United
      States


Securities
      and Exchange Commission


Washington,
      D.C. 20549







**FORM
      10-Q**




x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act
      of 1934





For
      the
      Quarterly Period Ended **March 31, 2008**





OR





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 number** **0-10593**





**ICONIX
      BRAND GROUP, INC.**


(Exact
      name of registrant as specified in its charter)




Delaware
            11-2481903(State
                or other jurisdiction of  incorporation or
                organization)
            (I.R.S.
                Employer Identification No.)1450
                Broadway, New York, NY
            10018(Address
                of principal executive offices)
            (Zip
                Code)





(212)
      730-0030


(Registrant's
      telephone number, including area code)




__________________________________________________________________





(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No 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
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer  x
            
            Accelerated filer oNon-accelerated filero(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





Indicate
      the number of shares outstanding of each of the issuer's classes of Common
      Stock, as of the latest practicable date.





Common
      Stock, $.001 Par Value - 57,651,888 shares as of May 5, 2008.









**INDEX**





**FORM
      10-Q**





**Iconix
      Brand Group, Inc. and Subsidiaries**




Page
                No.Part
                I.
            
            Financial
                Information
            
            3Item
                1.
            
            Financial
                StatementsCondensed
                Consolidated Balance Sheets - March 31, 2008 (unaudited) and December
                31,
                2007
            
            3Unaudited
                Condensed Consolidated Income Statements - Three Months Ended March
                31,
                2008 and 2007
            
            4Unaudited
                Condensed Consolidated Statement of Stockholders' Equity - Three
                Months
                Ended March 31, 2008
            
            5Unaudited
                Condensed Consolidated Statements of Cash Flows - Three Months Ended
                March
                31, 2008 and 2007
            
            6Notes
                to Unaudited Condensed Consolidated Financial Statements
            
            7Item
                2.
            
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            18Item
                3.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            21Item
                4.
            
            Controls
                and Procedures
            
            22Part
                II.
            
            Other
                Information
            
            22Item
                1.
            
            Legal
                Proceedings
            
            22Item
                1A.
            
            Risk
                Factors
            
            22Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            25Item
                5
            
            Other
                Information
            
            25Item
                6.
            
            Exhibits
            
            25Signatures
            
            
            
            26




2




Part
      I.
 Financial Information


Item
      1.
      Financial Statements





**Iconix
      Brand Group, Inc. and Subsidiaries**


Condensed
      Consolidated Balance Sheets


(in
      thousands, except par value)




**March
                31,**
              **2008**
            
            
            **December
                31,**
              **2007**(Unaudited)**Assets**Current
                Assets:Cash
                (including restricted cash of $3,839 in 2008 and $5,205 in
                2007)
            
            $
            56,336
            
            $
            53,272Accounts
                receivable, net of reserve of $3,519 in 2008 and 2007
            
            
            36,636
            
            
            29,757Deferred
                income tax assets
            
            
            7,442
            
            
            7,442Prepaid
                advertising and other
            
            
            6,114
            
            
            5,397Total
                Current Assets
            
            
            106,528
            
            
            95,868Property
                and equipment:Furniture,
                fixtures and equipment
            
            
            3,341
            
            
            2,903Less:
                Accumulated depreciation
            
            
            (1,681
            )
            
            (1,610
            )1,660
            
            
            1,293Other
                Assets:Restricted
                cash
            
            
            15,865
            
            
            15,186Marketable
                securities
            
            
            10,660
            
            
            10,920Goodwill
            
            
            128,898
            
            
            128,898Trademarks
                and other intangibles, net
            
            
            1,036,390
            
            
            1,038,201Deferred
                financing costs, net
            
            
            7,836
            
            
            8,270Non-current
                deferred income tax assets
            
            
            12,867
            
            
            21,158Other
            
            
            15,930
            
            
            16,3361,228,446
            
            
            1,238,969Total
                Assets
            
            $
            1,336,634
            
            $
            1,336,130**Liabilities
                and Stockholders' Equity**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            18,016
            
            $
            15,804Accounts
                payable, subject to litigation
            
            
            1,878
            
            
            1,878Deferred
                revenue
            
            
            1,885
            
            
            6,162Current portion of long-term debt
            
            
            33,035
            
            
            52,566Total
                current liabilities
            
            
            54,814
            
            
            76,410Deferred
                income taxes
            
            
            70,836
            
            
            73,418Long-term
                debt, less current maturities
            
            
            648,898
            
            
            649,590Long
                term deferred revenue
            
            
            8,912
            
            
            8,792Total
                Liabilities
            
            
            783,460
            
            
            808,210Commitments
                and contingenciesStockholders'
                EquityCommon
                stock, $.001 par value-shares authorized 150,000; shares issued 57,671 and 57,330
                respectively
            
            
            58
            
            
            58Additional
                paid-in capital
            
            
            477,254
            
            
            469,941Retained
                earnings
            
            
            79,185
            
            
            60,941Accumulated
                other comprehensive loss
            
            
            (2,656
            )
            
            (2,353
            )Less:
                Treasury stock - 212 shares at cost
            
            
            (667
            )
            
            (667
            )Total
                Stockholders’ Equity
            
            
            553,174
            
            
            527,920Total
                Liabilities and Stockholders' Equity
            
            $
            1,336,634
            
            $
            1,336,130





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.




3




**Iconix
      Brand Group, Inc. and Subsidiaries**





Unaudited
      Condensed Consolidated Income Statements


(in
      thousands, except earnings per share data)




Three
                Months Ended
              March
                31,2008
            
            
            2007Licensing
                revenue
            
            $
            55,667
            
            $
            30,841Selling,
                general and administrative expenses
            
            
            18,711
            
            
            7,719Special
                charges
            
            
            191
            
            
            763Operating
                income
            
            
            36,765
            
            
            22,359Other
                expenses:Interest
                expense
            
            
            10,121
            
            
            3,535Interest
                income
            
            
            (1,565
            )
            
            (913
            )Interest
                expense- net
            
            
            8,556
            
            
            2,622Income
                before income taxes
            
            
            28,209
            
            
            19,737Provision
                for income taxes
            
            
            9,965
            
            
            6,990Net
                income
            
            $
            18,244
            
            $
            12,747Earnings
                per share:Basic
            
            $
            0.32
            
            $
            0.23Diluted
            
            $
            0.30
            
            $
            0.21Weighted
                average number of common shares outstanding:Basic
            
            
            57,422
            
            
            56,402Diluted
            
            
            61,350
            
            
            61,243





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.




4




**Iconix
      Brand Group, Inc. and Subsidiaries**





Unaudited
      Condensed Consolidated Statement of Stockholders' Equity





Three
      Months Ended March 31, 2008


***(in
      thousands)***




Common
                StockShares
            
            
            Amount
            
            
            Additional
              Paid-in
              Capital
            
            
            Retained
              Earnings
            
            
            Accumulated
              Other
                Comprehensive
              Loss
            
            
            Treasury
              Stock
            
            
            TotalBalance
                at January 1, 2008
            
            
            57,330
            
            $
            58
            
            $
            469,941
            
            $
            60,941
            
            $
            (2,353
            )
            $
            (667
            )
            $
            527,920Exercise
                of stock options
            
            
            341
            
            
            -
            
            
            1,206
            
            
            -
            
            
            -
            
            
            -
            
            
            1,206Tax
                benefit of stock option exercises
            
            
            -
            
            
            -
            
            
            4,001
            
            
            -
            
            
            -
            
            
            -
            
            
            4,001Amortization
                expense in connection with restricted stock
            
            
            -
            
            
            -
            
            
            2,106
            
            
            -
            
            
            -
            
            
            -
            
            
            2,106Comprehensive
                income:Net
                Income
            
            
            -
            
            
            -
            
            
            -
            
            
            18,244
            
            
            -
            
            
            -
            
            
            18,244Change
                in fair value of cash flow hedge
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (43
            )
            
            -
            
            
            (43
            )Change
                in fair value of securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (260
            )
            
            -
            
            
            (260
            )Total
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            17,941Balance
                at March 31, 2008
            
            
            57,671
            
            $
            58
            
            $
            477,254
            
            $
            79,185
            
            $
            (2,656
            )
            $
            (667
            )
            $
            553,174





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.




5




**Iconix
      Brand Group, Inc. and Subsidiaries**





Unaudited
      Condensed Consolidated Statements of Cash Flows


(in
      thousands)




Three
                Months Ended March 31,2008
            
            
            2007Cash
                flows from operating activities:Net
                income
            
            $
            18,244
            
            $
            12,747Depreciation
                of property and equipment
            
            
            71
            
            
            39Amortization
                of trademarks and other intangibles
            
            
            1,917
            
            
            903Amortization
                of deferred financing costs
            
            
            440
            
            
            165Amortization
                of convertible note discount
            
            
            323
            
            
            -Stock-based
                compensation expense
            
            
            2,106
            
            
            359Bad
                debt expense
            
            
            173
            
            
            469Accrued
                interest on long-term debt
            
            
            1,344
            
            
            60Deferred
                income tax provision (benefit)
            
            
            5,709
            
            
            6,990Changes
                in operating assets and liabilities, net of business
                acquisitions:Accounts
                receivable
            
            
            (7,052
            )
            
            (10,208
            )Prepaid
                advertising and other
            
            
            (1,217
            )
            
            (776
            )Other
                assets
            
            
            363
            
            
            570Deferred
                revenue
            
            
            (4,157
            )
            
            3,808Accounts
                payable and accrued expenses
            
            
            862
            
            
            (11
            )Net
                cash provided by operating activities
            
            
            19,126
            
            
            15,115Cash
                flows used in investing activities:Purchases
                of property and equipment
            
            
            (438
            )
            
            (40
            )Addition
                to trademarks
            
            
            (106
            )
            
