In accordance with law, a mandatory criminal investigation into the matter was initiated. In August 2014, the Company and the district attorney's office began to negotiate a resolution of potential claims related to the accident. Based upon these

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discussions, the Company has accrued $1,000 in costs representing its best estimate of the cost to settle this matter. As the negotiations are ongoing, no assurances can be given as to their ultimate outcome or as to the impact on the Company, which could be material.

~~NYSE MKT LLC Compliance~~

In February 2014, the Company received a letter from NYSE MKT LLC indicating that it was not in compliance with listing guidance set forth in Section 1003(a)(iv). The Company submitted a remediation plan, and on April 15, 2014, the NYSE MKT LLC issued a letter to the Company indicating it regained compliance with the NYSE MKT LLC. The Company's common stock is currently traded on the NYSE MKT LLC.liability.

Advertising

The Company had approximately ~~$1,711~~$2,800 in open advertising commitments at ~~June 30, 2014~~March 31, 2015, which were primarily allocated among print advertisements in newspapers or magazines and outdoor advertising. The majority of these commitments are expected to be paid during the remainder of ~~2014~~2015.

Note 14. Workers' Compensation and Other Self-Insurance Reserves

The Company uses a combination of third-party insurance and self-insurance for a number of risks including workers' compensation, medical benefits provided to employees, and general liability claims. General liability primarily relates to litigation that arises from store operations. ~~Self-insurance reserves include estimates of both filed claims carried at their expected ultimate settlement value and claims incurred but not yet reported.~~

Estimating liability is a difficult process as many factors can ultimately affect the final settlement of a claim and, therefore, the reserve required. Changes in future inflation rates, litigation trends, legal interpretations, benefit levels, and settlement patterns, among other factors, can impact ultimate claim costs. The Company estimates liability by utilizing loss development factors based on its specific data to project the future development of incurred losses. Loss estimates are adjusted based upon actual claim settlements and reported claims. Although the Company does not expect ~~the amounts ultimately paid~~ultimate claim costs to significantly differ ~~significantly~~ from its estimates, self-insurance reserves could be affected if ~~future claim experience differs significantly~~actual developed claims fluctuate considerably from the historical trends and the assumptions applied. The Company's estimated claims are discounted using a rate of 1.54% with a duration that approximates the duration of its self-insurance reserve portfolio. The undiscounted liabilities were ~~$18,342~~$21,693 and ~~$15,809~~$20,409 as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, respectively.

The workers' compensation liability is based on an estimate of losses for claims incurred but not paid at the end of the period. Funding is made directly to the providers and/or claimants by the insurance company. To guarantee performance under the workers' compensation program, the Company issued standby letters of credit of $300 in ~~the amount~~favor of~~$450~~ ~~with~~ insurance companies ~~being the~~ beneficiaries as of both March 31, 2015 and December 31, 2014, and cash deposits of ~~$16,124~~$17,944 and $16,124 in favor of insurance company beneficiaries as of ~~both~~ ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~.2014, respectively. At ~~June 30, 2014~~March 31, 2015, the Company recorded a total reserve of ~~$17,565~~,$20,780, of which ~~$4,876~~$5,717 is included in accrued expenses and ~~$12,689~~$15,063 is included in other long-term liabilities on the consolidated balance sheets. At December 31, ~~2013~~2014, the Company recorded a total reserve of $~~15,356~~19,560, of which $~~3,871~~5,321 is included in accrued expenses and $~~11,485~~14,239 is included in other long-term liabilities on the consolidated balance sheets.

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The Company self-insures its health insurance benefit obligations while the claims are administered through a third party administrator. The medical benefit liability is based on estimated losses for claims incurred but not paid at the end of the period. Funding is made directly to the providers and/or claimants by the insurance company. The Company's total reserve of ~~$1,747~~$1,447 and $~~2,512~~1,439 was included in accrued expenses in the consolidated balance sheets at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014, respectively.

Note 15. Business Segment and Geographic Area Information

The Company reports the following four operating segments based on the management approach: U.S. Wholesale, U.S. Retail, Canada, and International. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments.

The U.S. Wholesale segment consists of the Company's wholesale operations of ~~sales of~~ undecorated apparel products sold to distributors and third party screen printers in the U.S. as well as its online consumer ~~sales in the U.S.~~sales. The ~~U.S.~~ Retail segment consists of the Company's retail operations in the U.S., which comprised ~~137~~135 retail stores as of ~~June 30, 2014~~March 31, 2015. The Canada segment includes wholesale, retail, and online consumer operations in Canada. As of ~~June 30, 2014~~March 31, 2015, the retail operations in the Canada segment comprised 3130 retail stores. The International segment includes wholesale, retail, and online consumer operations outside of the U.S. and Canada. As of ~~June 30, 2014~~March 31, 2015, the retail operations in the International segment comprised 7974 retail stores operating in 18 countries outside the U.S. and Canada. All of the Company's retail stores sell its apparel products directly to consumers.

The Company evaluates ~~the~~ performance of its operating segments primarily based on net sales and operating income or loss from operations. Operating income or loss for each segment does not include ~~unallocated~~ corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Corporate general and administrative expenses include,

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but are not limited ~~to:~~to, human resources, legal, finance, information technology, accounting, executive compensation and various other corporate level expenses.

The following tables present key financial information of the Company's reportable segments before unallocated corporate expenses:


	Three Months Ended June 30, 2014														Three Months Ended March 31, 2015
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated			U.S. Wholesale			U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	48,945	$	0		$	2,826		$	2,200		$	53,971		$	37,710		$	0		$	1,793		$	1,401		$	40,904
Retail net sales	0		48,970			9,421			35,534			93,925			0			37,302			6,506			23,081			66,889
Online consumer net sales	9,309		0			770			4,422			14,501			11,327			0			1,012			4,131			16,470
Total net sales to external customers	58,254		48,970			13,017			42,156			162,397			49,037			37,302			9,311			28,613			124,263
Gross profit	16,056		32,033			7,051			27,247			82,387			9,318			20,098			2,821			15,225			47,462
Income from segment operations	9,147		1,919			941			3,550			15,557
Income (loss) from segment operations															2,749			(7,288		)	(2,231		)	(2,789		)	(9,559		)
Depreciation and amortization	2,187		3,051			454			1,011			6,703			2,190			2,243			289			610			5,332
Capital expenditures	952		1,333			81			763			3,129			570			227			269			54			1,120
Retail store impairment	0		66			0			163			229			0			58			0			0			58
Deferred rent expense (benefit)	47		(720		)	(51		)	(195		)	(919		)	14			(547		)	(33		)	(346		)	(912		)


	Three Months Ended June 30, 2013														Three Months Ended March 31, 2014
	U.S. Wholesale		U.S. Retail			Canada			International			Consolidated			U.S. Wholesale			U.S. Retail			Canada			International			Consolidated
Wholesale net sales	$	43,219	$	0		$	3,613		$	2,631		$	49,463		$	38,237		$	0		$	1,909		$	1,800		$	41,946
Retail net sales	0		51,164			11,231			35,899			98,294			0			42,465			7,759			29,678			79,902
Online consumer net sales	9,522		0			608			4,349			14,479			10,500			0			792			3,956			15,248
Total net sales to external customers	52,741		51,164			15,452			42,879			162,236			48,737			42,465			10,460			35,434			137,096
Gross profit	14,634		33,302			9,347			26,587			83,870			17,305			26,766			5,609			22,294			71,974
Income from segment operations	6,097		525			1,153			2,491			10,266
Income (loss) from segment operations															9,720			(4,714		)	(345		)	(899		)	3,762
Depreciation and amortization	1,790		3,089			448			1,059			6,386			2,178			3,114			401			1,022			6,715
Capital expenditures	1,411		4,090			247			535			6,283			1,205			1,139			112			1,502			3,958
Deferred rent expense (benefit)	18		(564		)	(82		)	(44		)	(672		)
Retail store impairment															0			49			0			450			499
Deferred rent benefit															(447		)	(1,632		)	(48		)	(95		)	(2,222		)

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Six Months Ended June 30, 2014
U.S. Wholesale U.S. Retail Canada International Consolidated
Wholesale net sales $ 87,182
$ 0
$ 4,735
$ 4,000
$ 95,917
Retail net sales 0
91,435
17,180
65,212
173,827
Online consumer net sales 19,809
0
1,562
8,378
29,749
Total net sales to external customers 106,991
91,435
23,477
77,590
299,493
Gross profit 33,361
58,799
12,660
49,541
154,361
Income (loss) from segment operations 18,867
(2,795 ) 596
2,651
19,319
Depreciation and amortization 4,365
6,165
855
2,033
13,418
Capital expenditures 2,157
2,472
193
2,265
7,087
Retail store impairment 0
115
0
613
728
Deferred rent benefit (400 ) (2,352 ) (99 ) (290 ) (3,141 )

Six Months Ended June 30, 2013

U.S.
Wholesale
U.S. Retail Canada International Consolidated
Wholesale net sales $ 77,927
$ 0
$ 6,192
$ 4,572
$ 88,691
Retail net sales 0
95,508
20,343
66,351
182,202
Online consumer net sales 19,236
0
1,274
8,893
29,403
Total net sales to external customers 97,163
95,508
27,809
79,816
300,296
Gross profit 26,969
62,493
16,767
50,509
156,738
Income (loss) from segment operations 11,480
(1,922 ) 501
3,304
13,363
Depreciation and amortization 3,393
6,059
881
2,084
12,417
Capital expenditures 4,487
6,990
430
1,730
13,637
Retail store impairment 0
78
0
0
78
Deferred rent expense (benefit) 38
(776 ) (213 ) (169 ) (1,120 )

Reconciliation of reportable segments combined (loss) income from operations ~~for the three and six months ended June 30, 2014 and~~ ~~2013~~ to the consolidated loss before income taxes is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014
Consolidated income from operations of reportable segments	$	15,557		$	10,266		$	19,319		$	13,363
Consolidated (loss) income from operations of reportable segments													$	(9,559	)	$	3,762
Unallocated corporate expenses	(12,977		)	(12,180		)	(24,235		)	(25,754		)	(13,371		)	(11,258		)
Interest expense	(10,019		)	(8,220		)	(20,058		)	(19,434		)	(9,781		)	(10,039		)
Foreign currency transaction loss	0			(158		)	(132		)	(871		)	(625		)	(132		)
Unrealized (loss) gain on change in fair value of warrants	(8,202		)	5,498			4,465			(18,147		)
Loss on extinguishment of debt	0			(32,101		)	0			(32,101		)
Other (expense) income	(60		)	11			(52		)	16
Unrealized gain on change in fair value of warrants													7,508			12,667
Other income													141			8
Consolidated loss before income taxes	$	(15,701	)	$	(36,884	)	$	(20,693	)	$	(82,928	)	$	(25,687	)	$	(4,992	)

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Net sales by geographic location of customers ~~for the three and six months ended June 30, 2014 and~~ ~~2013~~, are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2014		2013		2014		2013		2015		2014
United States	$	107,224	$	103,901	$	198,426	$	192,671	$	86,338	$	91,202
Europe (excluding the United Kingdom)									10,598		15,021
Canada	13,017		15,452		23,477		27,809		9,310		10,460
Europe (excluding United Kingdom)	17,644		17,862		32,665		32,931
United Kingdom	10,908		10,588		20,369		20,183		7,545		9,461
South Korea	3,249		2,937		5,580		5,106		3,442		2,331
China	2,212		2,082		3,740		3,576
Japan	3,726		5,006		7,063		9,444		2,308		3,337
Australia	2,493		2,637		4,585		5,208		1,760		2,092
China									1,636		1,528
Other foreign countries	1,924		1,771		3,588		3,368		1,326		1,664
Total consolidated net sales	$	162,397	$	162,236	$	299,493	$	300,296	$	124,263	$	137,096

Note 16. Litigation

The Company is subject to various claims and contingencies in the ~~normal~~ordinary course of business that arise from litigation, business transactions, operations, employee-related matters, or taxes. The Company establishes reserves when it believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss or range of loss, or a statement that such an estimate cannot be made. ~~While actual losses~~Insurance may ~~differ from the amounts recorded and the ultimate outcome~~cover a portion of ~~our pending actions is generally~~such losses; however, certain matters could arise for which we do not ~~yet determinable, the Company does not believe the ultimate resolution of currently pending legal proceedings, either individually~~have insurance coverage or ~~in the aggregate, will~~for which insurance provides only partial coverage. These matters could have a material ~~adverse~~negative effect on ~~its~~the Company's business, financial position, results of operations, or cash flows. In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate.

~~Wage~~SEC Investigation

On February 5, 2015, the Company learned that the Securities and ~~Hour Actions~~Exchange Commission had issued a formal order of investigation to determine whether, during Mr. Charney's tenure as CEO of the Company, there were any violations of federal securities laws. The SEC's investigation is a non-public, fact-finding inquiry to determine whether any violations of law have occurred. The Company intends to cooperate fully with the SEC in its investigation.

Shareholder Litigation

In April 2014, the five former employees' wage and hour cases including Guillermo Ruiz, Antonio Partida, Emily Truong, Jessica Heupel, and Anthony Heupel have been settled on an aggregate and class-wide basis for $850, and a final approval was granted by the presiding arbitrator. The parties are now seeking final court approval in September 2014 in order to have binding claim preclusion on future similar claims. There is no guarantee that such approvals will be obtained. The Company does not have insurance coverage for this matter.

~~Derivative Matters~~

~~Two~~2010, two shareholder derivative lawsuits were filed in the United States District Court for the Central District of California (the "Court") ~~which~~that were subsequently consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Derivative Litigation, Lead Case No. CV106576 (the ~~"Federal~~"First Derivative Action"). Plaintiffs in the ~~Federal~~First Derivative Action alleged a cause of action for breach of fiduciary duty arising out of (i) the Company's alleged failure to maintain adequate accounting and internal control policies and procedures; (ii) the Company's alleged violation of state and federal immigration laws in connection with the previously disclosed termination of ~~over 1,500~~ employees following an Immigration and Customs Enforcement inspection; and (iii) the Company's alleged failure to implement controls sufficient to prevent a sexually hostile and discriminatory work environment. The Company does not maintain any direct exposure to loss in connection with these shareholder derivative lawsuits. The Company's status as a "Nominal Defendant" in the actions reflects ~~the fact~~ that the lawsuits are purportedly maintained by the named

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plaintiffs on behalf of American Apparel and that plaintiffs seek damages on the Company's behalf. The Company filed a motion to dismiss the ~~Federal~~First Derivative Action which was granted with leave to amend on July 31, 2012. Plaintiffs did not amend the complaint and subsequently filed a motion to dismiss each of their claims, with prejudice, for the stated purpose of taking an immediate appeal of the Court's July 31, 2012 order. On October 16, 2012, the Court granted the ~~Plaintiffs'~~plaintiffs' motion to dismiss and entered judgment accordingly. On November 12, 2012, ~~Plaintiffs~~plaintiffs filed a Notice of Appeal to the Ninth Circuit Court of Appeals where the case is currently pending.

