Infusion Brands International, Inc.

The Company received $6,500,000 of funding from the sale of preferred stock and warrants during the year ended December 31, 2011 and, during the quarterly periods ended June 30, 2012 and September 30, 2012, received $250,000 and $210,000, respectively, in advances from an investor on an impending financing arrangement. During the quarterly period ended September 30, 2012, the Company issued a $2,000,000 note payable to an investor. Proceeds in the amount of $250,000 and $750,000 were received in advance during the quarters ended June 30, 2012 and September 30, 2012, respectively. The remaining $1,000,000 was directly paid by the investor to another party on behalf of the Company as a bridge loan due October 15, 2012. Notwithstanding this additional funding, our ability to continue as a going concern for a reasonable period is dependent upon achieving our management’s plans for the Company’s operations and, ultimately, generating profits from those operations. We cannot give any assurances regarding the success of management’s plans. Our consolidated financial statements do not include adjustments relating to the recoverability of recorded assets or liabilities that might be necessary should we be unable to continue as a going concern.

On October 10, 2012, we amended our accounts receivable and purchase order financing agreement to raise the cash advance rate from 75% to 80% of qualified accounts receivable balances assigned up to an amount of $4,000,000 (up from $1,000,000 previously). The initial discount rate has been lowered from 1.75% to 1.65% for the first 1 – 30 days and from 1% to 0.80% for each subsequent 15 day period.

In addition to its flagship brand, the Company continues to generate incremental revenue through its live television shopping division. In Q3/2012, we successfully tested the Michael Rome handbag line at ShopNBC and it is expected that Michael Rome will be a dedicated celebrity designer on ShopNBC beginning in Q1/2013 with the spring 2013 collection. “Doc,” our in-house created cleaning product line, successfully launched our all natural cleaners and cloths in North America in live shopping this quarter. This brand is expanding internationally and is expected to launch in Europe in Q1/2013. We anticipate launching two new beauty brands in international territories in Q1/2013, expanding our category footprint in live shopping which will now include beauty, cleaning and fashion. The Company anticipates leveraging this sales channel to enhance its revenue and test market acceptance for new product opportunities through the launch of new products with key television celebrities.

Cost of product sales - The increase in our cost of product sales is in part a result of our increase in product sales. Our gross margins remained virtually constant for the three months ended September 30, 2012 and 2011 at 25.9% and 24.8%, respectively. As we bring new product line extensions to market, we expect to see an increase in gross margin that comes afforded to those who are first to market. New product innovation will likely have higher demand than our current flagship brand of DualSaw which has been on the market for several years. HSE contributed $1,569,804 of consolidated cost of product sales during the three months ended September 30, 2012.

Cost of product sales - Although overall revenues decreased by $3,708,843, our cost of product sales decreased only marginally due largely to cost of goods adjustments related to obsolete inventory, returns relating to retail sales in the prior year and margin pressure on our CS450 model DualSaw™. Moreover, in 2011, the Company generated $6,470,958 in direct response programming revenue; this type of revenue typically has a 75% gross margin to compensate for the media expense related to such revenue. As such, these factors caused the Company’s gross margin to decrease to 20% from 45%. Our ongoing margins will likely be volatile as we launch new products via direct response programming, and until we establish more products in more retail and distributor outlets that will serve as our long-term base of offerings. However, we anticipate our margins increasing in future periods due to sales of new product innovations in the DualSaw brand as new innovations always demand higher margins.