            -Collection
                on promissory note
            
            
            500
            
            
            -Acquisition
                of Danskin
            
            
            -
            
            
            (70,799
            )Acquisition
                of Rocawear
            
            
            -
            
            
            (204,233
            )Net
                cash used in investing activities
            
            
            (44
            )
            
            (275,072
            )Cash
                flows provided by financing activities:Proceeds
                from long-term debt
            
            
            -
            
            
            212,500Proceeds
                from exercise of stock options and warrants
            
            
            1,206
            
            
            643Payment
                of long-term debt
            
            
            (20,546
            )
            
            (4,151
            )Payment
                of expenses related to common stock issuance
            
            
            
            -
            
            (184
            )Deferred
                financing costs
            
            
            -
            
            
            (3,915
            )Excess
                tax benefit from share-based payment arrangements
            
            
            4,001
            
            
            -Restricted
                cash - current
            
            
            1,366
            
            
            2,338Restricted
                cash - non-current
            
            
            (679
            )
            
            (1,085
            )Net
                cash provided by (used in) financing activities
            
            
            (14,652
            )
            
            206,146Net
                increase (decrease) in cash and cash equivalents
            
            
            4,430
            
            
            (53,811
            )Cash
                and cash equivalents, beginning of period
            
            
            48,067
            
            
            73,572Cash
                and cash equivalents, end of period
            
            $
            52,497
            
            $
            19,761Balance
                of restricted cash - current
            
            
            3,839
            
            
            1,930Total
                cash and cash equivalents including current restricted cash, end
                of
                period
            
            $
            56,336
            
            $
            21,691




**Supplemental
        disclosure of cash flow information:**
  Three
                  Months Ended March 31,2008
              
              
              2007Cash
                  paid during the period:Income
                  taxes
              
              $
              343
              
              $
              291Interest
              
              $
              7,823
              
              $
              3,375
 
 **Supplemental
        disclosures of non-cash investing and financing
        activities:**
  Three
                  Months Ended March 31,2008
              
              
              2007Acquisitions:Common
                  stock issued
              
              $
              -
              
              $
              496Warrants
                  issued - acquisition cost
              
              $
              -
              
              $
              4,931
  See
        Notes
        to Unaudited Condensed Consolidated Financial Statements.


6




**Iconix
      Brand Group, Inc. and Subsidiaries**





Notes
      to
      Unaudited Condensed Consolidated Financial Statements (Unaudited)


March
      31,
      2008





**1.
      Basis of Presentation**




The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with generally accepted accounting principles for interim
      financial information and with the instructions to Form 10-Q and Article 10
      of
      Regulation S-X. Accordingly, they do not include all the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements. In the opinion of management of Iconix Brand Group, Inc.
      ("Company", "we", "us", or "our"), all adjustments (consisting primarily of
      normal recurring accruals) considered necessary for a fair presentation have
      been included. Operating results for the three months ended March 31, 2008
      (“Current Quarter”) are not necessarily indicative of the results that may be
      expected for a full fiscal year.




Certain
      prior year amounts have been reclassified to conform to the current year's
      presentation.





For
      further information, refer to the consolidated financial statements and
      footnotes thereto included in the Company's Annual Report on Form 10-K for
      the
      year ended December 31, 2007 (“Fiscal 2007”).





**2.  Fair
      Value Measurements**





Statement
      of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value Measurements”
(“SFAS No. 157”), which the Company adopted on January 1, 2008, establishes a
      framework for measuring fair value and requires expanded disclosures about
      fair
      value measurement. While SFAS No.157 does not require any new fair value
      measurements in its application to other accounting pronouncements, it does
      emphasize that a fair value measurement should be determined based on the
      assumptions that market participants would use in pricing the asset or
      liability. As a basis for considering market participant assumptions in fair
      value measurements, SFAS No. 157 established the following fair value hierarchy
      that distinguishes between (1) market participant assumptions developed based
      on
      market data obtained from sources independent of the reporting entity
      (observable inputs) and (2) the reporting entity's own assumptions about market
      participant assumptions developed based on the best information available in
      the
      circumstances (unobservable inputs):





Level
      1:
      Observable inputs such as quoted prices for identical assets or liabilities
      in
      active markets





Level
      2:
      Other inputs that are observable directly or indirectly, such as quoted prices
      for similar assets or liabilities or market-corroborated inputs





Level
      3:
      Unobservable inputs for which there is little or no market data and which
      requires the owner of the assets or liabilities to develop its own assumptions
      about how market participants would price these assets or liabilities





The
      valuation techniques that may be used to measure fair value are as
      follows:





(A)
      Market approach - Uses
      prices and other relevant information generated by market transactions involving
      identical or comparable assets or liabilities





(B)
      Income approach -
      Uses
      valuation techniques to convert future amounts to a single present amount based
      on current market expectations about those future amounts, including present
      value techniques, option-pricing models and excess earnings method





(C)
      Cost approach - Based
      on the amount that would currently be required to replace the service capacity
      of an asset (replacement cost)





The
      Company relies on a combination of Level 1 inputs generated by market
      transactions of identical instruments, Level 2 inputs using a market approach
      based on third party estimates of similarly priced instruments, and Level 3
      inputs using an income approach, to determine the fair value of certain
      financial instruments. The Company’s assessment of the significance of a
      particular input to the fair value measurement requires judgment and may affect
      the valuation of financial assets and financial liabilities and their placement
      within the fair value hierarchy. The following table summarizes the instruments
      measured at fair value during the Current Quarter:




7




**Carrying
                Amount as of March 31, 2008**
            
            **Level
                1**
            
            **Level
                2**
            
            **Level
                3**
            
            **ValuationTechnique**Marketable
                Securities
            
            
            
            ü
            
            ü
            
            (B)
                and (C)Cash
                Flow Hedge
            
            ü
            
            
            
            
            
            (A)





*Marketable
      Securities*





Marketable
      securities, which are accounted for as available-for-sale, are stated at fair
      value in accordance with SFAS No. 115, “Accounting for Certain Investments in
      Debt and Equity Securities,” (“SFAS No. 115”) and consist of auction rate
      securities. Temporary changes in fair market value are recorded as other
      comprehensive income or loss, whereas other than temporary markdowns will be
      realized through the Company’s statement of operations.





As
      of
      March 31, 2008, the Company held $10.7 million in marketable securities.
      Although these auction rate securities continue to pay interest according to
      their stated terms, based on a third-party valuation as of March 31, 2008 of
      these specific auction rate securities using Level 2 inputs and an internally
      developed discounted cash flow model using Level 3 inputs, during the Current
      Quarter the Company recorded an unrealized pre-tax loss of $0.3 million in
      other
      comprehensive loss as a reduction to stockholders’ equity to reflect a temporary
      decline in value of the marketable securities reflecting a failed auction due
      to
      sell orders exceeding buy orders. The Company believes the decrease in fair
      value is temporary due to general macroeconomic market conditions, as the
      underlying securities have maintained their investment grade rating. These
      funds
      will not be available to us until a successful auction occurs or a buyer is
      found outside the auction process. As these instruments have failed to auction
      and may not auction successfully in the near future, the Company has classified
      its marketable securities as non-current. The following table summarizes the
      activity for the period:




(000's
        omitted)




**Description**
              
              
              **Auction
                  Rate Securities**Balance
                  at January 1, 2008
              
              $
              10,920Additions
              
              
              -Gains
                  (losses) reported in earnings
              
              
              -Gains
                  (losses) reported in other comprehensive income
              
              
              (260
              )Balance
                  at March 31, 2008
              
              $
              10,660





*Cash
      Flow Hedge*





On
      July
      26, 2007, the Company purchased a hedge instrument to mitigate the cash flow
      risk of rising interest rates on the Term Loan Facility (see Note 4). This
      hedge
      instrument caps the Company’s exposure to rising interest rates at 6.00% for
      LIBOR for 50% of the forecasted outstanding balance of the Term Loan Facility
      (“Interest Rate Cap”). Based on management’s assessment, the Interest Rate Cap
      qualifies for hedge accounting under SFAS 133 “Accounting for Derivative
      Instruments and Hedging Transactions”. On a quarterly basis, the value of the
      hedge is adjusted to reflect its current fair value, with any adjustment flowing
      through other comprehensive income. The fair value of this instrument is
      calculated based on Level 1 inputs. At March 31, 2008, the fair value of the
      Interest Rate Cap was $12,000, resulting in an other comprehensive loss of
      $43,000 for the Current Quarter, which is reflected in the Unaudited Condensed
      Consolidated Balance Sheet and Statement of Stockholders’ Equity,
      respectively.




8




**3.  Trademarks
      and Other Intangibles, net**




Trademarks
      and other intangibles, net consist of the following:




March
                31, 2008
            
            
            December
                31, 2007***(**000's
                omitted)*
            
            
            Estimated
              Lives
                in
              Years
            
            
            Gross
              Carrying
              Amount
            
            
            Accumulated
              Amortization
            
            
            Gross
              Carrying
              Amount
            
            
            Accumulated
              AmortizationTrademarks:Indefinite
                life trademarks
            
            
            indefinite
            
            $
            1,007,731
            
            $
            9,498
            
            $
            1,007,625
            
            $
            9,498Definite
                life trademarks
            
            
            10-15
            
            
            18,897
            
            
            1,205
            
            
            18,897
            
            
            856Non-compete
                agreements:
            
            
            2-15
            
            
            10,075
            
            
            4,963
            
            
            10,075
            
            
            4,585Licensing
                agreements:
            
            
            1.5-6
            
            
            21,093
            
            
            6,059
            
            
            21,093
            
            
            4,897Domain
                names
            
            
            5
            
            
            570
            
            
            251
            
            
            570
            
            
            223$
            1,058,366
            
            $
            21,976
            
            $
            1,058,260
            
            $
            20,059




Amortization
      expense for intangible assets for the Current Quarter and the three months
      ended
      March 31, 2007 (“Prior Year Quarter”) was $1.9 million and $0.9 million,
      respectively. The trademarks of Candies®, Bongo®, Joe Boxer®, Rampage®, Mudd®,
      London Fog®, Mossimo®, Ocean Pacific®, Danskin®, Rocawear®, Cannon®, Royal
      Velvet®, Fieldcrest®, Charisma®, and Starter® have been determined to have an
      indefinite useful life and accordingly, consistent with SFAS No. 142, no
      amortization will be recorded in the Company's consolidated income statements.
      Instead, the related intangible asset will be tested for impairment at least
      annually, with any related impairment charge recorded to the statement of
      operations at the time of determining such impairment.