~~Four~~In 2010, four shareholder derivative lawsuits were filed ~~in fall of 2010~~ in the Superior Court of the State of California for the County of Los Angeles (the "Superior Court") which were subsequently consolidated for all purposes into a case entitled In re American Apparel, Inc. Shareholder Derivative Litigation, Lead Case No. BC 443763 (the "State Derivative Action"). Three of the matters comprising the State Derivative Action alleged causes of action for breach of fiduciary duty arising out of (i) the Company's alleged failure to maintain adequate accounting and internal control policies and procedures; and (ii) the Company's alleged violation of

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state and federal immigration laws in connection with the previously disclosed termination of ~~over 1,500~~ employees following an Immigration and Customs Enforcement inspection. The fourth matter alleges seven causes of action for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets also arising out of the same allegations. On April 12, 2011, the Superior Court issued an order granting a stay (which currently remains in place) of the State Derivative Action on the grounds that, among other reasons, the case is duplicative of the ~~Federal~~First Derivative ~~Action, as well as the Federal Securities Action currently pending in the Court (see below).~~

~~Both the Federal Derivative Action and State Derivative Actions are covered under the Company's Directors and Officers Liability insurance policy, subject to a deductible and a reservation of rights.~~Action.

In July 2014, two shareholder derivative lawsuits were filed in the Court that were subsequently consolidated for all purposes into a case entitled In re American Apparel, Inc. 2014 Shareholder Derivative Litigation, Lead Case No. CV1405230 (the "Second Derivative Action," and together with the First Derivative Action, the "Federal Derivative Actions"). Plaintiffs in the Second Derivative Action alleged similar causes of action for breach of fiduciary duty by failing to (i) maintain adequate internal control and exercise proper oversight over Mr. Charney, whose alleged misconduct and mismanagement has purportedly harmed the Company's operations and financial condition, (ii) ensure Mr. Charney's suspension as CEO did not trigger material defaults under two of the Company's credit agreements, and (iii) prevent Mr. Charney from increasing his ownership percentage of the Company. The ~~lawsuits~~Second Derivative Action primarily ~~seek~~seeks to recover damages and reform corporate governance and internal procedures. The Company ~~has tendered~~does not maintain any direct exposure to loss in connection with these ~~matters~~shareholder derivative lawsuits. The Company's status as a "Nominal Defendant" in the actions reflects that the lawsuits are purportedly maintained by the named plaintiffs on behalf of American Apparel and that plaintiffs seek damages on the Company's behalf. On April 13, 2015, the Court granted the Company's motion to ~~its~~dismiss, with leave to amend.

Both the Federal Derivative Actions and State Derivative Action are covered under the Company's Directors and Officers Liability insurance ~~carriers~~policy, subject to a deductible and ~~is awaiting coverage positions.~~

a reservation of rights. Should the above matters (i.e., the Federal Derivative ~~Action~~Actions or the State Derivative Action) ultimately be decided against the Company in an amount that exceeds the Company's insurance coverage, or if liability is imposed on grounds ~~which~~that fall outside the scope of the Company's Directors and Officers Liability insurance coverage, the Company could not only incur a substantial liability, but also experience an increase in similar suits and suffer reputational harm. The Company is unable to predict the financial outcome of these matters at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matters proceed through their course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements. However, no assurance can be made that these matters, either individually or together with the potential for similar suits and reputational harm, will not result in a material financial exposure, which could have a material adverse effect ~~upon~~on the Company's financial condition, results of operations, or cash flows.

~~Federal Securities Action~~

~~Four putative class action lawsuits~~On April 21, 2015, former employee and purported shareholder Jan Willem Hubner and purported shareholder Eric Ribner filed suit against Company directors and the Company in the Court (Case No. ~~CV106352 MMM (RCx), Case No. CV106513 MMM (RCx), Case No. CV106516 MMM (RCx), and Case No. CV106680 GW (JCGx)) were~~15-2965). This matter was filed ~~in fall of 2010 in the United States District Court for the Central District of California ("USDC") which were subsequently consolidated for all purposes into~~as a related case ~~entitled~~with respect to In re American Apparel, Inc. 2014 Derivative Shareholder ~~Litigation, Lead Case No. CV106352 MMM (JCGx) (the "Federal Securities Action").~~Litigation. The ~~lead plaintiff appointed by~~lawsuit alleges the ~~USDC alleges two causes of action for violations~~following counts: (1) violation of Section ~~10(b)~~14(a) of the Securities Exchange Act and Rule 14a-9 promulgated thereunder; (2) violation of Section 20(a) of the 1934 Act, and Rule 10b-5 promulgated under Section 10(b), arising out of alleged misrepresentations contained in the Company's press releases, public filings with the SEC, and other public statements relating to (i) the adequacySecurities Exchange Act; (3) breach of the ~~Company's internal~~duty of disclosure/candor; and ~~financial control policies~~(4) aiding and procedures; (ii) the Company's employment practices; and (iii) the effect that the dismissal of over 1,500 employees following an Immigration and Customs Enforcement inspection would have on the Company. Plaintiff seeks damages in an unspecified amount, reasonable attorneys' fees and costs, and equitable relief as the USDC may deem proper. On November 6, 2013, the USDC issued an order staying the case pending ongoing settlement discussions between the parties. Plaintiff filed an unopposed motion of preliminary approval which was granted on April 16, 2014 without oral argument. On July 28, 2014, the USDC approved the settlement, and final judgment was entered on July 30, 2014. The settlement will result in a payment by the Company's insurance carrier of $4,800.

Should the above matters (i.e., the Federal Securities Action) be decided against the Company in an amount that exceeds the Company's insurance coverage, or if liability is imposed on grounds which fall outside the scopeabetting breaches of the ~~Company's insurance coverage,~~duty of disclosure/candor. The Company believes that all such claims are without merit and intends to vigorously dispute the ~~Company could not only incur a substantial liability, but also experience an increase in similar suits and suffer reputational harm.~~validity of these claims. The Company is unable to predict the financial outcome of ~~these matters~~this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the ~~matters proceed~~matter proceeds through ~~their~~its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements. However, no assurance can be made that ~~these matters, either individually or~~this matter together with the potential for ~~similar suits and~~ reputational harm, will not result in a material financial exposure, which could have a material adverse effect ~~upon~~on the Company's financial condition, results of operations, or cash flows.

On April 30, 2015, former employee and purported shareholder Eliana Gil Rodriguez filed a putative class action lawsuit against Company directors, a former Company officer, and Standard General L.P. in the Delaware Chancery Court (Case No. 10944). The lawsuit alleges breach of fiduciary duty claims in connection with the Company's 2014 annual meeting, its secondary offering, the Standstill Agreement, the 2014 adoption of a rights plan, and certain amendments to the bylaws against the former and current

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Company directors and the named former Company officer. In addition, the lawsuit alleges that Standard General aided and abetted the alleged breaches of fiduciary duty. Plaintiff seeks declaratory relief and requests that the Court order a revote of the Class A directors. The Company believes that all such claims are without merit and intends to vigorously dispute the validity of these claims. The Company is unable to predict the financial outcome of this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

Employment Matters

On April 16, 2015, former employees Carlos Hirschberg, Cesar Antonio Palma Cordero, and Dominga Valencia filed a putative class action lawsuit against the Company in the Court (Case No. 2:15-CV-02827), asserting: (i) violation of the WARN Act (29 U.S.C. § 2101 et seq.); (ii) violation of the California WARN Act (Labor Code §1400 et seq.), and (iii) unfair business practices under California Business and Professions Code §17200 et seq.). The Company ~~has previously disclosed arbitrations filed by~~believes that all such claims are without merit and intends to vigorously dispute the ~~Company on or about February 17, 2011, related to cases filed in the Supreme Court~~validity of New York, County of Kings (Case No. 5018-1) and Superior Court of the State of California for the County of Los Angeles (Case Nos. BC457920 and BC460331) against American Apparel, Mr. Charney and certain members of the Board of Directors asserting claims of sexual harassment, assault and battery, impersonation through the internet, defamation and other relatedthese claims. The Company ~~settled one~~is unable to predict the financial outcome of this matter at this time, and any views formed as to the viability of these ~~cases with no monetary liability~~claims or the financial exposure which could result may change from time to time as the ~~Company. In another case,~~matter proceeds through its course. Accordingly, adjustments, if any, that might result from the ~~Company prevailed on its argument that certain claims had~~resolution of this matter have not been released by the plaintiff, and the remaining claims were recently settled. In another case, the arbitrator rejected the Company’s argument that certain claims had been released, and a hearing will be heldreflected in the ~~future~~consolidated financial statements. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the ~~merits of the parties' claims. In another case, the arbitrator ruled that both American Apparel and the~~

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plaintiff had established certain claims and damages against one another resulting in a net inconsequential amount awarded to the plaintiff and in June 2014, the arbitrator awarded attorneys' fees and costs to the plaintiff. The Company and its insurance carrier are currently in dispute about insurance coverage of the attorney's fees and costs. In a different case, the arbitrator has held an evidentiary hearing on the parties’ respective claims and the Company is waiting for the arbitrator's ruling. The Company cannot provide assurance that, the amount and ultimate liability, if any, with respect to these remaining cases will not materially affect the Company's ~~business,~~ financial ~~position,~~condition, results of operations, or cash flows.

On or about June 23, 2014, Mr. Charney submitted a demand in arbitration against the Company in connection with his suspension, which had been stayed pending the determination of the Suitability Committee in the Internal Investigation. As a result of Mr. Charney's termination for cause, such stay is no longer in effect. On March 26, 2015, Mr. Charney submitted correspondence to the arbitration body requesting a reinstatement of his demand for arbitration. Mr. Charney has indicated that he intends to seek damages in connection with claims allegedly arising from his termination for cause. The Company believes that all such claims are without merit and intends to vigorously dispute the validity of these claims. The Company is unable to predict the financial outcome of this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

On April 20, 2015, former employee David Nisenbaum filed a lawsuit against the Company in Los Angeles Superior Court (Case No. BC579342) asserting: (1) religious discrimination in violation of the California Fair Employment and Housing Act (FEHA); (2) failure to prevent discrimination in violation of FEHA; (3) retaliation in violation of FEHA; (4) wrongful termination in violation of public policy; (5) violation of Labor Code § 1102.5; (6) violation of Labor Code § 1198.5; (7) intentional infliction of emotional distress; and (8) violation of California Business & Professions Code §§ 17200 et seq. The Company believes that all such claims are without merit and intends to vigorously dispute the validity of these claims. The Company is unable to predict the financial outcome of this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

In the first quarter of 2015, several unfair labor practices charges were filed against the Company with the National Labor Relations Board alleging violations of the National Labor Relations Act. The Company believes that all such charges are without merit and intends to vigorously dispute the validity of these charges. While the charges will not result in direct financial exposure, the Company is unable to predict the outcome of the charges at this time. Any views formed as to the viability of these charges or the financial exposure, if any, which could result may change from time to time as the matters proceed through their course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements. However, no assurance can be made that these charges together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

In addition, the Company is currently engaged in other employment-related claims ~~and other matters~~ incidental to ~~the Company’s~~its business. The Company believes that all such claims are without merit or not material and intends to vigorously dispute the validity of ~~the plaintiffs’~~these claims. While the final resolution of such claims cannot be determined based on information at this time, the Company believes, but cannot provide assurance that, the amount and ultimate liability, if any, with respect to these actions will not materially affect its business,

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financial position, results of operations, or cash flows. Should any of these matters be decided against the Company, it could not only incur liability but also experience an increase in similar suits and suffer reputational harm.

OSHA Matters

In the first quarter of 2015, an industrial accident at the Company's dyeing facility in Hawthorne, California resulted in injuries to one of our employees. California OSHA is conducting an investigation. The Company is unable to predict the financial outcome, if any, of this matter at this time. No assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

Privacy Matters

On April 2, 2015, a purported customer of the Company filed a putative class action, (in San Diego Superior Court (Case No. 37-2015-00011243), for violations of California Civil Code § 1747.08. The Company intends to aggressively defend against this matter. The Company is unable to predict the financial outcome of this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

Note 17. Condensed Consolidating Financial Information

The Notes which constitute debt obligations of American Apparel Inc. (the "Parent") are fully and unconditionally guaranteed, jointly and severally, ~~and on a senior secured basis,~~ by the Company's existing and future 100% owned direct and indirect domestic ~~subsidiaries,~~subsidiaries. The Notes are subject to customary automatic release provisions, including the satisfaction and discharge, or defeasance, or full payment ~~in full~~ of the principal, ~~of,~~ premium, if any, accrued and unpaid ~~interest on the Notes, or, in~~interests. In certain circumstances, the Notes are subject to the sale or ~~other~~substantial disposition ~~of substantially all of the assets~~ of the subsidiary ~~guarantor.~~guarantor's assets. No guarantor subsidiaries are less than 100% owned, directly or indirectly, by the Company.

The following presents the Parent's condensed consolidating balance sheets as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 and its condensed consolidating statements of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~condensed consolidating statements of cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ the Company's material guarantor subsidiaries and the non-guarantor subsidiaries, and the elimination entries necessary to present the Company's financial statements on a consolidated basis. ~~These~~This condensed consolidating financial information should be read in conjunction with the Company's consolidated financial statement.

