Athlete’s Foot Brands, LLC
Notes to Unaudited Financial Statements

Business and Organization

1. Basis of Presentation

Athlete’s Foot Brands, LLC (“Brands”) was formed as a bankruptcy remote Delaware corporation on July 25, 2003 and is a wholly-owned subsidiary of Athlete’s Foot Marketing Associates, LLC (“AFMA”). On December 30, 2005, Athlete’s Foot Brands, Inc., a Delaware Corporation, was converted to Athlete’s Foot Brands, LLC, a Delaware Limited Liability Company.

On August 25, 2003, as part of a $33 million private financing transaction (the “Securitization Transaction”), AFMA, the parent of Brands, contributed all of its rights in its trademarks, service marks, trade dress and other intellectual property and its interests in all existing franchise and license agreements to which it was a party in exchange for all of the capital stock of Brands. At the same time, AFMA entered into a management agreement with Brands under which AFMA agreed to provide all of the franchise sales, marketing, administration, training and support services that Brands is required to provide to its franchise owners for the operation of retail stores operating under “The Athlete’s Foot®” trademark and selling athletic footwear, soft goods and accessories.

On December 27, 2003, AFMA was acquired by Marketing Acquisition Corp., a Delaware corporation (“MAC”), pursuant to the terms and conditions of a Put and Purchase Agreement, by and between MAC and MFD, Inc., formerly known as The Athlete’s Foot Group, Inc., a Delaware corporation (“MFD”), which is ultimately a wholly-owned subsidiary of Rallye, S.A. of France. The aggregate purchase price was $60,672,475, consisting of cash of $1,100,000 paid to MFD, the issuance of a Note to Rallye with a fair value of $26,940,000 and the assumption of a long-term obligation of $32,632,475. The purchase price and related debt as it relates to Brands was “pushed down” on the balance sheet on December 27, 2003 and retained earnings at that date was eliminated since there was a complete change in control.

On December 9, 2004, The Athlete’s Foot Stores, LLC (“Stores”), a company controlled by Stores Acquisition, LLC, a related party, which operated 124 stores of Brands’ franchised stores, filed for protection under Chapter 11 of the Federal Bankruptcy Code. A portion of the stores open at the time of the Chapter 11 filing were closed immediately. The remaining stores operated for various periods of time in early 2005. Of the remaining stores, 32 were sold to new and existing franchisees and as a result, Brands will be receiving ongoing royalty fees beginning in 2005 from those 32 stores. The intangible assets were revalued as of this date and were written down at December 31, 2004 as a result of the Chapter 11 filing (see Athlete’s Foot Brands, LLC financial statements for the years ended December 31, 2005 and December 25, 2004).

Athlete’s Foot Brands, LLC
Notes to Unaudited Financial Statements

1. Basis of Presentation (Continued )

Description of Business

Brands is privately owned , headquartered in Norcross, Georgia, and is a franchisor of athletic footwear retail stores which include 578 stores in 41 countries at June 30, 2006.

2. Summary of Significant Accounting Policies

Fiscal Year

The period ended September 30, 2005 included 40 weeks of operations. In December 2005, in connection with its conversion from an S Corporation to a Limited Liability Company, Brands adopted a December 31 year end and changed its name to Athlete’s Foot Brands, LLC.

Accounts Receivable

Accounts receivable consist of amounts management expects to collect from franchisees for royalties and franchise fees, net of allowance for doubtful accounts of $277,210 and $495,165 at September 30, 2006 and September 30, 2005, respectively. Management provides a reserve for probable uncollectible amounts based on its assessment of individual accounts. Accounts receivable are not collateralized.

Allocated Expenses

Brands’ U.S. headquarters does not have office space or furniture and equipment of its own. Administrative and support services are provided by AFMA. Expenses are allocated to the Company under guidelines documented in the Securitization Transaction.

Cash

Brands maintains cash balances with financial institutions, which at times may be in excess of the FDIC insurance limit.

Athlete’s Foot Brands, LLC
Notes to Unaudited Financial Statements

2. Summary of Significant Accounting Policies (continued)

Restricted Cash

On August 25, 2003, Brands completed a $33,000,000 asset backed private Securitization Transaction. As part of the Securitization Transaction, ten percent of the original loan proceeds are required to be allocated to fund a liquidity reserve. The liquidity reserve can be utilized at the direction of the Trustee to make debt service payments, should royalty and initial franchise fee cash flows be inadequate to make scheduled debt payments. If funds from the liquidity reserve are used to make debt payments, the reserve will be replenished through future royalty and initial franchise fee cash flows. The balance of the liquidity reserve is held by the Trustee and can be utilized by the Trustee as described in Note 4. The restricted cash balance of the reserve at September 30, 2006 and September 30, 2005 was $3,300,000.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets including trademarks, franchise agreements and license agreements, represent costs capitalized in connection with the management acquisition of Brands. Goodwill and other intangible assets are accounted for under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Goodwill is not amortized but is tested for impairment at least annually on December 31.

Other intangible assets consist of the following:

Amortization expense of the intangibles is anticipated to be $1,494,000 per year from 2006 through 2009 and $1,438,000 in 2010.

Revenues

Franchise and licensing fee income is recognized when all initial services are substantially performed, which is considered to be upon the opening of the applicable franchisee’s store. Royalties from franchise operations are recorded as franchise revenues as the fees are earned and become receivable from the franchisee.

Use of Estimates

The preparation of financial statements is conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Income Taxes

Brands is a limited liability company at September 30, 2006. Its results are included in the consolidated federal and state income tax returns of AFMA. Accordingly, no federal or state income tax expense has been recorded in these statements.