**4.  Debt
      Arrangements**




The
      Company's debt is comprised of the following:




March
                31,
            
            
            December
                31,*(000’s
                omitted)*
            
            
            2008
            
            
            2007Convertible
                Notes
            
            $
            282,038
            
            $
            281,714Term
                Loan Facility
            
            
            255,144
            
            
            270,751Asset-Backed
                Notes
            
            
            132,565
            
            
            137,505Sweet
                Note (Note 7)
            
            
            12,186
            
            
            12,186Total
                Debt
            
            $
            681,933
            
            $
            702,156




*Convertible
      Senior Subordinated Notes*





On
      June
      20, 2007, the Company completed the issuance of $287.5 million principal amount
      of the Company's 1.875% convertible senior subordinated notes due 2012 (the
      “Convertible Notes”) in a private offering to certain institutional investors.
      The net proceeds received by the Company from the offering were approximately
      $281.1 million.




The
      Convertible Notes bear interest at an annual rate of 1.875%, payable
      semi-annually in arrears on June 30 and December 31 of each year, beginning
      December 31, 2007. The Convertible Notes will be convertible into cash and,
      if
      applicable, shares of the Company's common stock based on a conversion rate
      of
      36.2845 shares of the Company's common stock, subject to customary adjustments,
      per $1,000 principal amount of the Convertible Notes (which is equal to an
      initial conversion price of approximately $27.56 per share) only under the
      following circumstances: (1) during any fiscal quarter beginning after September
      30, 2007 (and only during such fiscal quarter), if the closing price of the
      Company's common stock for at least 20 trading days in the 30 consecutive
      trading days ending on the last trading day of the immediately preceding fiscal
      quarter is more than 130% of the conversion price per share, which is $1,000
      divided by the then applicable conversion rate; (2) during the five business
      day
      period immediately following any five consecutive trading day period in which
      the trading price per $1,000 principal amount of the Convertible Notes for
      each
      day of that period was less than 98% of the product of (a) the closing price
      of
      the Company's common stock for each day in that period and (b) the conversion
      rate per $1,000 principal amount of the Convertible Notes; (3) if specified
      distributions to holders of the Company's common stock are made, as set forth
      in
      the indenture governing the Convertible Notes (“Indenture”); (4) if a “change of
      control” or other “fundamental change,” each as defined in the Indenture,
      occurs; (5) if the Company chooses to redeem the Convertible Notes upon the
      occurrence of a “specified accounting change,” as defined in the Indenture; and
      (6) during the last month prior to maturity of the Convertible Notes. If the
      holders of the Convertible Notes exercise the conversion provisions under the
      circumstances set forth, the Company will need to remit the lower of the
      principal balance of the Convertible Notes or their conversion value to the
      holders in cash. As such, the Company would be required to classify the entire
      amount outstanding of the Convertible Notes as a current liability in the
      following quarter. The evaluation of the classification of amounts outstanding
      associated with the Convertible Notes will occur every quarter.




9




Upon
      conversion, a holder will receive an amount in cash equal to the lesser of
      (a)
      the principal amount of the Convertible Note or (b) the conversion value,
      determined in the manner set forth in the Indenture. If the conversion value
      exceeds the principal amount of the Convertible Note on the conversion date,
      the
      Company will also deliver, at its election, cash or the Company's common stock
      or a combination of cash and the Company's common stock for the conversion
      value
      in excess of the principal amount. In the event of a change of control or other
      fundamental change, the holders of the Convertible Notes may require the Company
      to purchase all or a portion of their Convertible Notes at a purchase price
      equal to 100% of the principal amount of the Convertible Notes, plus accrued
      and
      unpaid interest, if any. If a specified accounting change occurs, the Company
      may, at its option, redeem the Convertible Notes in whole for cash, at a price
      equal to 102% of the principal amount of the Convertible Notes, plus accrued
      and
      unpaid interest, if any. Holders of the Convertible Notes who convert their
      Convertible Notes in connection with a fundamental change or in connection
      with
      a redemption upon the occurrence of a specified accounting change may be
      entitled to a make-whole premium in the form of an increase in the conversion
      rate.




Pursuant
      to Emerging Issues Task Force (“EITF”) 90-19, “Convertible Bonds with Issuer
      Option to Settle for Cash upon Conversion” (“EITF 90-19”), EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company's Own Stock” (“EITF 00-19”), and EITF 01-6, “The Meaning
      of Indexed to a Company's Own Stock” (“EITF 01-6”), the Convertible Notes are
      accounted for as convertible debt in the accompanying Condensed Consolidated
      Balance Sheet and the embedded conversion option in the Notes has not been
      accounted for as a separate derivative. For a discussion of the effects of
      the
      Convertible Notes and the convertible note hedge and warrants discussed below
      on
      earnings per share, see Note 6.





At
      March
      31, 2008, the balance of the Convertible Notes was $282.0 million.




In
      connection with the sale of the Convertible Notes, the Company entered into
      hedges for the Convertible Notes (“Convertible Note Hedges”) with respect to its
      common stock with two entities (the “Counterparties”). Pursuant to the
      agreements governing these Convertible Note Hedges, the Company has purchased
      call options (the “Purchased Call Options”) from the Counterparties covering up
      to approximately 10.4 million shares of the Company's common stock. These
      Convertible Note Hedges are designed to offset the Company's exposure to
      potential dilution upon conversion of the Convertible Notes in the event that
      the market value per share of the Company's common stock at the time of exercise
      is greater than the strike price of the Purchased Call Options (which strike
      price corresponds to the initial conversion price of the Convertible Notes
      and
      is simultaneously subject to certain customary adjustments). On June 20, 2007,
      the Company paid an aggregate amount of approximately $76.3 million of the
      proceeds from the sale of the Convertible Notes for the Purchased Call Options,
      of which $26.7 million was included in the balance of deferred income tax assets
      at June 30, 2008 and will be recognized over the term of the Convertible Notes.
      As of March 31, 2008, the balance of deferred income tax assets related to
      this
      transaction was $22.7 million.




The
      Company also entered into separate warrant transactions with the Counterparties
      whereby the Company, pursuant to the agreements governing these warrant
      transactions, sold to the Counterparties warrants (the “Sold Warrants”) to
      acquire up to 3.6 million shares of the Company's common stock, at a strike
      price of $42.40 per share of the Company's common stock. The Sold Warrants
      will
      become exercisable on September 28, 2012 and will expire by the end of 2012.
      The
      Company received aggregate proceeds of approximately $37.5 million from the
      sale
      of the Sold Warrants on June 20, 2007.




The
      Convertible Note Hedge transactions and the warrant transactions were separate
      transactions, entered into by the Company with the Counterparties, and as such
      are not part of the terms of the Convertible Notes and will not affect the
      holders' rights under the Convertible Notes. In addition, holders of the
      Convertible Notes will not have any rights with respect to the Purchased Call
      Options or the Sold Warrants. As a result of these transactions, the Company
      recorded a reduction to additional paid-in-capital of $12.1 million in June
      2007.




If
      the
      market value per share of the Company's common stock at the time of conversion
      of the Convertible Notes is above the strike price of the Purchased Call
      Options, the Purchased Call Options entitle the Company to receive from the
      Counterparties net shares of the Company's common stock, cash or a combination
      of shares of the Company's common stock and cash, depending on the consideration
      paid on the underlying Convertible Notes, based on the excess of the then
      current market price of the Company's common stock over the strike price of
      the
      Purchased Call Options. Additionally, if the market price of the Company's
      common stock at the time of exercise of the Sold Warrants exceeds the strike
      price of the Sold Warrants, the Company will owe the Counterparties net shares
      of the Company's common stock or cash, not offset by the Purchased Call Options,
      in an amount based on the excess of the then current market price of the
      Company's common stock over the strike price of the Sold Warrants.




10




These
      transactions will generally have the effect of increasing the conversion price
      of the Convertible Notes to $42.40 per share of the Company's common stock,
      representing a 100% percent premium based on the last reported sale price of
      the
      Company’s common stock of $21.20 per share on June 14, 2007.





*Term
      Loan Facility*





In
      connection with the acquisition of the Rocawear brand, in March 2007, the
      Company entered into a $212.5 million credit agreement (the “Credit Agreement”
or “Term Loan Facility”) with Lehman Brothers Inc. and Lehman Commercial
      Paper Inc. (“LCPI”). At the time, the Company pledged to LCPI 100% of the
      capital stock owned by the Company in its subsidiaries, OP Holdings and
      Management Corporation, a Delaware corporation (“OPHM”), and Studio Holdings and
      Management Corporation, a Delaware corporation (“SHM”). The Company's
      obligations under the Credit Agreement are guaranteed by each of OPHM and SHM,
      as well as by two of its other subsidiaries, OP Holdings LLC, a Delaware limited
      liability company (“OP Holdings”), and Studio IP Holdings LLC, a Delaware
      limited liability company ("Studio IP Holdings").