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Condensed Consolidating Balance Sheets

~~June 30, 2014~~March 31, 2015

(in thousands)

(unaudited)


	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries			Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries			Consolidated
ASSETS
CURRENT ASSETS
Cash	$	0		$	1,676		$	8,484		$	0		$	10,160		$	0		$	829		$	20,085		$	0		$	20,914
Trade accounts receivable, net	0			21,840			4,374			0			26,214			0			18,813			3,102			0			21,915
Intercompany accounts receivable, net	262,292			(242,289		)	(20,003		)	0			0			211,683			(208,879		)	(2,804		)	0			0
Inventories, net	0			115,102			35,655			(6		)	150,751			0			99,306			23,447			0			122,753
Other current assets	665			10,175			6,088			0			16,928			327			9,143			4,810			0			14,280
Total current assets	262,957			(93,496		)	34,598			(6		)	204,053			212,010			(80,788		)	48,640			0			179,862
Property and equipment, net	0			46,985			14,674			0			61,659			0			35,156			9,012			0			44,168
Investments in subsidiaries	(101,268		)	18,806			0			82,462			0			(142,375		)	14,052			0			128,323			0
Other assets, net	8,905			28,449			11,299			0			48,653			8,473			29,658			9,124			0			47,255
TOTAL ASSETS	$	170,594		$	744		$	60,571		$	82,456		$	314,365		$	78,108		$	(1,922	)	$	66,776		$	128,323		$	271,285
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY															LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Revolving credit facilities and current portion of long-term debt	$	0		$	30,555		$	13		$	0		$	30,568		$	0		$	35,080		$	11		$	0		$	35,091
Accounts payable	0			31,553			3,265			0			34,818			0			30,528			3,054			0			33,582
Accrued expenses and other current liabilities	6,194			28,464			12,706			0			47,364			(8,194		)	59,493			12,588			0			63,887
Fair value of warrant liability	16,489			0			0			0			16,489			11,731			0			0			0			11,731
Other current liabilities	0			2,404			1,912			0			4,316			0			6,456			1,814			0			8,270
Total current liabilities	22,683			92,976			17,896			0			133,555			3,537			131,557			17,467			0			152,561
Long-term debt, net	215,513			0			284			0			215,797			218,389			0			15,232			0			233,621
Other long-term liabilities	0			27,051			5,564			0			32,615			488			25,073			3,848			0			29,409
TOTAL LIABILITIES	238,196			120,027			23,744			0			381,967			222,414			156,630			36,547			0			415,591
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock	17			100			492			(592		)	17			18			100			493			(593		)	18
Additional paid-in capital	216,537			6,726			7,746			(14,472		)	216,537			218,866			6,726			8,077			(14,803		)	218,866
Accumulated other comprehensive (loss) income	(3,904		)	(203		)	(290		)	493			(3,904		)	(9,368		)	(3,841		)	(6,720		)	10,561			(9,368		)
(Accumulated deficit) retained earnings	(278,095		)	(125,906		)	28,879			97,027			(278,095		)	(351,665		)	(161,537		)	28,379			133,158			(351,665		)
Less: Treasury stock	(2,157		)	0			0			0			(2,157		)	(2,157		)	0			0			0			(2,157		)
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY	(67,602		)	(119,283		)	36,827			82,456			(67,602		)	(144,306		)	(158,552		)	30,229			128,323			(144,306		)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	$	170,594		$	744		$	60,571		$	82,456		$	314,365		$	78,108		$	(1,922	)	$	66,776		$	128,323		$	271,285

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Condensed Consolidating Balance Sheets

December 31, ~~2013~~2014

(in thousands)


	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries				Elimination Entries			Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries			Consolidated
ASSETS
CURRENT ASSETS
Cash	$	0		$	512		$	8,164			$	0		$	8,676		$	0		$	1,370		$	6,973		$	0		$	8,343
Trade accounts receivable, net	0			15,109			5,592				0			20,701			0			19,422			5,876			0			25,298
Intercompany accounts receivable, net	247,414			(224,181		)	(23,233		)		0			0			240,989			(229,956		)	(11,033		)	0			0
Inventories, net	0			129,716			39,736				(74		)	169,378			0			116,335			31,137			106			147,578
Other current assets	97			10,442			6,002				0			16,541			90			11,290			6,391			0			17,771
Total current assets	247,511			(68,402		)	36,261				(74		)	215,296			241,079			(81,539		)	39,344			106			198,990
Property and equipment, net	0			53,424			15,879				0			69,303			0			38,932			10,385			0			49,317
Investments in subsidiaries	(94,161		)	18,158			0				76,003			0			(115,109		)	15,874			0			99,235			0
Other assets, net	9,282			27,934			11,937				0			49,153			8,861			27,463			9,758			0			46,082
TOTAL ASSETS	$	162,632		$	31,114		$	64,077			$	75,929		$	333,752		$	134,831		$	730		$	59,487		$	99,341		$	294,389
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY																LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Revolving credit facilities and current portion of long-term debt	$	0		$	43,586		$	456			$	0		$	44,042		$	0		$	34,299		$	13		$	0		$	34,312
Accounts payable	0			34,738			3,552				0			38,290			0			32,508			3,046			0			35,554
Accrued expenses and other current liabilities	5,952			28,344			15,722				0			50,018			13,498			31,855			16,016			0			61,369
Fair value of warrant liability	20,954			0			0				0			20,954			19,239			0			0			0			19,239
Other current liabilities	0			6,830			1,855				0			8,685			0			9,762			2,038			0			11,800
Total current liabilities	26,906			113,498			21,585				0			161,989			32,737			108,424			21,113			0			162,274
Long-term debt, net	213,130			47			291				0			213,468			217,133			0			255			0			217,388
Other long-term liabilities	0			29,711			5,988			��	0			35,699			477			25,431			4,335			0			30,243
TOTAL LIABILITIES	240,036			143,256			27,864				0			411,156			250,347			133,855			25,703			0			409,905
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock	11			100			492				(592		)	11			18			100			494			(594		)	18
Additional paid-in capital	185,472			6,726			7,685				(14,411		)	185,472			218,779			6,726			7,967			(14,693		)	218,779
Accumulated other comprehensive (loss) income	(4,306		)	(543		)	(671		)		1,214			(4,306		)	(6,915		)	(2,493		)	(4,136		)	6,629			(6,915		)
(Accumulated deficit) retained earnings	(256,424		)	(118,425		)	28,707				89,718			(256,424		)	(325,241		)	(137,458		)	29,459			107,999			(325,241		)
Less: Treasury stock	(2,157		)	0			0				0			(2,157		)	(2,157		)	0			0			0			(2,157		)
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY	(77,404		)	(112,142		)	36,213				75,929			(77,404		)	(115,516		)	(133,125		)	33,784			99,341			(115,516		)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	$	162,632		$	31,114		$	64,077			$	75,929		$	333,752		$	134,831		$	730		$	59,487		$	99,341		$	294,389

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Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income

For the Three Months Ended ~~June 30, 2014~~March 31, 2015

(in thousands)

(unaudited)


	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries			Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries			Consolidated
Net sales	$	0		$	122,758		$	55,169		$	(15,530	)	$	162,397		$	0		$	88,272		$	37,924		$	(1,933	)	$	124,263
Cost of sales	0			72,824			22,703			(15,517		)	80,010			0			67,572			10,927			(1,698		)	76,801
Gross profit	0			49,934			32,466			(13		)	82,387			0			20,700			26,997			(235		)	47,462
Selling expenses	0			29,577			22,866			0			52,443
Selling and distribution expenses																0			27,690			17,782			0			45,472
General and administrative expenses	648			17,991			8,505			(9		)	27,135			1,240			14,858			8,764			0			24,862
Retail store impairment	0			66			163			0			229			0			58			0			0			58
(Loss) income from operations	(648		)	2,300			932			(4		)	2,580			(1,240		)	(21,906		)	451			(235		)	(22,930		)
Interest expense and other expense	17,124			1,001			156			0			18,281			1,461			1,406			(110		)	0			2,757
Equity in (earnings) loss of subsidiaries	(1,567		)	(495		)	(4		)	2,066			0
Equity in loss (earnings) of subsidiaries																23,723			578			0			(24,301		)	0
(Loss) income before income taxes	(16,205		)	1,794			780			(2,070		)	(15,701		)	(26,424		)	(23,890		)	561			24,066			(25,687		)
Income tax (benefit) provision	0			(84		)	588			0			504
Income tax provision																0			189			548			0			737
Net (loss) income	$	(16,205	)	$	1,878		$	192		$	(2,070	)	$	(16,205	)	$	(26,424	)	$	(24,079	)	$	13		$	24,066		$	(26,424	)
Other comprehensive income (loss), net of tax	873			204			847			(1,051		)	873
Other comprehensive (loss) income, net of tax																(2,453		)	(1,348		)	(2,584		)	3,932			(2,453		)
Comprehensive (loss) income	$	(15,332	)	$	2,082		$	1,039		$	(3,121	)	$	(15,332	)	$	(28,877	)	$	(25,427	)	$	(2,571	)	$	27,998		$	(28,877	)

Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income

For the Three Months Ended ~~June 30, 2013~~March 31, 2014

(in thousands)

(unaudited)


	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries			Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries			Consolidated
Net sales	$	0		$	118,348		$	59,096		$	(15,208	)	$	162,236		$	0		$	99,997		$	45,893		$	(8,794	)	$	137,096
Cost of sales	0			71,166			23,006			(15,806		)	78,366			0			59,100			14,878			(8,856		)	65,122
Gross profit	0			47,182			36,090			598			83,870			0			40,897			31,015			62			71,974
Selling expenses	0			33,499			24,291			0			57,790
Selling and distribution expenses																0			32,072			21,990			0			54,062
General and administrative expenses	130			17,559			10,293			12			27,994			237			16,211			8,461			0			24,909
Retail store impairment																0			49			450			0			499
(Loss) income from operations	(130		)	(3,876		)	1,506			586			(1,914		)	(237		)	(7,435		)	114			62			(7,496		)
Interest expense and other expense	28,323			6,394			253			0			34,970			(3,842		)	1,553			(215		)	0			(2,504		)
Equity in loss (earnings) of subsidiaries	9,051			(372		)	0			(8,679		)	0			9,071			242			4			(9,317		)	0
(Loss) income before income taxes	(37,504		)	(9,898		)	1,253			9,265			(36,884		)	(5,466		)	(9,230		)	325			9,379			(4,992		)
Income tax provisions	0			0			620			0			620			0			129			345			0			474
Net (loss) income	$	(37,504	)	$	(9,898	)	$	633		$	9,265		$	(37,504	)	$	(5,466	)	$	(9,359	)	$	(20	)	$	9,379		$	(5,466	)
Other comprehensive (loss) income, net of tax	(726		)	(121		)	(681		)	802			(726		)	(471		)	136			(466		)	330			(471		)
Comprehensive (loss) income	$	(38,230	)	$	(10,019	)	$	(48	)	$	10,067		$	(38,230	)	$	(5,937	)	$	(9,223	)	$	(486	)	$	9,709		$	(5,937	)

~~Table of Contents~~

~~Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income~~

~~For the Six Months Ended June 30, 2014~~

~~(in thousands)~~

~~(unaudited)~~

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Elimination Entries Consolidated
Net sales $ 0
$ 222,755
$ 101,062
$ (24,324 ) $ 299,493
Cost of sales 0
131,924
37,581
(24,373 ) 145,132
Gross profit 0
90,831
63,481
49
154,361
Selling expenses 0
61,649
44,856
0
106,505
General and administrative expenses 885
34,202
16,966
(9 ) 52,044
Retail store impairment 0
115
613
0
728
(Loss) income from operations (885 ) (5,135 ) 1,046
58
(4,916 )
Interest expense and other expense 13,282
2,554
(59 ) 0
15,777
Equity in loss (earnings) of subsidiaries 7,504
(253 ) 0
(7,251 ) 0
(Loss) income before income taxes (21,671 ) (7,436 ) 1,105
7,309
(20,693 )
Income tax provision 0
45
933
0
978
Net (loss) income $ (21,671 ) $ (7,481 ) $ 172
$ 7,309
$ (21,671 )
Other comprehensive income (loss), net of tax 402
340
381
(721 ) 402
Comprehensive (loss) income $ (21,269 ) $ (7,141 ) $ 553
$ 6,588
$ (21,269 )

~~Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income~~

~~For the Six Months Ended June 30, 2013~~

~~(in thousands)~~

~~(unaudited)~~

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Elimination Entries Consolidated
Net sales $ 0
$ 213,752
$ 108,985
$ (22,441 ) $ 300,296
Cost of sales 0
128,277
38,804
(23,523 ) 143,558
Gross profit 0
85,475
70,181
1,082
156,738
Selling expenses 0
65,741
47,512
0
113,253
General and administrative expenses 506
35,679
19,617
(4 ) 55,798
Retail store impairment 0
78
0
0
78
(Loss) income from operations (506 ) (16,023 ) 3,052
1,086
(12,391 )
Interest expense and other expense 60,285
10,026
226
0
70,537
Equity in loss (earnings) of subsidiaries 23,224
(1,591 ) 0
(21,633 ) 0
(Loss) income before income taxes (84,015 ) (24,458 ) 2,826
22,719
(82,928 )
Income tax (benefit) provisions 0
(43 ) 1,130
0
1,087
Net (loss) income $ (84,015 ) $ (24,415 ) $ 1,696
$ 22,719
$ (84,015 )
Other comprehensive (loss) income, net of tax (2,230 ) (1,348 ) (2,258 ) 3,606
(2,230 )
Comprehensive (loss) income $ (86,245 ) $ (25,763 ) $ (562 ) $ 26,325
$ (86,245 )

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Condensed Consolidating Statement of Cash Flows

For the ~~Six~~Three Months Ended ~~June 30, 2014~~March 31, 2015

(in thousands)

(unaudited)


	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries		Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used in) provided by operating activities	$	(15,489	)	$	9,647		$	7,145		$	0	$	1,303		$	(4,706	)	$	39		$	7,749		$	0	$	3,082
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	0			(4,629		)	(2,458		)	0		(7,087		)	0			(797		)	(323		)	0		(1,120		)
Proceeds from sale of fixed assets	0			0			29			0		29
Restricted cash	0			0			178			0		178
Net cash used in investing activities	0			(4,629		)	(2,251		)	0		(6,880		)	0			(797		)	(323		)	0		(1,120		)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft	0			(3,993		)	0			0		(3,993		)	0			(3,547		)	0			0		(3,547		)
(Repayments) borrowing under revolving credit facilities, net	0			(13,025		)	(432		)	0		(13,457		)
Repayments of term loans and notes payable	0			(47		)	(6		)	0		(53		)
Net proceeds from issuance of common stock	28,446			0			0			0		28,446
Payment of payroll statutory tax withholding on share-based compensation associated with issuance of common stock	(301		)	0			0			0		(301		)
Borrowings under revolving credit facilities, net															0			781			0			0		781
Borrowings of term loans and notes payable															0			0			14,997			0		14,997
Payments of debt issuance costs	(345		)	(354		)	0			0		(699		)	(323		)	0			0			0		(323		)
Repayments of capital lease obligations	0			(1,796		)	(32		)	0		(1,828		)	0			(719		)	(17		)	0		(736		)
Advances to/from affiliates	(12,311		)	15,361			(3,050		)	0		0
Net cash provided by (used in) financing activities	15,489			(3,854		)	(3,520		)	0		8,115
Advances from (to) affiliates															5,029			3,702			(8,731		)	0		0
Net cash provided by financing activities															4,706			217			6,249			0		11,172
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH	0			0			(1,054		)	0		(1,054		)	0			0			(563		)	0		(563		)
NET INCREASE (DECREASE) IN CASH	0			1,164			320			0		1,484
CASH, beginning of period	0			512			8,164			0		8,676
CASH, end of period	$	0		$	1,676		$	8,484		$	0	$	10,160
NET (DECREASE) INCREASE IN CASH															0			(541		)	13,112			0		12,571
Cash, beginning of period															0			1,370			6,973			0		8,343
Cash, end of period															$	0		$	829		$	20,085		$	0	$	20,914

NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired, and included in accounts payable	$	0		$	407		$	221		$	0	$	628		$	0		$	35		$	42		$	0	$	77

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Condensed Consolidating Statement of Cash Flows

For the ~~Six~~Three Months Ended ~~June 30, 2013~~March 31, 2014

(in thousands)

(unaudited)