Athlete’s Foot Brands, LLC
Notes to Unaudited Financial Statements

3. Notes Payable

Brands completed a $33 million asset backed Securitization Transaction on August 25, 2003 in a private placement. The note payable accrues interest at a rate of 8% per annum. In addition, in connection with the Securitization Transaction, the holder of the note received a 10% participation interest in MAC. Beginning October 10, 2003, Brands was required to make quarterly principal and interest payments. The 10-year note payable matures on August 10, 2013, with all unpaid principal and accrued interest due on that date. The note payable also provides for a seven-year repayment option. As noted in Note 2, a $3.3 million liquidity reserve has been established in the event that Brands’ royalty and initial franchise fee cash flows are inadequate to make scheduled debt payments. In January 2005, an amendment to the note payable was signed which deferred the principal payments due for one year. The principal and interest payments from 2006 forward were recalculated and the interest on the note payable balance during the 2005 period for which no payments will be made plus a 4% premium was capitalized and will be repaid over the original note period beginning in 2006. The outstanding balance of the note was $27,754,109 and $30,169,531 at September 30, 2006 and September 30, 2005, respectively.

The note payable is collateralized by a first priority, perfected pledge and security interest in substantially all of Brands’ current and future assets. The note payable contains various covenants, the most restrictive of which is to maintain a debt service coverage ratio of 1.25 to 1 or less. At September 30, 2006 the company was in compliance with these covenants.

Upon the transfer of the trademarks and all rights under the trademarks, including all of the existing franchise agreements, as well as completing the asset-backed Securitization Transaction Brands entered into a Trustee Agreement with Wilmington Trust Company (the “Trustee”) providing for the Trustee to collect all current and future franchise royalty payments, franchise fee payments and license payment for the benefit of Brands. On the payment date of each quarter, the Trustee disburses collected funds from the previous quarter, an a priority basis as follows: to the lender (interest on notes plus principal payment (10 years) and principal payment (7 years)), to a broker (residual interest payment for deferred loan costs), to the Trustee (Trustee fee), to a backup manager (backup manager fee), to a servicer (base and secondary servicer’s fee), to a manager (management fee, management reimbursement amount, and manager’s costs), and to Brands (excess available funds).

Athlete’s Foot Brands, LLC
Notes to Unaudited Financial Statements

3. Notes Payable (con’t)

AFMA financed the acquisition transaction with a note payable to MAC. MAC had a corresponding subordinated note payable to MFD (“MAC Note”) with a carrying value of $26.7 million and a stated amount of $27.5 million. The MAC Note was due over 10 years with interest at 11.5%, except that the first $500,000 of interest was permanently waived.

On December 31, 2005, as assignment agreement was made between MFD, Inc. and MAC under which MAC transferred a preferred equity interest in AFMA with a liquidation preference of $32,954,800 and a dividend rate of 11.5% in consideration for the cancellation of all obligations under the promissory note and the accrued interest payable under the note as of December 31, 2005. A gain of $31,463,817 was recorded as a result of the outstanding principal and capitalized interest on the MAC note being forgiven.

In connection with the sale in 2003, MFD received an option extending for 10 years to repurchase 19% of the stock of MAC in the event of an initial public offering, sale of AFMA or other liquidity event. At the end of 10 years, MAC must repurchase the option from MFD at fair market value at the time of repurchase less the option price of which $30,700 has been recorded on the balance sheet.

Aggregate maturities of long-term debt at September 30, 2006, are as follows:

Fiscal Year Ending In

2006		$	948,448
2007			3,987,309
2008			4,315,992
2009			4,671,769
2010			5,056,871
2011			8,773,720
Total		$	27,754,109

5. Franchise Information

The Company’s franchisees operate principally under the name “The Athlete’s Foot.” The following summarizes the significant changes related to the stores during the current year:

Athlete’s Foot Brands, LLC
Notes to Unaudited Financial Statements

6. Related Party Transactions

Management fees for the period ending September 30, 2006 and September 30, 2005 consisted of charges from AFMA.

Approximately $0 and $3,886,498 was due from AFMA at September 30, 2006 and September 30, 2005, respectively, and is classified as a non-current asset. In addition, amounts totaling $0 and $1,215,179, respectively were owed to Athlete’s Foot Marketing Europe and $0 and $1,603,294, respectively were owed to Marketing Support Fund, LLC, subsidiaries of AFMA, respectively as of September 30, 2006 and September 30, 2005.

Effective September 30, 2006 corporate resolutions were signed, forgiving the intercompany balance due from AFMA totaling $2,790,936 and the intercompany balance due to AFME totaling $1,307,486 and to MSF totaling $30,600. Accordingly an adjustment to member’s deficit of $1,452,850 was recorded.

7. Subsequent Events

On August 21, 2006, Aether Holdings, Inc., a Delaware corporation (“Aether”), NexCen Franchise Brands, Inc., a Delaware corporation and wholly owned subsidiary of the Aether (“NexCen Brands”), and NexCen Franchise Management, Inc., a Delaware corporation and wholly owned subsidiary of NexCen Brands (“NexCen Management,” and together with NexCen Brands, the “Purchasers”), entered into an Equity Interest and Purchase Agreement (the “Purchase Agreement”) with Athlete’s Foot Marketing Associates, LLC (“Seller”), Athlete’s Foot Brands, LLC (“Brands”), The Athlete’s Foot Marketing Support Fund, LLC (“Support Fund,” and together with Brands, the “AFB Companies”), Robert J. Corliss (“Corliss”), Donald Camacho (“Camacho”), Timothy Brannon (“Brannon”) and Martin Amschler (“Amschler,” and together with Corliss, Camacho and Brannon, the “Shareholders to acquire 100% of the AFB Companies. The closing of the transaction is anticipated to take place by November 6, 2006.