On
      October 3, 2007, in connection with the acquisition of Official-Pillowtex LLC,
      a
      Delaware limited liability company (“Official-Pillowtex”), with the proceeds of
      the Convertible Notes, the Company pledged to LCPI 100% of the capital stock
      owned by the Company in Mossimo, Inc., a Delaware corporation (“MI”), and
      Pillowtex Holdings and Management Corporation, a Delaware corporation (“PHM”),
      each of which guaranteed the Company’s obligations under the Credit Agreement.
      Simultaneously with the acquisition of Official-Pillowtex, each of Mossimo
      Holdings LLC (“Mossimo Holdings”), a Delaware limited liability company,
      and Official-Pillowtex guaranteed the Company’s obligations under the Credit
      Agreement.





On
      December 17, 2007, in connection with the acquisition of the Starter brand,
      the
      Company borrowed $63.2 million pursuant to the Term Loan Facility (“Additional
      Borrowing”). The net proceeds received by the Company from the Additional
      Borrowing were $60 million. At the time of such Additional Borrowing, there
      was
      already outstanding under the Term Loan Facility a term loan in the principal
      amount equal to $211.4 million.





The
      guarantees are secured by a pledge to LCPI of, among other things, the Ocean
      Pacific, Danskin, Rocawear, Mossimo, Cannon, Royal Velvet, Fieldcrest, Charisma,
      and Starter trademarks and related intellectual property assets, license
      agreements and proceeds therefrom. Amounts outstanding under the term loan
      facility bear interest, at the Company’s option, at the Eurodollar rate or the
      prime rate, plus an applicable margin of 2.25% or 1.25%, as the case may be,
      per
      annum. The Credit Agreement provides that the Company is required to repay
      the
      outstanding term loan in equal quarterly installments in annual aggregate
      amounts equal to 1.00% of the aggregate principal amount of the loans
      outstanding, subject to adjustment for prepayments, in addition to an annual
      payment equal to 50% of the excess cash flow from the Term Loan Facility group,
      with any remaining unpaid principal balance to be due on April 30, 2013. The
      Term Loan Facility can be prepaid, without penalty, at any time. On March 11,
      2008, the Company paid to LCPI, for the benefit of the lenders under the Term
      Loan Facility, $15.6 million, representing 50% of the excess cash flow from
      the
      Term Loan Facility group for Fiscal 2007. As a result of such payment, the
      Company is no longer required to pay the quarterly installments described above.
      The interest rate as of March 31, 2008 was 4.96%. At March 31, 2008, the balance
      of the Term Loan Facility was $255.1 million. The $272.5 million in
      proceeds from the Term Loan Facility were used by the Company as follows: $204.0
      million was used to pay the cash portion of the initial consideration for the
      acquisition of the Rocawear brand; $2.1 million was used to pay the costs
      associated with the Rocawear acquisition; $60 million was used to pay the
      consideration for the acquisition of the Starter brand; and $3.9 million was
      used to pay costs associated with the Term Loan Facility. The costs of $3.9
      million relating to the Term Loan Facility have been deferred and are being
      amortized over the life of the loan, using the effective interest
      method.




On
      July
      26, 2007, the Company purchased a hedge instrument to mitigate the cash flow
      risk of rising interest rates on the Term Loan Facility. See Note 2 for further
      information.




*Asset-Backed
      Notes*





The
      financing for certain of the Company's acquisitions has been accomplished
      through private placements by its subsidiary, IP Holdings LLC ("IP
      Holdings") of asset-backed notes ("Asset-Backed Notes") secured
      by intellectual property assets (trade names, trademarks, license agreements
      and
      payments and proceeds with respect thereto relating to the Candie’s, Bongo, Joe
      Boxer, Rampage, Mudd and London Fog brands) of IP Holdings. At March 31, 2008,
      the balance of the Asset-Backed Notes was $132.6 million.




Cash
      on
      hand in the bank account of IP Holdings is restricted at any point in time
      up to
      the amount of the next debt principal and interest payment required under the
      Asset-Backed Notes. Accordingly, $3.8 million and $5.2 million as of March
      31,
      2008 and December 31, 2007, respectively, have been disclosed as restricted
      cash
      within the Company's current assets. Further, in connection with IP Holdings'
      issuance of Asset-Backed Notes, a reserve account has been established and
      the
      funds on deposit in such account will be applied to the last principal payment
      with respect to the Asset-Backed Notes. Accordingly, $15.9 million and $15.2
      million as of March 31, 2008 and December 31, 2007, respectively, have been
      disclosed as restricted cash within other assets on the Company's balance
      sheets.





Interest
      rates and terms on the outstanding principal amount of the Asset-Backed Notes
      as
      of March 31, 2008 are as follows: $46.4 million principal amount bears interest
      at a fixed interest rate of 8.45% with a six year term, $20.5 million principal
      amount bears interest at a fixed rate of 8.12% with a six year term, and $65.7
      million principal amount bears interest at a fixed rate of 8.99% with a six
      and
      a half year term. The aggregate principal amount of the Asset-Backed Notes
      will
      be fully paid by February 22, 2013.




11




Neither
      the Company nor any of its subsidiaries (other than IP Holdings) is obligated
      to
      make any payment with respect to the Asset-Backed Notes, and the assets of
      the
      Company and its subsidiaries (other than IP Holdings) are not available to
      IP
      Holdings' creditors. The assets of IP Holdings are not available to the
      creditors of the Company or its subsidiaries (other than IP
      Holdings).




*The
      Sweet Note*





On
      April
      23, 2002, the Company acquired the remaining 50% interest in Unzipped (see
      Note
      7) from Sweet Sportswear, LLC (“Sweet”) for a purchase price comprised of
      3,000,000 shares of its common stock and $11.0 million in debt, which was
      evidenced by the Company’s issuance of the 8% Senior Subordinated Note due in
      2012 (“Sweet Note”). Prior to August 5, 2004, Unzipped was managed by Sweet
      pursuant to the Management Agreement (as defined in Note 7), which obligated
      Sweet to manage the operations of Unzipped in return for, commencing in fiscal
      2003, an annual management fee based upon certain specified percentages of
      net
      income achieved by Unzipped during the three- year term of the agreement. In
      addition, Sweet guaranteed that the net income, as defined in the agreement,
      of
      Unzipped would be no less than $1.7 million for each year during the term,
      commencing with fiscal 2003. In the event that the guarantee was not met for
      a
      particular year, Sweet was obligated under the Management Agreement to pay
      the
      Company the difference between the actual net income of Unzipped, as defined,
      for such year and the guaranteed $1.7 million. That payment, referred to as
      the
      shortfall payment, could be offset against the amounts due under the Sweet
      Note
      at the option of either the Company or Sweet. As a result of such offsets,
      the
      balance of the Sweet Note was reduced by the Company to $3.1 million as of
      December 31, 2006 and $3.0 million as of December 31, 2005 and was reflected
      in Long- term debt. This note bears interest, which was accrued for in the
      Current Quarter, at the rate of 8% per year and matures in April
      2012.




In
      November 2007, the Company received a signed judgment related to the Sweet/Guez
      litigation. See Note 9.





The
      judgment also stated that the Sweet Note (originally $11.0 million when issued
      by the Company upon the acquisition of Unzipped from Sweet in 2002) should
      total
      approximately $12.2 million as of December 31, 2007. The recorded balance of
      the
      Sweet Note, prior to any adjustments related to the judgment was approximately
      $3.2 million. The Company increased the Sweet Note by approximately $6.2 million
      and recorded the expense as a special charge. The Company further increased
      the
      Sweet Note by approximately $2.8 million to record the related interest and
      included the charge in interest expense. The Sweet Note as of March 31, 2008
      is
      approximately $12.2 million and included in the Current portion of long-term
      debt.





In
      addition, the Company was awarded a judgment of approximately $12.2 million
      for
      claims made by it against Hubert Guez and Apparel Distribution Services, Inc.
      As
      a result, the Company recorded a receivable of approximately $12.2 million
      and
      recorded the benefit in special charges. This receivable is included in Other
      assets - non-current and bears interest, which was accrued for in the Current
      Quarter, at the rate of 8% per year.





*Debt
      Maturities*





The
      Company's debt maturities are the following:


*(000’s
                omitted)*
            
            
            Total
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            thereafterConvertible
                Notes
            
            $
            282,038
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            282,038
            
            $
            -Term
                Loan Facility
            
            
            255,144
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            255,144Asset-Backed
                Notes
            
            
            132,565
            
            
            20,849
            
            
            22,711
            
            
            24,740
            
            
            26,950
            
            
            37,315
            
            
            -Sweet
                Note (Note 7)
            
            
            12,186
            
            
            12,186
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                Debt
            
            $
            681,933
            
            $
            33,035
            
            $
            22,711
            
            $
            24,740
            
            $
            26,950
            
            $
            319,353
            
            $
            255,144




**5.  Stockholders'
      Equity**




*Stock
      Options*





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options which have no vesting restrictions and are fully
      transferable. In addition, option valuation models require the input of highly
      subjective assumptions including the expected stock price volatility. Because
      the Company's employee stock options have characteristics significantly
      different from those of traded options, and because changes in the subjective
      input assumptions can materially affect the fair value estimate, in management's
      opinion, the existing models do not necessarily provide a reliable single
      measure of the fair value of its employee stock options.




12




The
      fair
      value for these options and warrants was estimated at the date of grant using
      a
      Black-Scholes option-pricing model with the following weighted-average
      assumptions:





Expected
                Volatility
            
            
            .30
                - .50Expected
                Dividend Yield
            
            
            0
            %Expected
                Life (Term)
            
            
            3
                - 7 yearsRisk-Free
                Interest Rate
            
            
            3.00
                - 4.75
            %




The
      options that were granted under the Plans expire between five and ten years
      from
      the date of grant.