	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries		Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination Entries		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used in) provided by operating activities	$	732		$	(25,339	)	$	10,704		$	0	$	(13,903	)	$	(1,241	)	$	1,777		$	3,379		$	0	$	3,915
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	0			(11,477		)	(2,160		)	0		(13,637		)	0			(2,340		)	(1,618		)	0		(3,958		)
Proceeds from sale of fixed assets	0			27			3			0		30			0			0			30			0		30
Restricted cash	0			3,265			(1,509		)	0		1,756			0			0			0			0		0
Net cash used in investing activities	0			(8,185		)	(3,666		)	0		(11,851		)	0			(2,340		)	(1,588		)	0		(3,928		)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft	0			4,117			0			0		4,117			0			(3,989		)	0			0		(3,989		)
Repayments of expired revolving credit facilities, net	0			(28,513		)	0			0		(28,513		)
Borrowings (repayments) under current revolving credit facilities, net	0			32,758			(2,928		)	0		29,830
Repayments under revolving credit facilities, net															0			(14,128		)	(429		)	0		(14,557		)
Repayments of term loans and notes payable	4,500			(30,000		)	(7		)	0		(25,507		)	0			(47		)	(3		)	0		(50		)
Repayment of Lion term loan	(144,149		)	0			0			0		(144,149		)
Issuance of Senior Secured Notes	199,820			0			0			0		199,820
Payments of debt issuance costs															(69		)	(303		)	0			0		(372		)
Net proceeds from issuance of common stock															28,554			0			0			0		28,554
Payment of payroll statutory tax withholding on share-based compensation associated with issuance of common stock	(2,119		)	0			0			0		(2,119		)	(125		)	0			0			0		(125		)
Payments of debt issuance costs	(11,237		)	(414		)	0			0		(11,651		)
Repayments of capital lease obligations	—			(1,059		)	(22		)	0		(1,081		)	0			(121		)	(16		)	0		(137		)
Advances to/from affiliates	(47,547		)	55,087			(7,540		)	0		0
Advances (to) from affiliates															(27,119		)	29,110			(1,991		)	0		0
Net cash provided by (used in) financing activities	(732		)	31,976			(10,497		)	0		20,747			1,241			10,522			(2,439		)	0		9,324
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH	0			0			(502		)	0		(502		)	0			0			(1,304		)	0		(1,304		)
NET DECREASE IN CASH	0			(1,548		)	(3,961		)	0		(5,509		)
CASH, beginning of period	0			3,796			9,057			0		12,853
CASH, end of period	$	0		$	2,248		$	5,096		$	0	$	7,344
NET INCREASE (DECREASE) IN CASH															0			9,959			(1,952		)	0		8,007
Cash, beginning of period															0			512			8,164			0		8,676
Cash, end of period															$	0		$	10,471		$	6,212		$	0	$	16,683

NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired, and included in accounts payable	$	0		$	2,334		$	433		$	0	$	2,767		$	0		$	917		$	123		$	0	$	1,040

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

(All dollar and share amounts in Item 2 are presented in thousands, except for ~~per-share~~per share items and unless otherwise specified.)

OVERVIEW

A. General

We are a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel and accessories for women, men, children and babies. We are based in downtown Los Angeles, California. We also operate a leading wholesale business that supplies high quality T-shirts and other casual wear to distributors and screen printers. In 2003, we opened our first retail store in Los Angeles, California. As of ~~June 30, 2014~~March 31, 2015, we had approximately 10,000 employees and operated ~~247 retail~~239 retail stores in 20 countries: the U.S., Canada, the U.K., Australia, Austria, Belgium, Brazil, China, France, Germany, Ireland, Israel, Italy, Japan, Mexico, Netherlands, South Korea, Spain, Sweden, and Switzerland. We ~~also~~currently operate ~~a global~~13 e-commerce ~~site~~stores in eight languages that ~~serves~~serve customers from over 6050 countries worldwide at ~~www.americanapparel.com.~~ www.americanapparel.com~~In addition, we operate a leading wholesale business that supplies high qualityT-shirts and other casual wear to distributors and the imprintable industry.~~.

We conduct our primary apparel manufacturing operations out of an 800,000 square-foot facility in the warehouse district of downtown Los Angeles, California. The ~~facility houses our executive offices, as well as cutting, sewing and warehousing operations. We conduct knitting operations~~following table presents non-retail facilities located in ~~Los Angeles and Garden Grove, California, which produce a majority of~~ the fabric we use in our products. We operate dye houses in Hawthorne, California that currently provide dyeing and finishing services for nearly all of the raw fabric used in production. We also operate a cutting, sewing, garment dyeing and finishing facility in South Gate, California. We operate a fabric dyeing and finishing facility in Garden Grove, California, which also includes cutting, sewing and knitting operations. Since 2013, we have conducted our warehousing and distribution operations at La Mirada, California.U.S.



Location		Purpose
Los Angeles, California		Headquarters, wholesale and web sales operations, hosiery knitting, cutting and sewing of garments and warehousing
Los Angeles, California		Fabric knitting
Hawthorne, California		Fabric dyeing and finishing
South Gate, California		Cutting, sewing, garment dyeing and finishing
Garden Grove, California		Fabric knitting, fabric dyeing and finishing, cutting and sewing of garments
La Mirada, California		Distribution Center

Because we manufacture domestically and are vertically integrated, we believe this enables us to more quickly respond to customer demand and changing fashion trends and to closely monitor product quality. Our products are noted for ~~their~~ quality and fit, and together with our distinctive branding, these attributes have differentiated our products in the marketplace. "American Apparel^®" is a registered trademark of American Apparel (USA) LLC.

We experience seasonality in our operations; sales during the third and fourth fiscal quarters have generally been the highest while sales during the first fiscal quarter have been the lowest. This reflects the combined impact of the seasonality of our wholesale and retail channels. Generally, our retail segment has not experienced the same pronounced sales seasonality as other retailers.

The following table presents, by segment, the change in retail store count during the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~.2014.

U.S. Retail Canada International Total
Three Months Ended June 30, 2014
Open at March 31, 2014 140
32
77
249
Opened 0
0
2
2
Closed (3 ) (1 ) 0
(4 )
Open at June 30, 2014 137
31
79
247

Three Months Ended June 30, 2013
Open at March 31, 2013 139
34
76
249
Opened 0
0
1
1
Closed (1 ) (1 ) (3 ) (5 )
Open at June 30, 2013 138
33
74
245

~~Table of Contents~~


	U.S. Retail		Canada		International		Total		U.S. Retail		Canada		International		Total
Six Months Ended June 30, 2014
Three Months Ended March 31, 2015
Open at December 31, 2014									136		31		75		242
Opened									0		0		1		1
Closed									(1	)	(1	)	(2	)	(4	)
Open at March 31, 2015									135		30		74		239

Three Months Ended March 31, 2014
Open at December 31, 2013	139		32		77		248		139		32		77		248
Opened	2		0		3		5		2		0		1		3
Closed	(4	)	(1	)	(1	)	(6	)	(1	)	0		(1	)	(2	)
Open at June 30, 2014	137		31		79		247

Six Months Ended June 30, 2013
Open at December 31, 2012	140		35		76		251
Opened	1		0		2		3
Closed	(3	)	(2	)	(4	)	(9	)
Open at June 30, 2013	138		33		74		245
Open at March 31, 2014									140		32		77		249

B. Comparable Store Sales

The following table ~~below shows~~presents the changes in comparable store sales for our retail and online stores during the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014, ~~and~~ ~~2013~~, and the number of retail stores included in the comparison at the end of each period. Comparable store sales are defined as the percentage change in sales for stores that have been open for more than twelve full months. Remodeled and expanded stores are excluded from the determination of comparable stores during the following twelve months if the remodel

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or expansion results in a change of greater than 20% of selling square footage. Closed stores are excluded from the base of comparable stores following their last full month of operation.

In calculating constant currency amounts, we convert the results of our foreign operations during the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~ by using the weighted-average foreign exchange rate for the current comparable periods to achieve a consistent basis for comparison.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2014		2013		2014		2013		2015		2014
Comparable store sales ^(a)	(6	)%	7	%	(5	)%	7	%	(5	)%	(5	)%
Number of stores in comparison	233		237		234		237		226		236

^{______________________}

(a) ~~Include~~ Comparable store sales results include the impact of online store sales.

C. Executive Summary

~~Results~~Recent Developments

On May 11, 2015, we anticipate to announce the commencement of ~~Operations~~a $10,000 "at-the-market" offering program. Under the program, we may, from time to time and at our discretion, offer and sell shares of our common stock having an aggregate gross sales price up to $10,000. We intend to use the net proceeds generated through the program for working capital and general corporate purposes.

On March 6, 2015, a member appointed by Lion resigned from the Board, and on March 24, 2015, the Board elected a member designated by Lion to fill that vacancy.

On March 25, 2015, we entered into the Sixth Amendment to the Capital One Credit Facility which (i) waived any defaults under the Capital One Credit Facility due to the failure to meet the obligation to maintain the maximum leverage ratio and minimum adjusted EBITDA required for the measurement periods ended December 31, 2014, as defined in the credit agreement, (ii) waived the obligation to maintain the minimum fixed charge coverage ratios, maximum leverage ratios and minimum adjusted EBITDA required for the twelve months ending March 31, 2015, (iii) included provisions to permit us to enter into the Standard General Credit Agreement, (iv) reset financial covenants relating to maintaining minimum fixed charge coverage ratios, maximum leverage ratios and minimum adjusted EBITDA and (v) permitted us to borrow $15,000 under the Standard General Credit Agreement.

Standard General informed the Company that it entered into an agreement with Capital One that could result in it purchasing all of the loans and commitments outstanding under the Capital One Credit Facility by September 30, 2015 or earlier under certain other circumstances.

On March 25, 2015, one of our subsidiaries borrowed $15,000 under the Standard General Credit Agreement, which is guaranteed by us, bears interest at 14% per annum, and will mature on October 15, 2020. The proceeds of such loan provided additional liquidity to us as contemplated by the Standstill Agreement.

On April 14, 2015, we paid $13,803 in interest on the Notes.

Summary of Financial Results

Net sales for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 decreased ~~$803,~~$12,833, or ~~0.3%~~9.4%, from the corresponding period in ~~2013 due~~2014. The decrease was made up of a $5,500 impact from a 5% decline in comparable store sales, a $5,100 impact from foreign exchange related to the strengthening of the U.S. dollar, and a $2,200 impact from store closings. Negatively impacting comparable store sales in the quarter was a strategic initiative to reduce inventory levels by accelerating the sale of slow-moving merchandise in the retail stores. The initiative shifted the merchandise mix in the retail stores towards clearance-related product.

Gross profits as a percentage of sales were 38.2% and 52.5% for the three months ended March 31, 2015 and 2014, respectively. The decrease was related to discounts related to management's strategic initiative to reduce inventory levels by accelerating the sale of slow-moving inventory, the foreign exchange impact of the strengthening US dollar and lower ~~sales at our U.S. Retail, Canada and International segments which decreases were substantially offset by~~retail sales. Additionally, gross margins declined as a result of higher costs of production, including an increase in ~~the U.S. Wholesale segment.~~workers compensation costs and higher freight costs.

~~U.S. Wholesale net sales, excluding online consumer net sales, increased by $9,255, or 11.9%,~~Operating expenses include selling and distribution and general and administrative expenses. Operating expenses for the ~~six~~three months ended June 30, 2014 from the corresponding period in 2013 mainly due to higher sales order volume from our new and existing customers. This increase was attributed to the continued strength of our product offerings and improved service levels. In addition, during the second quarter of 2014, we added a significant new distributor and began to ship its initial stock order. We continue our focus on increasing our customer base by targeting direct sales, particularly sales to third party screen printers. U.S. online consumer net sales increased 3.0% primarily due to targeted online advertising and promotional efforts in the earlier part of the year.

~~U.S. Retail net sales for the six months ended June 30, 2014~~March 31, 2015 decreased ~~$4,073,~~$8,637, or ~~4.3%~~10.9%, from the corresponding period in ~~2013 mainly due to a decrease in comparable store sales as a result~~2014. Excluding the effects of the ~~unseasonably cool temperatures across the country during the first quarter of 2014~~internal investigation, litigation and ~~lower mall traffic.~~

~~Canada net sales for the six months ended June 30, 2014~~professional fees described below, operating expenses decreased ~~$4,332, or 15.6%,~~$10,103 from the corresponding period in 2013 due to approximately $2,500 in lower sales, primarily in the retail and wholesale channels, and approximately $1,900 as a result of the unfavorable impact of foreign currency exchange rate changes.

International net sales for the six months ended June 30, 2013 decreased $2,226, or 2.8%, from the corresponding period in 2013 mainly due to approximately $4,500 lower sales in all three sales channels, partially offset by $2,200 from the favorable impact of foreign currency exchange rate changes.

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~~Gross margin for the six months ended June 30, 2014 was 51.5% as compared to 52.2% for the six months ended June 30, 2013.~~

Operating expenses include selling, general and administrative expenses, and retail store impairment. Operating expenses for the six months ended June 30, 2014 decreased $9,852, or 5.8%, from the corresponding period in 2013, and were 53.2% and 56.3% of total net sales, respectively. Excluding the effects of share-based compensation, depreciation and amortization, and impairment charges, operating expenses as a percentage of total net sales were 47.6% and 49.9% for the six months ended June 30, 2014 and 2013, respectively.2014. The decrease was primarily due to lower payroll from our cost reduction efforts and ~~lower other operating expenditures, partially offset by a $1,000 charge for an estimated settlement related to an industrial accident.~~reduced rent, supplies and miscellaneous activities.

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Loss from operations was ~~$4,916~~$22,930 for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 as compared to ~~$12,391~~$7,496 for the ~~six~~three months ended ~~June 30, 2013. Lower sales volume was~~March 31, 2014. Excluding the effects of the significant events described below, our loss from operations would have been $13,419 and $7,496 for the three months ended March 31, 2015 and 2014, respectively. The effects of the lower gross margins discussed above were offset by decreases in ~~our~~ operating expenses as discussed above.

Net loss for the ~~six~~three months ended ~~June~~March 30, ~~2014~~2015 was ~~$21,671~~$26,424 as compared to ~~$84,015~~$5,466 for the ~~six~~three months ended ~~June 30, 2013 primarily~~March 31, 2014. The decrease was mainly as a result of the ~~$7,475 reduction~~$15,434 increase in loss from operations ~~the $32,101 loss in the 2013 period on the extinguishment of debt~~ and the change of $5,159 in fair value of warrants between ~~periods, which reduced the comparable net loss in 2014 by $22,612.~~periods. See Results of Operations for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 for further details.

~~Liquidity~~

~~As of~~ ~~June 30, 2014, we had~~ ~~$10,160~~ ~~in cash,~~ ~~$30,554~~ ~~outstanding on our~~ ~~$50,000~~ ~~asset-backed revolving credit facility with Capital One,~~Cash provided by operating activities were $3,082 and ~~$16,891~~ ~~of availability for additional borrowings under the Capital One Credit Facility. As of August 1, 2014, we had $22,942 available for additional borrowings under the Capital One Credit Facility.~~

~~In March 2014, we entered into the Fifth Amendment to the Capital One Credit Facility and waived the obligation to maintain the minimum fixed charge coverage and maximum leverage ratios~~$3,915 for the three months ended ~~December 31, 2013~~March 30, 2015 and ~~March 31, 2014. Based~~2014, respectively. The increase was due to better working capital management, partially offset by the payments related to the significant costs discussed below.

Significant Events

The table below summarizes the impact to our earnings of certain costs which we consider to be significant and presents gross profit, operating expenses, and income from operations on ~~the Fifth Amendment, the interest rates on borrowings under the Capital One Credit Facility equal to LIBOR plus~~ ~~5.0%~~ ~~or the bank's prime rate plus~~ ~~4.0%~~ at our option and are subject to specified borrowing requirements and covenants. In addition, the Fifth Amendment reset the minimum fixed charge coverage ratio, the maximum leverage ratio, and the maximum capital expenditures allowed, and added a minimum EBITDA covenant. For the three months ended ~~June 30, 2014, we were required to maintain a minimum fixed charge coverage ratio of not less than 0.85 to 1.00 and achieve a minimum EBITDA of~~ ~~$9,000. We were in compliance~~an as-adjusted basis, together with the ~~covenant at~~ reconciliation to the mostly directly comparable GAAP measure:



	Three months ended March 31,
	2015			% of Net Sales		2014			% of Net Sales
Gross profit	$	47,462		38.2	%	$	71,974		52.5	%
Sales of slow moving inventory	8,045					0
Gross profit - adjusted (Non-GAAP)	$	55,507		42.0	%	$	71,974		52.5	%

Operating expenses	$	70,334		56.6	%	$	78,971		57.6	%
Internal investigation, litigation and professional fees	(1,466		)			0
Operating expenses - adjusted (Non-GAAP)	$	68,868		55.4	%	$	78,971		57.6	%

Loss from operations	$	(22,930	)	(18.5	)%	$	(7,496	)	(5.5	)%
Sales of slow moving inventory	8,045					0
Internal investigation, litigation and professional fees	1,466					0
Loss from operations - adjusted (Non-GAAP)	$	(13,419	)	(11.1	)%	$	(7,496	)	(5.5	)%

Sales of slow moving inventory~~June 30, 2014~~.

~~Management Plan~~

We continue to develop initiatives intended to either increase sales, reduce costs or improve liquidity. Beginning with the fourth quarter of 2013, we instituted various programs to reduce costs such as payroll and related costs associated with manufacturing and administrative overhead. We also limited capital expenditures starting - During the first quarter of 2015, management undertook a global plan to sell slow moving inventory through a graduated sales discount program. This program is a part of the management's strategic shift to change our inventory profile and actively reduce inventory levels to improve store merchandising, working capital and liquidity. As a result, we implemented an initiative to accelerate the sale of slow-moving inventory through our retail and online sales channels, as well as through certain off-price channels. The program resulted in a significant reduction of slow moving inventory at positive gross margins.

Internal investigation, litigation and professional fees - During the first quarter of 2015, we incurred additional legal and consulting costs related to the termination of Dov Charney, other additional litigation costs related to various claims and lawsuits and the sale of the slow moving inventory.

Management's Plan

In accordance with the Standstill Agreement, five new directors joined us in August 2014. ~~In addition,~~Subsequently, the Board hired new senior management,including the CEO, CFO, and General Counsel, as well as other additions to the management team. Together, the new board of directors and new management team are focused on implementing a turnaround strategy and enhancing our corporate governance policies and practices. We have started implementing additional operational and financial processes and disciplines to improve liquidity and profitability. To that end, we added new members to the executive team in the areas of planning and forecasting, operations, marketing, merchandising planning, product development and e-commerce.

We upgraded the merchandising planning and creative departments as well. For example, the spring 2015 collection had not been developed and, as such, we immediately reorganized our creative and merchandising department to start creating the spring and fall lines and improve our in store collections and merchandise planning. We continue to drive productivity ~~improvements~~ from our ~~new~~ distribution center, reduce inventory, ~~reductions, other~~reduce labor ~~cost reductions,~~costs, and ~~consolidation of~~consolidate our administrative and manufacturing functions. ~~Efforts~~Additionally, new members were added to ~~identify additional ways to reduce costs~~the legal and ~~improve productivity are ongoing.~~

~~Some~~human resources departments and we have introduced a new code of ~~our key initiatives recently completed and/or in progress include:~~

~~Completed RFID implementation~~ ~~- In the fourth quarter of 2013, we completed the enhancement of our stores by installing sales conversion tracking device~~business conduct and ~~radio frequency identification (RFID) tracking systems at all of our stores worldwide, which enhanced sales through improvements in stock positions and replenishment activities.~~

~~New e-commerce platform~~ – The e-commerce software platform speeds response times and enables us to deliver a personalized customer buying experience, which contributes to our financial growth as our website has the potential to not only increase online sales but also in-store sales. As of the end of 2013, we extended the new platform to online stores in Canada, the U.K., Continental Europe, Australia, Hong Kong and Singapore online stores. We intend to implement this system to our remaining online stores throughout 2014. The new system improves distributors' ability to place sales order and is mobile optimized, which we believe enhances the shopping experience for our distributors.

In 2013, we replaced our existing payment processing system with new electronic payment services from CyberSource, and also implemented a payment fraud detection solution. We intend to complete the upgrade of our payment processing system throughout 2014.

During 2012 and 2013, we successfully completed the virtualization of over 300 servers, including all of our key servers. We plan to complete the virtualization of our servers and move our data center to an off-site location during 2014. We believe that this not only maximizes our server resources but also enhances system performance and enables faster uptime in a disaster recovery situation.

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~~New distribution center~~ - In June 2012, we entered into an operating lease agreement for a new distribution center located in La Mirada, California and fully transitioned our distribution operations into this new facility during 2013. Related to these efforts, we installed the High Jump warehouse management system for all distribution activities. Although we incurred significant transition costs and implementation delays associated with this transition, weethics. We believe that the new distribution center will contribute to processing efficiencies and effectiveness and will reduce operating expenses and cost of sales as it offers an improved distribution platform to scale both retail and wholesale sales channels. The transition to the new center was successfully completed during the fourth quarter of 2013. The center is now fullya strong operational and ~~labor costs have been reduced.~~financial discipline, along with a robust corporate governance structure, is an important element of our long-term business strategy.

Although we have made ~~significant improvements~~progress under ~~this plan,~~these programs, we operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Our cash flows are dependent upon meeting future sales growth projections and reducing certain expenses. Accordingly, there can be no assurance that ~~further~~our planned ~~improvement~~operational improvements will be successful. Any material change to these liquidity assumptions could constrain our implementation of the turnaround plan and may require us to raise additional capital.

D. Critical Accounting Policies and Estimates

As discussed in Part II, Item 8.7. Management Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014, we consider our most critical accounting policies and estimates to include:

•revenue recognition;

•inventory valuation and obsolescence;

•~~fair value calculations including derivative liabilities;~~

•valuation and recoverability of long-lived assets, including the values assigned to ~~acquired~~goodwill, intangible assets, ~~goodwill,~~and property

~~and property~~ and equipment;

•~~income taxes;~~fair value calculations including derivative liabilities;

•~~legal accruals;~~contingencies, including accruals for the outcome of current litigation and assessments and self-insurance; and

•~~self-insurance liabilities.~~income taxes, including uncertain income tax positions and recoverability of deferred income taxes and any

limitations as to net operating losses.

In general, estimates are based on historical experience, information from third party professionals and various other sources, and assumptions that are believed to be reasonable under the facts and circumstances at the time such estimates are made. On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results may vary from these estimates and assumptions. Our management considers an accounting estimate to be critical if:

•it requires assumptions to be made that were uncertain at the time the estimate was made; and

•changes in the estimate, or the use of different estimating methods that could have been selected, could have a material

impact on our consolidated results of operations or financial condition.

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RESULTS OF OPERATIONS

The results of operations of the interim periods are not necessarily indicative of results for the entire year.

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Three Months Ended ~~June 30, 2014~~March 31, 2015 compared to Three Months Ended ~~June 30, 2013~~March 31, 2014

The following table ~~sets forth~~presents our results of operations from the unaudited consolidated statements of operations by dollar and as a percentage of net sales for the periods ~~indicated (in thousands):~~indicated:

Three Months Ended June 30,
2014 % of net sales 2013 % of net sales
U.S. Wholesale $ 58,254
35.9 % $ 52,741
32.5 %
U.S. Retail 48,970
30.1 % 51,164
31.6 %
Canada 13,017
8.0 % 15,452
9.5 %
International 42,156
26.0 % 42,879
26.4 %
Total net sales 162,397
100.0 % 162,236
100.0 %
Cost of sales 80,010
49.3 % 78,366
48.3 %
Gross profit 82,387
50.7 % 83,870
51.7 %

Selling expenses 52,443
32.3 % 57,790
35.6 %
General and administrative expenses 27,135
16.7 % 27,994
17.3 %
Retail store impairment 229
0.1 % 0
0.0 %

Income (loss) from operations 2,580
1.6 % (1,914 ) (1.2 )%

Interest expense 10,019

8,220

Foreign currency transaction loss ^(a)
0

158

Unrealized loss (gain) on change in fair value of warrants ^(b)
8,202

(5,498 )
Loss on extinguishment of debt 0
32,101

Other expense (income) 60

(11 )
Loss before income tax (15,701 )

(36,884 )
Income tax provision 504

620

Net loss $ (16,205 )

$ (37,504 )

~~(a) Related to the exchange rate fluctuations of the U.S. Dollar relative to functional currencies used by our subsidiaries.~~

~~(b) Mark-to-market adjustments associated with our warrants.~~

~~(1) U.S. Wholesale~~

~~U.S. Wholesale net sales for the three months ended June 30, 2014, excluding online consumer net sales, increased~~ ~~$5,726, or~~ ~~13.2%~~, from the corresponding period in 2013 mainly due to higher sales order volume from our new and existing customers. This increase was attributed to the continued strength of our product offerings and improved service levels. In addition, during the second quarter of 2014, we added a significant new distributor and began to ship its initial stock order. We continue our focus on increasing our customer base by targeting direct sales, particularly sales to third party screen printers.

~~Online consumer net sales for the three months ended June 30, 2014 decreased~~ ~~$213, or~~ ~~2.2%, from the corresponding period in 2013 mainly due to lower sales order volume.~~

~~(2) U.S. Retail~~

~~U.S. Retail net sales for the~~ ~~three months ended June 30, 2014~~ ~~decreased~~ ~~$2,194, or~~ ~~4.3%~~, from the corresponding period in 2013 mainly due to a decrease of approximately $3,000 in comparable store sales as a result of lower store foot traffic. Net sales also decreased approximately $1,300 due to the closure of six stores offset by an increase of approximately $1,800 from four new stores added after June 2013.

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~~(3) Canada~~

~~Canada net sales for the~~ ~~three months ended June 30, 2014~~ ~~decreased~~ ~~$2,435, or~~ ~~15.8%~~, from the corresponding period in 2013 mainly due to lower sales of approximately $1,570 in the retail and wholesale channels. In addition, the impact of foreign currency exchange rate changes contributed approximately $860 to the sales decrease.

Retail net sales for the three months ended June 30, 2014 decreased $1,810, or 16.1%, from the corresponding period in 2013. Comparable store sales decreased approximately $340 due to lower store foot traffic. The closure of retail stores and less warehouse sales also resulted in decreased net sales of approximately $450 and $360, respectively. In addition, the impact of foreign currency exchange rate changes contributed approximately $620 to the sales decrease.

Wholesale net sales for the three months ended June 30, 2014 decreased $787, or 21.8%, from the corresponding period in 2013 mainly due to timing of orders from a large wholesale customer. Additionally, the impact of foreign currency exchange rate changes contributed approximately $190 to the sales decrease.

Online consumer net sales for the three months ended June 30, 2014 increased $162, or 26.6%, from the corresponding period in 2013 mainly due to continuing targeted promotion efforts and email advertising campaigns as well as enhanced functionality of the website. The impact of foreign currency exchange rate changes contributed approximately $50 to the sales decrease.

~~(4) International~~

~~International net sales for the~~ ~~three months ended June 30, 2014~~ ~~decreased~~ ~~$723, or~~ ~~1.7%~~, from the corresponding period in 2013 mainly due to lower sales of approximately $2,500 in the wholesale and retail channels offset by the favorable impact of foreign currency exchange rate changes of approximately $1,800.

~~Retail net sales for the~~ ~~three months ended June 30, 2014~~, 2014 decreased by $365, or 1.0%, from the corresponding period in 2013. The decrease was due to lower comparable store sales of approximately $2,300 and lower sales of approximately $800 from store closures. The decrease was offset by approximately $1,200 higher sales due to new stores and approximately $1,500 from the favorable impact of foreign currency exchange rate changes.

~~Wholesale net sales for the~~ ~~three months ended June 30, 2014~~ decreased $431, or 16.4%, from the corresponding period in 2013 mainly due to lower sales order volume in the U.K. and Continental Europe offset by the favorable impact of foreign currency exchange rate changes of approximately $130.

~~Online consumer net sales for the~~ ~~three months ended June 30, 2014~~ ~~increased~~ ~~$73, or 1.7%, from the corresponding period in 2013 mainly due to favorable impact of foreign currency exchange rate changes.~~

~~(5) Gross Profit~~

~~Gross profit for the three months ended June 30, 2014 decreased 1.8% from $83,870, or 51.7% of net sales, to $82,387, or 50.7% of net sales.~~

~~(6) Selling expenses~~

~~Selling expenses for the~~ ~~three months ended June 30, 2014~~ ~~decreased~~ ~~$5,347, or~~ ~~9.3%~~, from the corresponding period in 2013 mainly due to lower selling payroll of approximately $3,000 and advertising costs of approximately $2,000. The decreases were the result of reductions in both retail headcount and store hours as well as reduced advertising commitments.

~~(7) General and administrative expenses~~

~~General and administrative expenses for the~~ ~~three months ended June 30, 2014~~ ~~decreased~~ ~~$859~~, or 3.1%, from the corresponding period in 2013 mainly due to reduced salaries, wages, and benefits of approximately $1,000 coupled with a decreased in leased equipment, utilities, travel, and other miscellaneous expenses totaling of approximately $1,300. These reductions were substantially due to our cost reduction efforts. In addition, share-based compensation expense decreased by approximately $1,600 primarily relating to the expiration and forfeiture of certain market-based and performance-based share awards. The decrease was partially offset by a $1,000 charge for an estimated settlement related to an industrial accident and higher legal and consulting professional fees of approximately $2,000, the majority of which was related to costs associated with the suspension of Mr. Charney.