Summaries
      of the Company's stock options, warrants and performance related options
      activity, and related information for the Current Quarter are as
      follows:




Options
            
            
            Weighted-Average
              Exercise
                PriceOutstanding
                January 1, 2008
            
            
            5,106,543
            
            $
            4.23Granted
            
            
            -
            
            
            -Canceled
            
            
            -
            
            
            -Exercised
            
            
            340,749
            
            
            4.40Expired
            
            
            -
            
            
            -Outstanding
                March 31, 2008
            
            
            4,765,794
            
            
            4.22Exercisable
                at March 31, 2008
            
            
            4,681,126
            
            
            4.17




Warrants
            
            
            Weighted-Average
                    Exercise
                      PriceOutstanding
                January 1, 2008
            
            
            266,900
            
            $
            16.76Granted
            
            
            -
            
            
            -Canceled
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Expired
            
            
            -
            
            
            -Outstanding
                March 31, 2008
            
            
            266,900
            
            $
            16.76Exercisable
                at March 31, 2008
            
            
            266,900
            
            $
            16.76





All
      warrants issued in connection with acquisitions are recorded at fair market
      value using the Black Scholes model and are recorded as part of purchase
      accounting. Certain warrants are exercised using the cashless
      method.





The
      Company values other warrants issued to non-employees at the commitment date
      at
      the fair market value of the instruments issued, a measure which is more readily
      available than the fair market value of services rendered, using the Black
      Scholes model. The fair market value of the instruments issued is expensed
      over
      the vesting period.





At
      March
      31, 2008, 1,394,108, 682,250, and 484,221 common shares were reserved for
      issuance on exercise of stock options under the 2002, 2001, and 2000 Stock
      Option Plans, respectively.




**Restricted
      stock**




Compensation
      cost for restricted stock is measured as the excess, if any, of the quoted
      market price of our stock at the date the common stock is issued over the amount
      the employee must pay to acquire the stock (which is generally zero). The
      compensation cost, net of projected forfeitures, is recognized over the period
      between the issue date and the date any restrictions lapse, with compensation
      cost for grants with a graded vesting schedule recognized on a straight-line
      basis over the requisite service period for each separately vesting portion
      of
      the award as if the award was, in substance, multiple awards. The restrictions
      do not affect voting and dividend rights.




13




The
      Company has granted restricted stock-based awards to certain
      employees. The awards have restriction periods tied to employment and vest
      over
      a period of six months to five years. The cost of the restricted stock-based
      awards, which is the fair market value on the date of grant net of estimated
      forfeitures, is expensed ratably over the vesting period. During the Current
      Quarter, the Company awarded an aggregate of 1,789,430 restricted stock-based
      awards, a portion of which are performance based. The awarded securities
      have a vesting period of six months to five years and a fair market value of
      approximately $27.6 million. There were no restricted securities awarded during
      the Prior Year Quarter. As of March 31, 2008, 82,835 restricted stock-based
      grants had vested.





Unearned
      compensation expense related to restricted securities grants for the Current
      Quarter and Prior Year Quarter was approximately $2.1 million and $0.3
      million, respectively. An additional amount of $27.8 million is expected to
      be
      expensed evenly over a period of approximately three months to five
      years.





The
      following tables summarize information about unvested restricted securities
      transactions:




Securities
            
            
            Weighted
              Average
              Grant
                Date
              Fair
                ValueNon-vested,
                January 1, 2008
            
            
            144,127
            
            $
            19.41Granted
            
            
            1,789,430
            
            
            18.42Vested
            
            
            (82,835
            )
            
            18.80Forfeited
            
            
            -
            
            
            -Non-vested,
                March 31, 2008
            
            
            1,850,722
            
            $
            18.48




*Stockholder
      Rights Plan*





In
      January 2000, the Company's Board of Directors adopted a stockholder rights
      plan. Under the plan, each stockholder of common stock received a dividend
      of one right for each share of the Company's outstanding common stock, entitling
      the holder to purchase one thousandth of a share of Series A Junior
      Participating Preferred Stock, par value, $0.01 per share of the Company, at
      an
      initial exercise price of $6.00. The rights become exercisable and will trade
      separately from the common stock ten business days after any person or group
      acquires 15% or more of the common stock, or ten business days after any person
      or group announces a tender offer for 15% or more of the outstanding common
      stock.





*Stock
      Repurchase Program*





On
      September 15, 1998, the Company's Board of Directors authorized the repurchase
      of up to two million shares of the Company's common stock, which was replaced
      with a new agreement on December 21, 2000, authorizing the repurchase of up
      to
      three million shares of the Company's common stock. During the Current Quarter,
      no shares were repurchased in the open market.




**6.  Earnings
      Per Share**





Basic
      earnings per share includes no dilution and is computed by dividing net income
      available to common stockholders by the weighted average number of common shares
      outstanding for the period. Diluted earnings per share reflect, in periods
      in
      which they have a dilutive effect, the effect of restricted stock-based awards
      and common shares issuable upon exercise of stock options and warrants. The
      difference between reported basic and diluted weighted-average common shares
      results from the assumption that all dilutive stock options outstanding were
      exercised and all convertible notes have been converted into common
      stock.





As
      of
      March 31, 2008, of the total potentially dilutive shares related to
      restricted stock-based awards, stock options and warrants, 1.5 million were
      anti-dilutive, compared to none as of March 31, 2007.





As
      of
      March 31, 2008, of the performance related restricted stock-based
      awards issued in connection with the Company’s new employment agreement
      with its chairman, chief executive officer and president, 1.2 million of such
      awards (which is included in the total 1.5 million anti-dilutive stock-based
      awards described above) were anti-dilutive and therefore not included in this
      calculation.





Warrants
      issued in connection with the Company’s Convertible Notes financing were
      anti-dilutive and therefore not included in this calculation. Portions of the
      convertible note that would be subject to conversion to common stock were
      anti-dilutive as of March 31, 2008 and therefore not included in this
      calculation.




14




A
      reconciliation of shares used in calculating basic and diluted earnings per
      share follows:




*(000's
                omitted)*
            
            
            For
                the Three
              Months
                Ended
              March
                31,2008
            
            
            2007Basic
            
            
            57,422
            
            
            56,402Effect
                of exercise of stock options
            
            
            3,757
            
            
            4,832Effect
                of contingent common stock issuance
            
            
            144
            
            
            -Effect
                of assumed vesting of restricted stock
            
            
            27
            
            
            961,350
            
            
            61,243





**7.
      Unzipped Apparel, LLC (** ***“Unzipped”*** **)**





*Equity
      Investment*





On
      October 7, 1998, the Company formed Unzipped with its then joint venture partner
      Sweet Sportswear, LLC (“Sweet”), the purpose of which was to market and
      distribute apparel under the Bongo label. The Company and Sweet each had a
      50%
      interest in Unzipped. Pursuant to the terms of the joint venture, the Company
      licensed the Bongo trademark to Unzipped for use in the design, manufacture
      and
      sale of certain designated apparel products.





*Acquisition*





On
      April
      23, 2002, the Company acquired the remaining 50% interest in Unzipped from
      Sweet
      for a purchase price of three million shares of the Company's common stock
      and
      $11 million in debt evidenced by the Sweet Note. See Note 4. In connection
      with
      the acquisition of Unzipped, the Company filed a registration statement with
      the
      Securities and Exchange Commission ("SEC") for the three million shares of
      the
      Company's common stock issued to Sweet, which was declared effective by the
      SEC
      on July 29, 2003.





*Related
      Party Transactions*





Prior
      to
      August 5, 2004, Unzipped was managed by Sweet pursuant to a management agreement
      (the “Management Agreement”). Unzipped also had a supply agreement with Azteca
      Productions International, Inc. ("Azteca") and a distribution agreement with
      Apparel Distribution Services, LLC ("ADS"). All of these entities are owned
      or
      controlled by Hubert Guez.





On
      August
      5, 2004, Unzipped terminated the Management Agreement with Sweet, the supply
      agreement with Azteca and the distribution agreement with ADS and commenced
      a
      lawsuit against Sweet, Azteca, ADS and Hubert Guez. See Note 9.





There
      were no transactions with these related parties during the Current Quarter
      and
      the Prior Year Quarter.





In
      November 2007, a judgment was entered in the Unzipped litigation, pursuant
      to
      which the $3.1 million in accounts payable to ADS/Azteca (previously shown
      as
“accounts payable - subject to litigation”) was eliminated and recorded in the
      income statement as a benefit in special charges.





As
      a
      result of the judgment, the balance of the $11.0 million principal amount Sweet
      Note, originally issued by the Company upon the acquisition of Unzipped from
      Sweet in 2002, including interest, was increased from approximately $3.2 million
      to approximately $12.2 million as of December 31, 2007. Of this increase,
      approximately $6.2 million was attributed to the principal of the Sweet Note
      and
      the expense was recorded as a special charge. The remaining $2.8 million of
      the
      increase was attributed to related interest on the Sweet Note and recorded
      as
      interest expense. As of March 31, 2008, the full $12.2 million current balance
      of the Sweet Note and $0.2 million of accrued interest are included in the
      Current portion of long term debt and Accounts payable and accrued expenses,
      respectively.





In
      addition, the Company was awarded a judgment of approximately $12.2 million
      for
      claims made by it against Hubert Guez and ADS. As a result, the Company recorded
      a receivable of approximately $12.2 million and recorded the benefit in special
      charges for Fiscal 2007. As of March 31, 2008, this receivable and the
      associated accrued interest of $0.2 million for the Current Quarter are both
      included in Other assets - non-current.




**8.  Special
      Charges**





Special
      charges consist of legal expenses and costs related to the Unzipped litigation.
      For the Current Quarter and Prior Year Quarter, the Company recorded special
      charges of $0.2 million and $0.8 million, respectively. See Note 7 for
      information relating to Unzipped.




15




**9.  Commitments
      and Contingencies**




***Sweet
      Sportswear/Unzipped litigation***





On
      August 5, 2004, the Company, along with its subsidiaries, Unzipped, Michael
      Caruso & Co., referred to as Caruso, and IP Holdings, collectively referred
      to as the plaintiffs, commenced a lawsuit in the Superior Court of California,
      Los Angeles County, against Unzipped's former manager, former supplier and
      former distributor, Sweet, Azteca and ADS, respectively, and a principal of
      these entities and former member of the Company's board of directors, Hubert
      Guez, collectively referred to as the Guez defendants. The Company pursued
      numerous causes of action against the Guez defendants, including breach of
      contract, breach of fiduciary duty, trademark infringement and others and sought
      damages in excess of $20 million. On March 10, 2005, Sweet, Azteca and ADS,
      collectively referred to as cross-complainants, filed a cross-complaint against
      the Company claiming damages resulting from a variety of alleged contractual
      breaches, among other things.




In
      January 2007, a jury trial was commenced, and on April 10, 2007, the jury
      returned a verdict of approximately $45 million in favor of the Company and
      its
      subsidiaries, finding in favor of the Company and its subsidiaries on every
      claim that they pursued, and against the Guez defendants on every counterclaim
      asserted. Additionally, the jury found that all of the Guez defendants acted
      with malice, fraud or oppression with regard to each of the tort claims asserted
      by the Company and its subsidiaries, and on April 16, 2007, awarded plaintiffs
      $5 million in punitive damages against Mr. Guez personally. The Guez defendants
      filed post-trial motions seeking, among other things, a new trial. Through
      a set
      of preliminary rulings dated September 27, 2007, the Court granted in part,
      and
      denied in part, the Guez defendants’ post trial motions, and denied plaintiffs’
request that the Court enhance the damages awarded against the Guez defendants
      arising from their infringement of plaintiffs’ trademarks. Through these
      rulings, the Court, among other things, reduced the amount of punitive damages
      assessed against Mr. Guez to $4 million, and reduced the total damages awarded
      against the Guez defendants by approximately 50%.





The
      Court
      adopted these preliminary rulings as final on November 16, 2007. On the same
      day, the Court entered judgment against Mr. Guez in the amount of $10,964,730
      and ADS in the amount of $1,272,420, and against each of the Guez defendants
      with regard to each and every claim that they pursued in the litigation
      including, without limitation, ADS’s and Azteca’s unsuccessful efforts to
      recover against Unzipped any account balances claimed to be owed, totaling
      approximately $3.5 million including interest (collectively, the “Judgments”).
      In entering the Judgments, the Court upheld the jury’s verdict in favor of the
      Company relating to its writedown of the senior subordinated note due 2012,
      issued by the Company to Sweet in connection with the Company’s acquisition of
      Unzipped for Unzipped’s 2004 fiscal year. The monetary portion of the Judgments
      accrues interest at a rate of 10% per annum from the date of the Judgments’
entry. Also on November 16, 2007, the Court issued a Memorandum Order wherein
      it
      upheld an aggregate of approximately $7,000,000 of the jury’s verdicts against
      Sweet and Azteca, but declined to enter judgment against these entities since
      it
      had ordered a new trial with regard to certain other damage awards entered
      against these entities by the jury. On March 7, 2008, the Court commenced a
      hearing with regard to the attorneys’ fees and costs petitions filed by the
      Company and its subsidiaries, and this hearing was concluded on April 18. The
      Company expects the Court to render a decision with regard to these petitions
      within the upcoming weeks.





On
      November 21, 2007, the Guez defendants filed a notice of appeal. They also
      filed
      a $49,090,491 undertaking with the Court, consisting primarily of a $43,380,491
      personal surety given jointly by Gerard Guez and Jacqueline Rose Guez, bonding
      the monetary portions of the Judgments. By Order dated December 17, the Court
      determined that the undertaking was adequate absent changed circumstances.
      This
      determination serves to prevent the Company and its subsidiaries from pursuing
      collection of the monetary portions of the Judgments during the pendency of
      the
      appeal. The Company and its subsidiaries filed a notice of appeal on November
      26, 2007, appealing, among other things, those parts of the jury’s verdicts
      vacated by the Court in connection with the Guez defendants’ post-trial motions.
      The Company and its subsidiaries intend to vigorously pursue their appeal,
      and
      vigorously defend against the Guez parties’ appeal.





***Bader/Unzipped
      litigation***




This
      lawsuit was recently settled and discontinued with prejudice on March 25, 2008.
      The lawsuit was commenced on November 5, 2004, when Unzipped filed a complaint
      in the Supreme Court of New York, New York County, against Unzipped's former
      president of sales, Gary Bader, alleging that Mr. Bader breached certain
      fiduciary duties owed to Unzipped as its president of sales, unfairly competed
      with Unzipped and tortiously interfered with Unzipped's contractual
      relationships with its employees. On October 5, 2005, Unzipped amended its
      complaint to assert identical claims against Bader's company, Sportswear
      Mercenaries, Ltd. On October 14, 2005, Bader and Sportswear Mercenaries filed
      an
      answer containing counterclaims to Unzipped's amended complaint, and a
      third-party complaint, which was dismissed in its entirety on June 9, 2006,
      except with respect to a single claim that it owed Bader and Sportswear
      Mercenaries $72,000.




***Redwood
      Shoe litigation***




This
      litigation, which was commenced in January 2002, by Redwood Shoe Corporation
      (“Redwood”), one of the Company's former buying agents of footwear, was
      dismissed with prejudice by the court on February 15, 2007, pursuant to an
      agreement in principle by the Company, Redwood, its affiliate, Mark Tucker,
      Inc.
      (“MTI”) and MTI's principal, Mark Tucker, to settle the matter. The proposed
      settlement agreement provides for the Company to pay a total of $1.9 million
      to
      Redwood. The stipulation and order dismissing the action may be reopened should
      the settlement agreement not be finalized and consummated by all of the parties.
      The Company is awaiting receipt of the signed Settlement Agreement from the
      other parties.




16




***Bongo
      Apparel, Inc. litigation***




On
      or
      about June 12, 2006, Bongo Apparel, Inc. (“BAI”), filed suit in the Supreme
      Court of the State of New York, County of New York, against the Company and
      IP
      Holdings alleging certain breaches of contract and other claims and seeks,
      among
      other things, damages of at least $25 million. The Company and IP Holdings
      believe that, in addition to other defenses and counterclaims that they intend
      to assert, the claims in the lawsuit are the subject of a release and settlement
      agreement that was entered into by the parties in August 2005, and based upon
      this belief, moved to dismiss most of BAI’s claims. In response to the motion to
      dismiss, BAI made a cross-motion for partial summary judgment on some of its
      claims. On April 25, 2007, the Court entered an order refusing to consider,
      and
      declining to accept BAI's summary judgment motion. On January 2, 2008, the
      Supreme Court granted the Company’s and IP Holdings’ motion to dismiss BAI’s
      lawsuit virtually in its entirety, holding that all but one claim against the
      Company and five claims against IP Holdings were barred by the parties’ August
      2005 release and settlement agreement or otherwise failed to state a claim.
      As
      to the sole remaining claim against the Company, BAI has since withdrawn it
      against both the Company and IP Holdings and, as such, the Company is no longer
      a party to this action. BAI has appealed the Supreme Court’s January 2, 2008
      rulings, and the Company and IP Holdings intend to vigorously defend against
      this appeal.




Additionally,
      on or about October 6, 2006, the Company and IP Holdings filed suit in the
      United States (“U.S.”) District Court for the Southern District of New York
      against BAI and its guarantor, TKO Apparel, Inc. (“TKO”). In that complaint, the
      Company and IP Holdings asserted various contract, tort and trademark claims
      that arose as a result of the failures of BAI with regard to the Bongo men's
      jeanswear business and its wrongful conduct with regard to the Bongo women's
      jeanswear business. The Company and IP Holdings sought monetary damages in
      an
      amount in excess of $10 million and a permanent injunction with respect to
      the
      use of the Bongo trademark. On January 4, 2007, the District Court denied the
      motion of BAI and TKO to dismiss the federal court action, and instead stayed
      the proceeding. On January 14, 2008, the Company and IP Holdings requested
      that
      the District Court lift the stay, and on March 1, 2008 the stay was
      lifted.





On
      March
      7, 2008, the Company and IP Holdings filed an amended complaint, reiterating
      all
      of the claims that were asserted in the original complaint and seeking damages
      identical to those sought by the original complaint. Additionally, the amended
      complaint contains three fraudulent transfer claims predicated upon BAI’s and
      TKO’s dissipation of their assets, as well as claims for civil conspiracy and
      aiding and abetting arising from this conduct. On March 28, 2008, BAI and TKO
      filed a motion to dismiss the amended complaint in its entirety, and on April
      11, 2008 the Company and IP Holdings filed their opposition to that motion.
      The
      Company and IP Holdings intend to vigorously pursue this
      litigation.





**Normal
      Course litigation**




From
      time
      to time, the Company is also made a party to litigation incurred in the normal
      course of business. While any litigation has an element of uncertainty, the
      Company believes that the final outcome of any of these routine matters will
      not
      have a material effect on the Company’s financial position or future
      liquidity.





**10.  Related
                Party Transactions**





On
      May 1,
      2003, the Company granted Kenneth Cole Productions, Inc. the exclusive worldwide
      license to design, manufacture, sell, distribute and market footwear under
      its
      Bongo brand. The chief executive officer and chairman of Kenneth Cole
      Productions is Kenneth Cole, who is the brother of Neil Cole, the Company's
      chairman, chief executive officer and president. During the Current Quarter
      and
      Prior Year Quarter, the Company earned $0.3 million and $0.3 million,
      respectively, in royalties from Kenneth Cole Productions.