~~(8) Interest expense~~

~~Interest expense for the~~ ~~three months ended June 30, 2014~~ ~~increased~~ ~~$1,799, or 21.9% from the corresponding period in 2013 mainly due to accrued interest on the Notes.~~

~~(9) Income tax provision~~

~~Although we incurred a loss before income tax on a consolidated basis for the~~ ~~three months ended June 30, 2014, some of our foreign domiciled subsidiaries reported income before income tax and will be taxable on a stand-alone reporting basis in their~~

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~~respective foreign jurisdictions. As a result, we recorded a provision for income tax expense for the~~ ~~three months ended June 30, 2014. There were no charges or benefits recorded to income tax expense for valuation allowances.~~

~~Six Months Ended June 30, 2014 compared to the Six Months Ended June 30, 2013~~

The following table sets forth our results of operations from the unaudited condensed consolidated statements of operations by dollar and as a percentage of net sales for the periods indicated (in thousands):


	Six Months Ended June 30,										Three Months Ended March 31,
	2014			% of net sales		2013			% of net sales		2015			% of net sales		2014			% of net sales
U.S. Wholesale	$	106,991		35.7	%	$	97,163		32.4	%	$	49,037		39.5	%	$	48,737		35.6	%
U.S. Retail	91,435			30.5	%	95,508			31.8	%	37,302			30.0	%	42,465			31.0	%
Canada	23,477			7.8	%	27,809			9.3	%	9,311			7.5	%	10,460			7.6	%
International	77,590			25.9	%	79,816			26.6	%	28,613			23.0	%	35,434			25.8	%
Total net sales	299,493			100.0	%	300,296			100.0	%	124,263			100.0	%	137,096			100.0	%
Cost of sales	145,132			48.5	%	143,558			47.8	%	76,801			61.8	%	65,122			47.5	%
Gross profit	154,361			51.5	%	156,738			52.2	%	47,462			38.2	%	71,974			52.5	%

Selling expenses	106,505			35.6	%	113,253			37.7	%
Selling and distribution expenses											45,472			36.6	%	54,062			39.4	%
General and administrative expenses	52,044			17.4	%	55,798			18.6	%	24,862			20.0	%	24,909			18.2	%
Retail store impairment	728			0.2	%	78			0.0	%	58			0.0	%	499			0.4	%

Loss from operations	(4,916		)	(1.6	)%	(12,391		)	(4.1	)%	(22,930		)	(18.5	)%	(7,496		)	(5.5	)%


Interest expense	20,058					19,434					9,781					10,039
Foreign currency transaction loss ^(a)	132					871					625					132
Unrealized (gain) loss on change in fair value of warrants^(b)	(4,465		)			18,147
Loss on extinguishment of debt	0					32,101
Other expense (income)	52					(16		)
Unrealized gain on change in fair value of warrants ^(b)											(7,508		)			(12,667		)
Other income											(141		)			(8		)
Loss before income tax	(20,693		)			(82,928		)			(25,687		)			(4,992		)
Income tax provision	978					1,087					737					474
Net loss	$	(21,671	)			$	(84,015	)			$	(26,424	)			$	(5,466	)

(a) Related to the exchange rate fluctuations of the U.S. Dollar relative to functional currencies used by our subsidiaries.

(b) Mark-to-market adjustments associated with our warrants.

(1) U.S. Wholesale

U.S. Wholesale net sales for the ~~six~~three months ended ~~June 30, 2014,~~March 31, 2015, excluding online consumer net sales, slightly decreased $527, or 1.4%, as compared to the corresponding period in 2014. Lower sales volume to existing customers was offset by sales to a significant new distributor customer added during the second quarter of 2014.

Online consumer net sales for the three months ended March 31, 2015 increased ~~by $9,255,~~$827, or ~~11.9%~~7.9%, from the corresponding period in ~~2013~~2014 mainly due to higher sales order volume ~~from our new and existing customers. This increase was attributed to the continued strength~~as a result of our product offerings and improved service levels. In addition, during the second quarter of 2014, we added a significant new distributor and began to ship its initial stock order. We continue our focus on increasing our customer base by targeting direct sales, particularly sales to third party screen printers.

Online consumer net sales increased by $573, or 3.0%, for the six months ended June 30, 2014 from the corresponding period in 2013 mainly due to targeted online advertising and promotional efforts in the earlier part of the year.global discounting initiative.

(2) U.S. Retail

U.S. Retail net sales for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 decreased ~~$4,073,~~$5,163, or ~~4.3%~~12.2%, from the corresponding period in ~~2013~~2014 mainly due to a decrease of approximately ~~$6,600~~$3,900 in comparable store sales, in part as a result of the ~~unseasonably cool temperatures across the country during the first quarter of 2014 and lower store foot traffic.~~global strategic discounting program described above. Net sales also decreased approximately ~~$1,900~~$1,400 due to the closure of ~~eight~~seven stores, offset by ~~an increase~~increases of approximately ~~$3,600~~$480 from ~~four~~three new ~~stores~~store added ~~after~~since the beginning of January ~~2013.~~2014.

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(3) Canada

Canada net sales for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 decreased ~~$4,332,~~$1,149, or ~~15.6%~~11.0%, from the corresponding period in ~~2013 mainly due to approximately $2,500 in lower sales,~~2014. The decrease was primarily in the retail and wholesale channels ~~and approximately $1,900 as a result of~~resulting from the unfavorable impact of foreign currency exchange rate ~~changes.~~changes of approximately $1,200.

Retail net sales for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 decreased ~~$3,163,~~$1,253, or ~~15.5%~~16.1%, from the corresponding period in ~~2013.~~2014 mainly due to the unfavorable impact of foreign currency exchange rate changes of approximately $810. Additionally, the decrease was due to lower comparable store sales of approximately $100 and lower sales of approximately $140 for the closure of two retail stores.

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Wholesale net sales for the three months ended March 31, 2015 decreased $116, or 6.1%, from the corresponding period in 2014. The decrease was mainly due to the unfavorable impact of foreign currency exchange rate changes of approximately $220.

Online consumer net sales for the three months ended March 31, 2015 increased $220, or 27.8%, from the corresponding period in 2014 mainly due to email advertising campaign as well as improvements to the online store. This increase in sales was partially offset by the unfavorable impact of foreign currency exchange rate changes of approximately $130.

(4) International

International net sales for the three months ended March 31, 2015 decreased $6,821, or 19.2%, from the corresponding period in 2014 mainly due to lower sales of approximately $2,900 in the retail and wholesale channels and the unfavorable impact of foreign currency exchange rate changes of approximately $3,700.

Retail net sales for the three months ended March 31, 2015 decreased by $6,597, or 22.2%, from the corresponding period in 2014. The decrease was due to ~~$1,000~~lower comparable store sales of approximately $1,700 and lower sales ~~resulting~~of approximately $680 for the closure of three retail ~~stores and $600 from lower comparable store sales. Additionally,~~stores. In addition, the unfavorable impact of foreign currency exchange rate changes contributed to the sales decrease of approximately ~~$1,400. The decrease in comparable store sales was due to unseasonably cool temperatures.~~$2,900.

Wholesale net sales for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 decreased ~~$1,457,~~$399, or ~~23.5%~~22.2%, from the corresponding period in ~~2013.~~2014. The unfavorable impact of foreign currency exchange rate changes was approximately $230.

Online consumer net sales for the three months ended March 31, 2015 increased $175, or 4.4%, from the corresponding period in 2014 mainly due to higher sales order volume in the U.K., South Korea, and China, offset by lower sales order volume in Japan and Continental Europe and the unfavorable impact of foreign currency exchange rate changes of approximately $550.

(5) Gross Profit

Gross profit for the three months ended March 31, 2015 decreased to $47,462 from $71,974 in the corresponding period in 2014 due primarily to the global strategic discounting program described above. Excluding the effects of the sales discounts described above, gross profit as a percentage of net sales for the three months ended March 31, 2015 would have been 42.0% as compared with 52.5% in the corresponding period in 2014. The decrease in gross margins was primarily due to higher costs of production, including an increase in workers compensation costs, higher freight costs as well as the negative effects of foreign currency exchange rates changes.

(6) Selling and distribution expenses

Selling and distribution expenses for the three months ended March 31, 2015 decreased $8,590, or 15.9%, from the corresponding period in 2014. The decrease was mainly due to lower ~~sales order resulting from~~selling related payroll costs of approximately $3,200 and lower rent costs of approximately $2,700, all primarily as a ~~tightening focus on customers that can generate higher margins and order fulfillment delays associated with transition issues at the La Mirada distribution center during the fourth quarter~~result of ~~2013.~~our cost reduction efforts. In addition, the impact of foreign currency exchange rate changes contributed to the ~~sales decrease~~expense decreases of approximately ~~$380.~~

Online consumer net sales for the six months ended June 30, 2014 increased $288, or 22.6%, from the corresponding period in 2013 mainly due to continuing targeted promotion efforts and email advertising campaigns as well as enhanced functionality of the website. The absolute increase in sales was partially muted by the impact of foreign currency exchange rate changes of approximately $120.

~~(4) International~~

International net sales for the six months ended June 30, 2013 decreased $2,226, or 2.8%, from the corresponding period in 2013 due to approximately $4,400 lower sales in all three sales channels. The favorable impact of foreign currency exchange rate changes offset the decrease by approximately $2,200.

Retail net sales for the six months ended June 30, 2013 decreased $1,139, or 1.7%, from the corresponding period in 2013. The decrease was due to lower comparable store sales of approximately $3,700 and lower sales of approximately $1,400 from the closure of six retail stores. The decrease was offset by $2,200 higher sales due to new stores and $1,700 from the favorable impact of foreign currency exchange rate changes.

Wholesale net sales for six months ended June 30, 2013 decreased $572, or 12.5%, from the corresponding period in 2013 mainly due to lower sales in the U.K. and Continental Europe offset by the favorable impact of foreign currency exchange rate changes of approximately $210.

Online consumer net sales for the six months ended June 30, 2013 decreased $515, or 5.8%, from the corresponding period in 2013 mainly due to lower sales order volume in Japan, the U.K. and Continental Europe, offset by the favorable impact of foreign currency exchange rate changes of approximately $280.

~~(5) Gross Profit~~

Gross profit decreased 1.5% from $156,738, or 52.2% of net sales to $154,361 or 51.5% of net sales. The decrease was primarily due to lower retail sales volume at our U.S. Retail, Canada and International segments, offset by higher sales at our U.S. Wholesale segment. The decrease in gross profit as a percentage of net sales is due to higher sales discounts at our retail operations and a mix shift to lower margin wholesale net sales.

~~(6) Selling expenses~~

Selling expenses for the six months ended June 30, 2014 decreased $6,748, or 6.0%, from the corresponding period in 2013 mainly due to lower selling payroll of approximately $5,000 and advertising costs of approximately $3,000. The decreases were the result of reductions in both retail headcount and store hours as well as a reduction in advertising commitments.$2,600.

(7) General and administrative expenses

General and administrative expenses for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 were flat as compared to the corresponding period in 2014. Excluding the effects of the internal investigation, litigation and professional fees discussed above, general and administrative expenses decreased ~~$3,754,~~$1,513, or ~~6.7%,~~6.1% from the corresponding period in 2013 mainly due a decrease in share-based compensation expense of approximately $3,900 primarily relating to the expiration and forfeiture of certain market-based and performance-based share awards. In addition, there were decreases in salaries, wages, and benefits of approximately $1,500.2014. The decrease was primarily due to approximately $1,100 in lower share based compensation expense, approximately $1,300 in lower depreciation expenses resulting from impaired assets and closed stores in 2014, and approximately $730 in the impact of foreign currency exchange rate changes, offset by ~~a $1,000 charge for an estimated settlement related to an industrial accident and~~ higher ~~legal and consulting~~ professional fees of approximately ~~$1,300, which were primarily related to costs associated with the suspension of Mr. Charney.~~$1,200.

(8) ~~Interest expense~~Loss from operations

~~Interest expense~~Loss from operations was $22,930 for the ~~six~~three months ended ~~June 30,~~March 31, 2015 as compared to $7,496 for the three months ended March 31, 2014. Excluding the effects of the significant events described above, our losses from operations were $13,419 and $7,496 for the three months ended March 31, 2015 and 2014, ~~increased~~respectively. The higher sales discounts were offset by ~~$624, or 3.2% from the corresponding period~~decreases in ~~2013.~~operating expenses as discussed above.

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(9) Income tax provision

~~Though~~Although we incurred a loss before income tax on a consolidated basis for the ~~six~~three months ended ~~June 30, 2014,~~March 31, 2015, some of our foreign domiciled subsidiaries reported income before income tax and will be taxable on a stand-alone reporting basis in their respective foreign jurisdictions. As a result, we recorded a provision for income tax expense for the ~~six~~three months ended ~~June 30,~~March 31, 2014. There were no charges or benefits recorded to income tax expense for valuation allowances.

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LIQUIDITY AND CAPITAL RESOURCES

Over the past years, our operations have been funded through a combination of borrowings from related and unrelated parties, banks and other debt, lease financing, and proceeds from the exercise of purchase rights and issuance of common stock. We continue to develop initiatives intended to ~~either~~ increase sales, reduce costs or improve working capital and liquidity. ~~Beginning with the fourth quarter of 2013, we instituted~~We utilized various programs to reduce costs such as payroll and related costs associated with manufacturing and administrative ~~overhead. We also~~overhead and limited capital ~~expenditures starting the first quarter of 2014.~~expenditures. In addition, we continue to drive productivity improvements from our ~~new~~ distribution center, inventory reductions, other labor cost reductions, and consolidation of administrative and manufacturing functions. Efforts to identify additional ways to reduce costs and improve productivity are ongoing. As we implement the turnaround plan in 2015, we have incurred and will continue to incur additional costs, such as sales discounts and write-downs, on the sale and disposal of slow-moving inventory and the closure of non-performing stores.

Our principal liquidity requirements are for operations, working capital interest payments, and capital expenditures. We fund liquidity requirements primarily through cash on hand, cash flow from operations, and borrowings under our credit facilities. Our credit agreements contain covenants requiring us to meet specified targets for measures related to earnings, capital expenditures, and minimum fixed charge coverage ratio and maximum leverage ratio requirements. Our inability to achieve such targets or to obtain a waiver of compliance would negatively impact the availability of credit under our credit facilities or result in an event of default.

Recent Developments

On May 11, 2015, we announced the commencement of a $10,000 "at-the-market" offering program. Under the program, we may, from time to time and at our discretion, offer and sell shares of our common stock having an aggregate gross sales price up to the $10,000. We ~~are currently under audit by German customs~~intend to use the net proceeds generated through the program for ~~years 2009 through 2011. The German customs issued retroactive assessments on our imports~~working capital and general corporate purposes.

As of ~~$4,958~~ ~~at the~~ ~~June 30, 2014~~ exchange rates (assessment was issued in Euros). The size of the retroactive assessments are largely due to member countries of the European Union who have limited rights to impose retaliatory duties on U.S. origin goods, based upon the World Trade Organization's dispute settlement procedures and the related arbitrator rulings. Consequently, the German customs are attempting to impose a substantially higher tariff rate than the original rate thatMarch 31, 2015, we had paid on the imports, approximately doubling the amount of the tariff that we would have to pay. Despite the ongoing appeals of the German customs assessment, German customs has indicated it will begin collection enforcement proceedings if we do not soon reach acceptable payment terms for the amounts assessed. Negotiations as to payment terms are ongoing.