The
      Candie's Foundation, a charitable foundation founded by Neil Cole for the
      purpose of raising national awareness about the consequences of teenage
      pregnancy, owed the Company $0.5 million and $0.4 million at March 31, 2008
      and
      December 31, 2007, respectively. The Candie's Foundation intends to pay-off
      the
      entire borrowing from the Company during 2008, although additional advances
      will
      be made as and when necessary. Mr. Cole’s wife, Elizabeth Cole, performs
      services for the foundation but receives no compensation.





The
      Company recorded expenses of approximately $131,000 and $0 for the Current
      Quarter and the Prior Year Quarter, respectively, for the hire and use of
      aircraft owned by a company in which the Company’s chairman, chief
      executive officer and president is the sole owner.  Management believes
      that all transactions were made on terms and conditions similar to or more
      favorable than those available in the marketplace from unrelated
      parties.




17




**11.  Subsequent
      Events**





On
      May 1,
      2008, the Company entered into a Contribution Agreement (the "Contribution
      Agreement") with Novel Fashion Holdings Limited, a corporation organized under
      the laws of the British Virgin Islands (“Novel”) and controlled by Silas Chou
      and members of his family. Upon the closing of the transactions contemplated
      by
      the Contribution Agreement, the Company and Novel will form a joint venture
      to
      develop, exploit and market the Company's brands in the People’s Republic of
      China, Hong Kong, Macau and Taiwan (the “Territory”). Pursuant to the
      Contribution Agreement, the Company will commit to contribute $5 million and
      substantially all rights to its brands in the Territory, and Novel will commit
      to contribute $20 million, respectively, over the two-year period following
      the consummation of the transaction. The transactions contemplated by the
      Contribution Agreement are subject to customary closing conditions.





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





*Safe
      Harbor Statement under the Private Securities Litigation Reform Act of
      1995* .
      The
      statements that are not historical facts contained in this report are forward
      looking statements that involve a number of known and unknown risks,
      uncertainties and other factors, all of which are difficult or impossible to
      predict and many of which are beyond the control of the Company, which may
      cause
      the actual results, performance or achievements of the Company to be materially
      different from any future results, performance or achievements expressed or
      implied by such forward looking statements. These risks are detailed in the
      Company’s Form 10-K for the fiscal year ended December 31, 2007 and other SEC
      filings. The words “believe”, “anticipate,” “expect”, “confident”, “project”,
      provide “guidance” and similar expressions identify forward-looking statements.
      Readers are cautioned not to place undue reliance on these forward looking
      statements, which speak only as of the date the statement was made.





*Executive
      Summary.* The
      Company is a brand management company engaged in licensing, marketing and
      providing trend direction for a diversified and growing consumer brand
      portfolio. The Company’s brands are sold across every major segment of retail
      distribution, from luxury to mass. As of March 31, 2008, the Company owned
      16
      iconic consumer brands: Candie’s, Bongo, Badgley Mischka, Joe Boxer, Rampage,
      Mudd, London Fog, Mossimo, Ocean Pacific/OP, Danskin, Rocawear, Cannon, Royal
      Velvet, Fieldcrest, Charisma, and Starter. The Company licenses its brands
      worldwide through approximately 215 retail and wholesale licenses for use in
      connection with a broad variety of product categories, including footwear,
      fashion accessories, sportswear, home products and décor, and beauty and
      fragrance. The Company’s business model allows it to focus on its core
      competencies of marketing and managing brands without many of the risks and
      investment requirements associated with a more traditional operating company.
      Its licensing agreements with leading retail and wholesale partners throughout
      the world provide the Company with a predictable stream of guaranteed minimum
      royalties.




The
      Company’s growth strategy is focused on increasing licensing revenue from its
      existing portfolio of brands through the addition of new product categories,
      expanding its brands’ retail penetration and optimizing the sales of its
      licensees. The Company will also seek to continue the international expansion
      of
      its brands by partnering with leading licensees throughout the world. Finally,
      the Company believes it will continue to acquire iconic consumer brands with
      applicability to a wide range of merchandise categories and an ability to
      further diversify its brand portfolio.





***Results
      of Operations***




*For
      the three months ended March 31, 2008*




*Revenue.* Revenue
      for the Current Quarter increased to $55.7 million from $30.8 million during
      the
      Prior Year Quarter. The driver of this growth of $24.9 million was a full
      quarter of revenue generated from the acquisitions of Danskin, Rocawear, the
      Official-Pillowtex brands (i.e. Cannon, Royal Velvet, Fieldcrest, Charisma)
      and
      Starter made during Fiscal 2007, which had no comparable revenue in the Prior
      Year Quarter.





*Operating
      Expenses.* Consolidated selling, general and administrative (“SG&A”) expenses totaled
      $18.7 million in the Current Quarter compared to $7.7 million in the Prior
      Year
      Quarter. The increase of $11.0 million was primarily related to (i) an increase
      of approximately $3.3 million in advertising mainly driven by increased
      advertising related to brands acquired in Fiscal 2007, with no comparable
      advertising expense in the Prior Year Quarter; (ii) an increase of approximately
      $3.8 million in payroll costs, primarily due to an increase of $1.7 million
      in
      non-cash stock compensation expense, from $0.4 million in the Prior Year Quarter
      to $2.1 million in the Current Quarter, of which $1.3 million of the increase
      related to the new employment contract with our chairman, chief executive
      officer and president, with the balance of the aggregate increase in payroll
      costs attributable to the increase in employee headcount mainly related to
      our
      2007 acquisitions; and (iii) non-cash amortization of intangible assets (mainly
      contracts and non-competes) as a direct result of the Mossimo, Ocean Pacific,
      Danskin, Rocawear and the Pillowtex brands acquisitions accounted for $1.9
      million and $0.9 million, respectively.




18




For
      the
      Current Quarter and Prior Year Quarter, the Company’s special charges included
      an expense for professional fees of $0.2 million and $0.8 million, respectively,
      relating to litigation involving Unzipped. See Notes 7 and 8 of Notes to
      Unaudited Condensed Consolidated Financial Statements.





*Operating
      Income.* Operating income for the Current Quarter increased to $36.8 million, or
      approximately 66% of total revenue, compared to $22.4 million or approximately
      72% of total revenue in the Prior Year Quarter. The decrease in our operating
      margin percentage is primarily the result of the increase in operating expenses
      for the reasons detailed above.





*Interest
      Expense - Net* -
      Interest expense increased by $6.6 million in the Current Quarter to $10.1
      million, compared to interest expense of $3.5 million in the Prior Year Quarter.
      This increase was due primarily to an increase in the Company’s debt financing
      arrangements in connection with the acquisitions of Rocawear, Official-Pillowtex
      and Starter, as well as interest related to the Sweet Note. See Note 4 of Notes
      to Unaudited Condensed Consolidated Financial Statements. Specifically, for
      the
      Current Quarter, there was a total interest expense relating to the Term Loan
      Facility, the Convertible Notes and the Sweet Note of approximately $4.8
      million, $1.3 million and $0.2 million respectively with no comparable interest
      expense in the Prior Year Quarter. Deferred financing costs increased by $0.6
      million in the Current Quarter to $0.8 million from $0.2 million in the Prior
      Year Quarter due to additional financing obtained in Fiscal 2007.




*Provision
      for Income Taxes.* The
      effective income tax rate for the Current Quarter is approximately 35.3%
      resulting in the $10.0 million income tax expense, as compared to an effective
      income tax rate of 35% in the Prior Year Quarter which resulted in the $7.0
      million income tax expense. In the Current Quarter, the difference between
      the
      effective tax rate and the statutory rate of 35% is mainly driven by the benefit
      in state income taxes and relates to fluctuations in state rates expected to
      be
      realized by the Company due to new or revised tax legislation as well as changes
      we have recently experienced in the level of business performed within specific
      tax jurisdictions.





*Net
      Income* .
      The
      Company’s net income was $18.2 million in the Current Quarter, compared to net
      income of $12.7 million in the Prior Year Quarter, as a result of the factors
      discussed above.





***Liquidity
      and Capital Resources***





*Liquidity*





The
      Company’s principal capital requirements have been to fund acquisitions, working
      capital needs, and to a lesser extent capital expenditures. The Company has
      historically relied on internally generated funds to finance its operations
      and
      its primary source of capital needs for acquisition have been the issuance
      of
      debt and equity securities. At March 31, 2008 and December 31, 2007, the
      Company’s cash totaled $56.3 million and $53.3 million, respectively, including
      short-term restricted cash of $3.8 million and $5.2 million,
      respectively.





The
      Company believes that cash from future operations as well as currently available
      cash will be sufficient to satisfy its anticipated working capital requirements
      for the foreseeable future. The Company intends to continue financing its brand
      acquisitions through a combination of cash from operations, bank financing
      and
      the issuance of additional equity and/or debt securities. See Note 4 of Notes
      to
      Unaudited Condensed Consolidated Financial Statements for a description of
      certain prior financings consummated by the Company and its
      subsidiaries.