We believe that we have valid arguments to challenge the merit of the German customs assessment and have filed litigation in German courts to contest such assessment. At this time, the outcome of legal proceedings against us is subject to significant uncertainty. No assurance can be made that this matter will not result in a material financial exposure, which could have a material effect on our financial condition, results of operations, and cash flows.

~~As of~~ ~~June 30, 2014, we had~~ ~~$10,160~~$20,914 in cash, ~~$30,554~~$35,080 outstanding on our ~~$50,000~~$50,000 asset-backed revolving credit facility with Capital One and ~~$16,891~~$11,179 of availability for additional borrowings under the Capital One Credit Facility. As of ~~August 1, 2014,~~May 6, 2015, we had ~~$22,942 available~~$5,150 availability for additional borrowings under the Capital One Credit Facility. On April 14, 2015, we paid $13,803 in interest on the Notes.

~~The Company~~On March 25, 2015, we entered into the Sixth Amendment which (i) waived any defaults under the Capital One Credit Facility due to the failure to meet the obligation to maintain the maximum leverage ratio and ~~Standard General are~~minimum adjusted EBITDA required for the measurement periods ended December 31, 2014, as defined in the ~~process of negotiating an unsecured~~ credit agreement, ~~(the "Standard General Credit Agreement") between one or more entities affiliated with Standard General~~(ii) waived the obligation to maintain the minimum fixed charge coverage ratio, maximum leverage ratio and ~~one or more foreign subsidiaries of~~minimum adjusted EBITDA required for the ~~Company as borrowers. The Company expects~~twelve months ended March 31, 2015, (iii) included provisions to permit us to enter into the Standard General Credit Agreement, ~~as soon as practicable. The Company expects that~~(iv) reset financial covenants relating to maintaining minimum fixed charge coverage ratios, maximum leverage ratios and minimum adjusted EBITDA and (v) permitted us to borrow $15,000 under the Standard General Credit Agreement.

Standard General informed the Company that it entered into an agreement with Capital One that could result in it purchasing all of the loans and commitments outstanding under the Capital One Credit Facility by September 30, 2015 or earlier under certain other circumstances.

On March 25, 2015, one of our subsidiaries borrowed $15,000 under the Standard General Credit Agreement. The Standard General Credit Agreement ~~will (i) be~~is guaranteed by ~~the Company, (ii) provide for multiple borrowings by the borrowers thereunder in an aggregate amount not to exceed $15,000, which amounts will not be permitted to be reborrowed once repaid, (iii) bear~~us, bears interest at 14% per annum, and ~~(iv)~~will mature on October 15, 2020. ~~The Company expects that amounts under the Standard General Credit Agreement would be available for borrowing with the approval of the Board of Directors.~~

We believe that we have sufficient financing commitments to meet funding requirements for the next twelve months.

A. Cash Flow


	Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2015			2014
Net cash provided by (used in):
Operating activities	$	1,303		$	(13,903	)	$	3,082		$	3,915
Investing activities	(6,880		)	(11,851		)	(1,120		)	(3,928		)
Financing activities	8,115			20,747			11,172			9,324
Effect of foreign exchange rate on cash	(1,054		)	(502		)	(563		)	(1,304		)
Net increase (decrease) in cash	$	1,484		$	(5,509	)
Net increase in cash							$	12,571		$	8,007

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Three Months Ended March 31, 2015 compared to Three Months Ended March 31, 2014

Cash provided by operating activities increased for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 from the corresponding period in ~~2013.~~2014. The increase was mainly due to ~~decreased inventory levels and improved operating income, partially offset by an increase~~better working capital management excluding certain significant costs discussed in Results of Operations. On April 14, 2015, we paid $13,803 in interest ~~payments.~~on the Notes.

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Cash used in investing activities decreased for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 from the corresponding period in ~~2013,~~2014, mainly due to ~~the Company's~~our ongoing efforts to ~~reduce~~control capital expenditures.

Cash provided by financing activities ~~decreased~~increased for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 from the corresponding period in ~~2013.~~2014. In March 2015, one of our subsidiaries borrowed $15,000 under the Standard General Credit Agreement. See Note 7 of Notes to the Condensed Consolidated Financial Statements. In 2014, we completed a public offering ~~of approximately 61,645 shares of our common stock at $0.50 per share~~ for net proceeds of ~~$28,446. During the six months ended June 30, 2014, we~~$28,554 and repaid a net amount of ~~$13,457~~$9,709 borrowed under the Capital One Credit Facility. On April 4, 2013, we issued the Notes for aggregate net proceeds of $199,820 and entered into a new asset-backed revolving credit agreement with Capital One. The net proceeds of the Notes, together with borrowings under the new credit facility, were used to repay and terminate the outstanding amounts with Lion of $144,149 and with Crystal Financial LLP of $66,411.

B. Debt

The following is an overview of our total debt as of ~~June 30, 2014~~:March 31, 2015:


Description of Debt	Lender	Interest Rate	June 30, 2014		Covenant Violations	Lender	Interest Rate	March 31, 2015		Covenant Violations
Revolving credit facility	Capital One	(1)	$	30,554	No (2)	Capital One	(1)	$	35,080	No⁽³⁾
Senior Secured Notes		15.0%	205,647		No		15.0%	209,315		No
Long-term debt with Lion	Lion	20.0%	9,865		No
Long-term debt with Standard General						Standard General	17.0%	9,074		No
Credit agreement						Standard General	14.0%	15,000		No
Capital lease obligations	(3)	0.4% ~ 23.5%	5,358		N/A	(2)	0.4% ~ 24.1%	4,224		N/A
Other			299		N/A			243		N/A
Cash overdraft								2,167
Total			$	251,723				$	275,103

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(1) LIBOR plus 5.0% or the bank's prime rate plus 4.0% ~~at the Company's option according to the Fifth Amendment.~~.

(2) Violations prior to the Fifth Amendment were waived. Instead, the Company was required to maintain a minimum fixed charge coverage ratio of not less than 0.85 to 1.00 and achieve a minimum EBITDA of $9,000.

~~(3) 25~~29 individual leases ranging between from $2 to ~~$3,832~~$5,828.

(3) Violations were waived in connection with the Sixth Amendment to the Capital One Credit Facility.

For additional disclosure regarding debts, see Notes 6 and 7 of ~~Condensed~~ Notes to the Condensed Consolidated Financial Statements under Part I. Item 1. Financial Statements.

Financial Covenants

Capital One Credit Facility - ~~Under~~On March 25, 2015, we entered into the ~~Fifth~~Sixth Amendment ~~we are subject~~which (i) waived any defaults under the Capital One Credit Facility due to ~~specified borrowing requirements~~the failure to meet the obligation to maintain the maximum leverage ratio and ~~covenants. The Fifth Amendment requires a~~minimum adjusted EBITDA required for the measurement periods ended December 31, 2014, as defined in the credit agreement, (ii) waived the obligation to maintain the minimum fixed charge coverage ratio, a maximum leverage ratio and ~~a maximum capital expenditures allowed and adds a~~ minimum adjusted EBITDA ~~covenant. For~~required for the ~~three~~twelve months ended ~~June 30, 2014,~~March 31, 2015, (iii) included provisions to permit us to enter into the ~~we were required~~Standard General Credit Agreement, (iv) reset financial covenants relating to ~~maintain a~~maintaining minimum fixed charge coverage ~~ratio of not less than 0.85~~ratios, maximum leverage ratios and minimum adjusted EBITDA and (v) permitted us to ~~1.00 and achieve a minimum EBITDA of~~ ~~$9,000. We were in compliance with these covenants at~~ ~~June 30, 2014~~.borrow $15,000 under the Standard General Credit Agreement.

The Capital One Credit Facility is secured by a lien on substantially all of the assets of our domestic subsidiaries and equity interests in certain of foreign subsidiaries, subject to some restrictions. It requires that we maintain a lockbox arrangement and ~~contain~~contains certain subjective acceleration clauses. In addition, Capital One may adjust the advance restriction and criteria for eligible inventory and accounts receivable at its discretion. The Capital One Credit Facility contains cross-default provisions whereby an event of default under the Indenture governing the Notes or other indebtedness, in each case of an amount greater than a specified threshold, would cause an event of default under the Capital One Credit Facility. As of ~~June 30, 2014,~~March 31, 2015, we had ~~$1,230~~$1,080 of outstanding letters of credit secured against the Capital One Credit Facility.

Senior Secured Notes - The Indenture governing our Notes imposes certain limitations on our ability to, among other things and subject to a number of important qualifications and exceptions, incur additional indebtedness or issue disqualified capital stock or preferred stock (with respect to restricted subsidiaries), grant liens, make payments in respect of our capital stock or certain indebtedness, enter into transactions with affiliates, create dividend and other payment restrictions affecting subsidiaries, merge or consolidate with any other person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets or adopt a plan of liquidation. We must annually report to the trustee on compliance with such limitations. The Indenture also contains cross-default provisions whereby a payment default or acceleration of any indebtedness in an aggregate amount greater

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than a specified threshold would cause an event of default with respect to the Notes. We were in compliance with the required covenants at ~~June 30, 2014.~~March 31, 2015.

~~Lion~~Standard General Loan Agreement - The Standard General Loan Agreement contains the same restrictive covenants as Lion Loan Agreement, ~~contains restrictive covenants that incorporate~~which incorporated by reference several of the covenants contained in the Indenture governing our Notes, including covenants restricting our ability to incur additional indebtedness or issue disqualified capital stock or preferred stock (with respect to restricted subsidiaries), grant liens, make payments in respect of our capital stock or certain indebtedness, enter into transactions with affiliates, create dividend and other payment

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restrictions affecting subsidiaries, merge or consolidate with any other person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets or adopt a plan of liquidation. The Lion Loan Agreement also contains cross-default provisions whereby a payment default or acceleration of any indebtedness in an aggregate amount greater than a specified threshold would cause an event of default. As of ~~June 30, 2014,~~March 31, 2015, we were in compliance with the required covenants of the ~~Lion~~Standard General Loan Agreement.

~~On July 16, 2014, Lion assigned its rights and obligations as a lender under the Lion Loan Agreement to Standard General.~~ Standard General ~~has waived any default under the Lion Loan~~Credit Agreement ~~that may have resulted or which might result from Mr. Charney not being the CEO of the Company and has agreed to amend the Lion Loan~~ - The Standard General Credit Agreement (the "Standard General Amendment") to, among other things, (i) extend the maturity of the loan through October 4, 2021, (ii) reduce the interest rate to 17% per annum, which may be paid in cash or in-kind, and (iii) eliminate the provision that specifies that it is ancontains customary defaults, including cross event of default ~~if Mr. Charney is no longer~~to the ~~CEO of the Company. We intend to execute~~Notes and the Standard General ~~Amendment upon receipt~~Loan Agreement and cross acceleration to other indebtedness above a threshold amount. If we experience certain change of ~~a fairness opinion in accordance with~~control events, we are required to offer to prepay the ~~Indenture.~~Standard General Credit Agreement at 101% of the outstanding principal amount plus accrued and unpaid interest on the date of the prepayment. We will be required to prepay loans under the Standard General Credit Agreement to the extent necessary to avoid the loan being characterized as an "applicable high yield discount obligation" within the meaning of the Internal Revenue Code, by the first interest payment date following the fifth anniversary of closing.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

Our material off-balance sheet contractual commitments are mainly operating lease obligations and letters of credit.

Operating lease commitments mainly consist of leases for our retail stores, manufacturing facilities, main distribution centers, and corporate office. These leases frequently include options which permit us to extend the terms beyond the initial fixed lease term. As appropriate, we intend to negotiate lease renewals as the leases approach expiration. We also have capital lease obligations which consist of our manufacturing equipment leases.

Issued and outstanding letters of credit were ~~$1,230~~$1,080 at ~~June 30, 2014~~,March 31, 2015, related primarily to ~~workers’~~workers' compensation insurance and store leases.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in our market risk during the three ~~and six~~ months ended ~~June 30, 2014.~~March 31, 2015. For additional information, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk in Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2013.~~2014.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and participation of our management, including our ~~interim~~ Chief Executive ~~Officer/~~Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our ~~interim~~ Chief Executive ~~Officer/~~Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the quarter covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. As we expand globally, we are increasingly dependent on information systems to operate our website, process transactions, respond to customer inquiries, manage inventory and production, purchase, well and ship goods on a timely basis and maintain cost-efficient operations. In connection with the process of upgrading our information technology infrastructure and resulting business process changes, we continue to create and enhance the design and documentation of our internal control processes to ensure effective controls over financial reporting.

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) other than discussed above during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

PART II-OTHER INFORMATION

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Item 1.	Legal Proceedings

For a discussion of legal matters, see Note 16 of ~~Condensed~~ Notes to the Condensed Consolidated Financial Statements in Part I. Item 1. Financial Statements of this Quarterly Report on Form 10-Q.


Item 1A.	Risk Factors

~~Before deciding to invest in us or to maintain or increase your investment,~~Our business involves various risks and uncertainties in addition to the normal risks ~~described under this Item 1A, you should carefully consider the risks and uncertainties described in the~~of business, some of which are discussed "Special Note Regarding Forward-Looking Statements" under Part I of this report and our other filings with the SEC, as well as the other information in this report and such other filings. ~~The risks~~It should be noted that our business may be adversely affected by a downturn in general economic conditions and ~~uncertainties described in this report are not the only ones facing us. Additional~~other forces beyond our control. In addition, other risks and uncertainties not presently known ~~to us~~ or that we currently ~~deem~~believe to be immaterial may also adversely affect ~~us. If~~our business. Any such risks or uncertainties, or any of ~~these~~the following risks ~~actually materialize,~~or uncertainties, that develop into actual events could result in a material and adverse effect on our business, financial ~~position,~~condition, results of operations, or ~~cash flows could be adversely impacted. In that event, the market price of our common stock could decline and you may lose all or part of your investment.~~liquidity.

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2013, except for the following:~~

~~The suspension and possible termination of our chief executive officer could have a material adverse impact on our business.~~

On June 18, 2014, our Board of Directors voted to replace Mr. Charney as Chairman of our Board of Directors, suspended him and notified him of its intent to terminate his employment as our President and Chief Executive Officer ("CEO") for cause. In connection with the nomination, standstill and support agreement (the "Support Agreement"), dated July 9, 2014, with Standard General, Standard General Master Fund L.P., P. Standard General Ltd. and Mr. Charney, the Board of Directors formed a new special committee (the "Suitability Committee") for the purpose of overseeing the continuing investigation into the alleged misconduct by Mr. Charney (the "Internal Investigation"), and Mr. Charney agreed that pending his suspension, he would not serve as our CEO or an officer or employee of us or our subsidiaries until the Internal Investigation is completed. Based on the findings of the Internal Investigations, the Suitability Committee will determine whether it is appropriate for Mr. Charney to be reinstated as our CEO or serve as an officer or employee of us or any of our subsidiaries.

The Board of Directors has appointed Mr. Luttrell as interim CEO. If Mr. Luttrell should choose to not continue as interim CEO and/or the Suitability Committee determines it is not appropriate to reinstate Mr. Charney as CEO, we may have difficulty maintaining or developing our business as we seek to find a permanent CEO. In addition, as a result of the Internal Investigation and/or the Suitability Committee's determination, we could become subject to litigation and regulatory investigations, which could have a material adverse impact on our business.

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We depend on key personnel, and our ability to grow and compete will be harmed if we do not retain the continued services of such personnel, or we fail to identify, hire and retain additional qualified personnel.

We depend on the efforts and skills of our management team and other key personnel, and the loss of services of one or more members of this team, each of whom have substantial experience in the apparel industry, could have an adverse effect on our business. Our senior officers closely supervise all aspects of our business, in particular the design and production of merchandise and the operation of our stores.

If we are unable to hire and retain qualified management or if any member of our management leaves, such departure could have an adverse effect on our operations and could adversely affect our ability to design new products and to maintain and grow the distribution channels for our products. In addition, the pendency and outcome of the Internal Investigation and the determination made by the Suitability Committee as to whether or not to reinstate Mr. Charney as our CEO could result in departure of additional members of our management or other key employees.

Our ability to anticipate and effectively respond to changing fashion trends depends in part on our ability to attract and retain key personnel in our design, merchandising and marketing areas, and other functions. In addition, if we experience material growth, we will need to attract and retain additional qualified personnel. The market for qualified and talented design and marketing personnel in the apparel industry is intensely competitive, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in future periods. If we are unable to attract or retain qualified personnel as needed, our growth will be hampered and our operating results could be materially adversely affected.

~~Litigation exposure could exceed expectations and have a material adverse effect on our financial condition and results of operations.~~

We are subject to regulatory inquiries, investigations, claims and suits, including, among others, a consolidated putative shareholder class action, consolidated shareholder derivative actions, wage and hour suits, and numerous employment related claims and suits. In addition, on or about June 23, 2014, Mr. Charney submitted a demand in arbitration against us in connection with his suspension, which has been stayed pending the determination of the Suitability Committee in the Internal Investigation. If the Suitability Committee determines that it is not appropriate to reinstate Mr. Charney as our CEO, Mr. Charney could reinstate his demand for arbitration or file additional lawsuits against us.

In the event that any current or future inquiries, investigations, claims or suits are decided against us, we may incur substantial liability, experience an increase in similar suits or suffer reputational harm. We are unable to predict the financial outcome that could result from these matters at this time and any views we form as to the viability of these claims or the financial exposure in which they could result could change from time to time as the matters proceed through their course, as facts are established and various judicial determinations are made. No assurance can be made that these matters will not result in material financial exposure, which together with the potential for similar suits and reputational harm, could have a material adverse effect upon our financial condition and results of operations. See Notes 16 of Condensed Notes to the Consolidated Financial Statements under Part I. Item 1. ~~Financial Statements~~.

~~If we fail to maintain the value and image of our brand, our sales are likely to decline.~~

Our success depends on the value and image of our brand. Our name is integral to our business as well as to the implementation of our strategies for expanding our business. Maintaining, promoting and positioning our brand depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high quality customer experience. Our brand could be adversely affected if we fail to achieve these objectives or if our public image or reputation or those of our senior personnel were to be tarnished by negative publicity. Any of these events, including the publicity surrounding the suspension of Mr. Charney as our CEO, the pendency and results of the Internal Investigation and the determination made by the Suitability Committee, could result in decreases in sales.

~~The terms of our indebtedness contain various covenants that may limit our business activities, and our failure to comply with these covenants could have material adverse consequences to us.~~

The terms of our indebtedness contain, and our future indebtedness may contain, various restrictive covenants that limit our management's discretion in operating our business. In particular, these agreements include, or may include, covenants relating to limitations on:

~~dividends on, and redemptions and repurchases of, capital stock;~~

~~payments on subordinated debt;~~

~~liens and sale-leaseback transactions;~~

~~loans and investments;~~

~~debt and hedging arrangements;~~

~~mergers, acquisitions and asset sales;~~

~~transactions with affiliates;~~

~~disposals of assets;~~

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~~changes in business activities conducted by us and our subsidiaries; and~~

~~capital expenditures, including to fund future store openings.~~

We have amended the Capital One Credit Facility from time to time in order to waive certain obligations relating to, among other things, financial ratio covenants, including the third amendment, dated November 14, 2013, the fifth amendment, dated March 25, 2014. As of June 30, 2014, we were in compliance with the financial covenants under the Capital One Credit Facility. There can be no assurance that we will maintain compliance with the Capital One Credit Facility and we may need to make further amendments with the facility to avoid an event of default under the facility.

Under the indenture governing our senior secured notes, a special interest trigger event occurred as of December 31, 2013 because our consolidated total net leverage ratio, as calculated under the indenture, exceeded 4.50 to 1.00. As a result, interest on the senior secured notes now accrues at a rate of 15% annum, with the interest in excess of 13% per annum payable in-kind for any interest payment date prior to April 15, 2018 and in cash for any interest payment date thereafter. The additional 2% per annum of interest accrues retroactively from the issue date of the senior secured notes. Similarly, because of the special interest trigger event, the interest rate on the Lion Loan Agreement also increased from 18% to 20% per annum with the additional 2% payable retroactively from the date of the loan agreement. Interest under the loan agreement is payable in cash or, to the extent permitted by our other debt agreements, in-kind. We are currently paying the interest under the Lion Loan Agreement in cash as the terms of our other debt agreements do not currently permit payment in-kind. On July 16, 2014, Lion assigned its rights and obligations as a lender under the Lion Loan Agreement to an entity affiliated with Standard General.

In addition, our credit agreements contain, and any future credit agreements or loan agreements may contain, certain financial and maintenance covenants, including covenants relating to our capital expenditures, fixed charge coverage, borrowing availability and leverage, some of which may be tied to consolidated EBITDA, in each case as defined in the applicable debt agreements. Such restrictive and other covenants could limit our ability to respond to market conditions, to provide for unanticipated capital requirements or to take advantage of business or acquisition opportunities.

In addition, our failure to comply with the various covenants under our indebtedness could have material adverse consequences to us. Such failure may result in our being unable to borrow under our revolving credit facility, which we utilize to access our working capital, and as a result may adversely affect our ability to finance our operations or pursue our expansion plans. Our debt agreements contain cross-default or cross-acceleration provisions by which non-compliance with covenants, or the acceleration of other indebtedness of at least a specified outstanding principal amount, could also constitute an event of default under such debt agreements. Accordingly, such a failure could result in the acceleration of all of our outstanding debt, and may adversely affect our ability to obtain financing that may be necessary to effectively operate our business and grow the business going forward. In addition, substantially all of our assets are used to secure our indebtedness, including loans under our credit agreements, our senior secured notes and certain equipment leasing agreements. In the event of a default on these agreements, substantially all of our assets could be subject to liquidation by the creditors, which liquidation could result in no assets being left for the stockholders after the creditors receive their required payment. In such an event, we would be required to seek alternative sources of liquidity, and there can be no assurance that any alternative source of liquidity would be available on terms acceptable to us, or at all.

~~If we are unable to maintain the listing of our common stock on the NYSE MKT or any other securities exchange, it may be more difficult for you to sell your securities.~~

Our common stock is currently traded on the NYSE MKT. We are currently in compliance with the continued listing standards of the NYSE MKT, however, in the past we have failed to meet such standards. We are subject to periodic review by NYSE MKT and no assurance can be given that we will continue to meet the listing requirements of NYSE MKT in the future. If for any reason the NYSE MKT should delist our common stock, and we are unable to obtain listing on another national securities exchange, we could face significant material adverse consequences, including:

~~a limited availability of market quotations for our securities;~~

~~a limited amount of news and analyst coverage;~~

~~a decreased ability to issue additional securities or obtain additional financing in the future; and~~

a determination that the common stock is a "penny stock," if the securities sell for a substantial period of time at a low price per share which would require brokers trading in the common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for the common stock.

Voting control by our executive officers, directors, lenders and other affiliates may limit your ability to influence the outcome of director elections and other matters requiring stockholder approval.

In connection with the Support Agreement, five directors resigned from our Board of Directors, effective as of August 2, 2014, and five new directors were appointed to the Board, three of which were designated by Standard General and two of which were appointed by the mutual agreement of Standard General and us.

As of August 1, 2014, Mr. Charney owned approximately 42.8% of our outstanding common stock and Mr. Charney and Standard General collectively controlled the right to vote such common stock. On July 9, 2014, Mr. Charney and Standard General, on

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behalf of one or more of its funds, entered into a cooperation agreement (the "Cooperation Agreement"), which provides among other things that neither Mr. Charney nor Standard General will vote the common stock owned by Mr. Charney except in a manner approved by the parties in writing, except that Mr. Charney may vote certain of his shares in favor of his own election to the Board of Directors and may vote all of such shares pursuant to the Investment Voting Agreement (defined below). In addition, according to Mr. Charney's Schedule 13D/A, dated June 25, 2014, Mr. Charney agreed to enter into warrant agreements with Standard General that would give Standard General the right exercisable on or prior to July 15, 2017, to purchase from Mr. Charney shares representing approximately 18.4% of our currently outstanding common stock (consisting of the 27,351,407 shares purchased by Mr. Charney from Standard General using the proceeds of a loan from Standard General and 10% of Mr. Charney’s 47,209,407 original shares which original shares also are pledged as security for such loan, which shares are further referenced in the Cooperation Agreement).

As of August 1, 2014, Lion beneficially owned approximately 14.1% of our outstanding common stock. Mr. Charney and Lion have the right to acquire additional beneficial ownership under certain circumstances. In addition, Mr. Charney and Lion are parties to an investment agreement pursuant to which Lion has the right to designate up to two directors on our Board of Directors and a board observer (or, if we increase our board size to 12, up to three directors and no board observers), subject to maintaining certain minimum ownership thresholds of common stock or shares of common stock issuable under Lion's warrants. The investment agreement also restricts us from increasing the size of our Board of Directors to more than 10 directors (or 13 directors in the event we elect to increase the size of our Board of Directors to 12 directors as described above). The two Lion designees on our Board of Directors and Lion's board observer resigned on March 30, 2011. Lion retains its ability to re-designate directors to our Board of Directors and a board observer.

Mr. Charney and Lion also are parties to an investment voting agreement, dated March 13, 2009 (the "Investment Voting Agreement") which provides that, for so long as Lion has the right to designate any person or persons to the Board of Directors, Mr. Charney will vote his shares of common stock in favor of Lion's designees, and Lion will vote its shares of common stock in favor of Mr. Charney and each other designee of Mr. Charney, in each case subject to Mr. Charney maintaining certain minimum ownership thresholds of common stock.

This concentration of share ownership, agreements allowing Standard General and Lion to appoint members to our Board of Directors, and voting agreements between Mr. Charney and Standard General and Mr. Charney and Lion, may adversely affect the trading price for the common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Also, some or all of our significant stockholders, if they were to act together, would be able to control our management and affairs and matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect of delaying or preventing a change of control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquire from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other stockholders and may prevent our stockholders from realizing a premium over the current market price for their shares of common stock. Furthermore, our significant stockholders may also have interests that differ from yours and may vote their shares of common stock in a way with which you disagree and which may be adverse to your interests.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

None.


Item 6.	Exhibits

In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. Some agreements contain representations and warranties by each of

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the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

•

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating

the risk to one of the parties if those statements prove to be inaccurate;

•have been qualified by disclosures that were made to the other party in connection with the negotiation of

the applicable agreement, which disclosures are not necessarily reflected in the agreement;

•may apply standards of materiality in a way that is different from what may be viewed as material to you

or other investors; and

•were made only as of the date of the applicable agreement or such other date or dates as may be specified

in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and in the Company's other public filings, which are available without charge through the SEC's website at http://www.sec.gov.

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Incorporated by Reference

Exhibit No.

Description

Form

Exhibits

Filing Date/Period End Date

Description

Form

Exhibits

Filing Date/Period End Date

3.1

Certificate of Designation of Series A Junior Participating Preferred Stock of American Apparel, Inc. filed with the Secretary of State of the State of Delaware on June 30, 2014.

8-K

3.1

6/30/2014

3.2

Amended and Restated Bylaws of American Apparel, Inc., as amended, effective as of July 31, 2014.

8-K

3.2

8/6/2014

3.3

Amended and Restated Bylaws of American Apparel, Inc., as amended, effective as of June 28, 2014.

8-K

3.2

6/30/2014

4.1

Amendment No.1 to Rights Agreement, dated as of July 9, 2014, by and between American Apparel, Inc. and Continental Stock Transfer & Trust Company as rights agent.

8-K

4.1

7/9/2014

Amendment No. 1 to Rights Agreement, dated as of January 16, 2015, by and between American Apparel, Inc. and Continental Stock Transfer & Trust Company.

8-K

4.1

01/16/2015

4.2

Rights Agreement, dated as of June 27, 2014, between American Apparel, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent, including the form of Certificate of Designations as Exhibit A, the form of Rights Certificate as Exhibit B and the form of Summary of Rights to Purchase Preferred Stock as Exhibit C.

8-K

4.1

6/30/2014

10.1

Employment Agreement, effective as of July 14, 2014, between American Apparel, Inc. and John J. Luttrell.

8-K

10.1

7/14/2014

10.1*†

American Apparel, Inc. 2011 Omnibus Stock Incentive Plan, as amended and restated as of February 19, 2015.

10.2

Nomination, Standstill and Support Agreement, dated as of July 9, 2014, by and among the Company, Standard General L.P., Standard General Master Fund L.P., P Standard General Ltd. and Doc Charney

8-K

10.1

7/9/2014

American Apparel, Inc. Fiscal Year 2015 Executive Annual Incentive Plan

8-K

10.1

04/03/2015

10.3

Separation Agreement and General Release of All Claims, dated May 16, 2014 by and between Glenn A. Weinman and American Apparel, Inc.

8-K

10.1

5/13/14

Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the American Apparel, Inc. 2011 Omnibus Stock Incentive Plan, as amended and restated.

8-K

10.2

04/03/2015

10.4

Form of Stock Option Grant Notice and Option Agreement under the American Apparel, Inc. 2011 Omnibus Stock Incentive Plan, as amended and restated.

8-K

10.3

04/03/2015

31.1*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Registrant's Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Registrant's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certification of Chief Executive Officer and Chief Financial Officer

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Registrant's Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.

32.2*

Certification of Registrant's Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

† Management contract or compensatory plan or arrangement.

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SIGNATURES

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

Date: ~~August 18, 2014~~May 11, 2015



AMERICAN APPAREL, INC.
Signature	Title	Date

/s/ ~~JOHN LUTTRELL~~ PAULA SCHNEIDER	~~Interim~~ Chief Executive Officer	May 11, 2015
Paula Schneider	~~Interim~~ Chief Executive Officer

/s/ HASSAN NATHA	Executive Vice President and Chief Financial Officer	~~August 18, 2014~~May 11, 2015
~~John Luttrell~~Hassan N. Natha	Executive Vice President and Chief Financial Officer

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