As
      of
      March 31, 2008, the Company’s marketable securities consist of investment grade
      auction rate securities. During Fiscal 2007, the Company invested $196.4 million
      in auction rate securities and the majority of these securities ($183.4 million)
      had successful auctions. However, beginning in the third quarter of Fiscal
      2007,
      $13.0 million of the auction rate securities had failed auctions due to sell
      orders exceeding buy orders. These funds will not be available to the Company
      until a successful auction occurs or a buyer is found outside the auction
      process. As a result, $13.0 million of auction rate securities were written
      down
      to $10.7 million as an unrealized pre-tax loss of $2.3 million to reflect a
      temporary decrease in fair value. As the write-down of $2.3 million has been
      identified as a temporary decrease in fair value, the write-down will not impact
      the Company’s earnings and is reflected as an other comprehensive loss in the
      consolidated statement of stockholders’ equity. The Company believes this
      decrease in fair value is temporary due to general macroeconomic market
      conditions, as the underlying securities have maintained their investment grade
      rating. Furthermore, the Company believes its cash flow from future operations
      and its cash will be sufficient to satisfy its anticipated working capital
      requirements for the foreseeable future, regardless of the timeliness of the
      auction process.





*Changes
      in Working Capital*





At
      March
      31, 2008 and December 31, 2007 the working capital ratio (current assets to
      current liabilities) was 1.94 to 1 and 1.25 to 1, respectively. This increase
      was driven by the decrease in our current obligation on long-term debt from
      $52.6 million at December 31, 2007 to $33.0 million at March 31, 2008, as well
      as the factors set forth below:





*Operating
      Activities*





Net
      cash
      provided by operating activities totaled $19.1 million in the Current Quarter,
      as compared to $15.1 million of net cash provided by operating activities in
      the
      Prior Year Quarter. Cash provided by operating activities in the Current Quarter
      increased primarily due to net income of $18.2 million, amortization of
      intangibles of $1.9 million, stock-based compensation expense of $2.1 million,
      accrued interest on long-term debt of $1.3 million, and a net increase of $5.7
      million in deferred income taxes primarily related to the provision for income
      taxes for the Current Quarter, offset primarily by increases of $7.1 million
      in
      accounts receivable, and $1.2 million in prepaid advertising and other, and
      a
      decrease of $4.2 million in deferred revenue. The Company continues to rely
      upon
      cash generated from licensing operations to finance its operations.




*Investing
      Activities*





Net
      cash
      used in investing activities in the Current Quarter totaled less than $0.1
      million, as compared to $275.1 million used in the Prior Year Quarter. In the
      Prior Year Quarter, the Company paid $70.8 million in cash for certain assets
      related to the Danskin brand, and $204.2 million in cash for certain assets
      related to the Rocawear brand. Capital expenditures for the Current Quarter
      were
      $0.4 million, compared to less than $0.1 million in capital expenditures in
      the
      Prior Year Quarter.




19




*Financing
      Activities*





Net
      cash
      used in financing activities was $14.7 million in the Current Quarter, compared
      with $206.1 million of net cash provided by financing activities in the Prior
      Year Quarter. Of the $14.7 million in net cash used in financing activities,
      $20.5 million was used for principal payments related to the Asset-Backed Notes
      and the Term Loan Facility. This was offset by $1.2 million from proceeds in
      connection with the exercise of stock options and warrants, and $4.0 million
      from excess tax benefit from share-based payment arrangements.





***Other
      Matters***





*Summary
      of Critical Accounting Policies.*





Several
      of the Company's accounting policies involve management judgments and estimates
      that could be significant. The policies with the greatest potential effect
      on
      the Company's consolidated results of operations and financial position include
      the estimate of reserves to provide for collectability of accounts receivable.
      The Company estimates the collectability considering historical, current and
      anticipated trends related to deductions taken by customers and markdowns
      provided to retail customers to effectively flow goods through the retail
      channels, and the possibility of non-collection due to the financial position
      of
      its licensees' customers. Due to the licensing model, the Company has eliminated
      its inventory risk and reduced its operating risks, and can now reasonably
      forecast revenues and plan expenditures based upon guaranteed royalty
      minimums.





The
      preparation of the consolidated financial statements in conformity with
      accounting principles generally accepted in the U.S. requires management to
      make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. The Company reviews all significant estimates
      affecting the financial statements on a recurring basis and records the effect
      of any adjustments when necessary.




In
      connection with its licensing model, the Company has entered into various
      trademark license agreements that provide revenues based on minimum royalties
      and additional revenues based on a percentage of defined sales. Minimum royalty
      revenue is recognized on a straight-line basis over each period, as defined,
      in
      each license agreement. Royalties exceeding the defined minimum amounts are
      recognized as income during the period corresponding to the licensee's
      sales.





Also
      in
      June 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No.
      142, "Goodwill and Other Intangible Assets," (“SFAS No. 142”) which changed the
      accounting for goodwill from an amortization method to an impairment-only
      approach. Upon the Company's adoption of SFAS No. 142 on February 1, 2002,
      the
      Company ceased amortizing goodwill. As prescribed under SFAS No. 142, the
      Company had goodwill tested for impairment during the years ended December
      31,
      2007, 2006 and 2005, and no impairments were necessary.





Impairment
      losses are recognized for long-lived assets, including certain intangibles,
      used
      in operations when indicators of impairment are present and the undiscounted
      cash flows estimated to be generated by those assets are not sufficient to
      recover the assets carrying amount. Impairment losses are measured by comparing
      the fair value of the assets to their carrying amount.




Effective
      January 1, 2006, we adopted SFAS No. 123(R), “Accounting for
      share-based payment,” which requires companies to measure and recognize
      compensation expense for all stock-based payments at fair value. Under SFAS
      No.
      123(R), using the modified prospective method, compensation expense is
      recognized for all share-based payments granted prior to, but not yet vested
      as
      of, January 1, 2006. Prior to the adoption of SFAS No.123 (R), we accounted
      for our stock-based compensation plans under the recognition and measurement
      principles of accounting principles board, or APB, Opinion No. 25,
“Accounting for stock issued to employees,” and related interpretations.
      Accordingly, the compensation cost for stock options had been measured as the
      excess, if any, of the quoted market price of our common stock at the date
      of
      the grant over the amount the employee must pay to acquire the stock. In
      accordance with the modified prospective transition method, our consolidated
      financial statements have not been restated to reflect the impact of SFAS
      No.123(R). The impact on our financial condition and results of operations
      from
      the adoption of SFAS No. 123(R) will depend on the number and terms of
      stock options granted in future years under the modified prospective method,
      the
      amount of which we cannot currently estimate.




The
      Company accounts for income taxes in accordance with SFAS No. 109 “Accounting
      for Income Taxes” (“SFAS No. 109”). Under SFAS No. 109, deferred tax assets and
      liabilities are determined based on differences between the financial reporting
      and tax basis of assets and liabilities and are measured using the enacted
      tax
      rates and laws that will be in effect when the differences are expected to
      reverse. A valuation allowance is established when necessary to reduce deferred
      tax assets to the amount expected to be realized. In determining the need for
      a
      valuation allowance, management reviews both positive and negative evidence
      pursuant to the requirements of SFAS No. 109, including current and historical
      results of operations, the annual limitation on utilization of net operating
      loss carry forwards pursuant to Internal Revenue Code section 382, future income
      projections and the overall prospects of the Company's business. Based upon
      management's assessment of all available evidence, including the Company's
      completed transition into a licensing business, estimates of future
      profitability based on projected royalty revenues from its licensees, and the
      overall prospects of the Company's business, management concluded in Fiscal
      2007
      that it is more likely than not that the net deferred income tax asset recorded
      as of December 31, 2006 will be realized.


Marketable
      securities, which are accounted for as available-for-sale, are stated at fair
      value in accordance with SFAS No. 115, “Accounting for Certain Investments in
      Debt and Equity Securities,” and consist of auction rate securities. Temporary
      changes in fair market value are recorded as other comprehensive income or
      loss,
      whereas other than temporary markdowns will be realized through the Company’s
      statement of operations. On January 1, 2008, the Company adopted SFAS No. 157,
      which establishes a framework for measuring fair value and requires expanded
      disclosures about fair value measurement. While SFAS No.157 does not require
      any
      new fair value measurements in its application to other accounting
      pronouncements, it does emphasize that a fair value measurement should be
      determined based on the assumptions that market participants would use in
      pricing the asset or liability. The Company’s assessment of the significance of
      a particular input to the fair value measurement requires judgment and may
      affect the valuation.




20




*Seasonal
      and Quarterly Fluctuations* .





The
      majority of the products manufactured and sold under the Company’s brands and
      licenses are for apparel, accessories, footwear and home products and decor,
      for
      which sales may vary as a result of holidays, weather, and the timing of product
      shipments. Accordingly, a portion of the Company’s revenue from its licensees,
      particularly from those mature licensees that are performing and actual sales
      royalties exceed minimum royalties, may be subject to seasonal fluctuations.
      The
      results of operations in any quarter therefore will not necessarily be
      indicative of the results that may be achieved for a full fiscal year or any
      future quarter.





*Other
      Factors*





We
      continue to seek to expand and diversify the types of licensed products being
      produced under our various brands, as well as diversify the distribution
      channels within which licensed products are sold, in an effort to reduce
      dependence on any particular retailer, consumer or market sector. The success
      of
      the Company, however, will still remain largely dependent on our ability to
      build and maintain brand awareness and contract with and retain key licensees
      and on our licensees’ ability to accurately predict upcoming fashion trends
      within their respective customer bases and fulfill the product requirements
      of
      their particular retail channels within the global marketplace. Unanticipated
      changes in consumer fashion preferences, slowdowns in the U.S. economy, changes
      in the prices of supplies, consolidation of retail establishments, and other
      factors noted in “Part II - Item 1A-Risk Factors,” could adversely affect our
      licensees’ ability to meet and/or exceed their contractual commitments to us and
      thereby adversely affect our future operating results





*Effects
      of Inflation.*  The
      Company does not believe that the relatively moderate rates of inflation
      experienced over the past few years in the U.S., where it primarily competes,
      have had a significant effect on revenues or profitability.





**Item
      3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**




The
      Company limits exposure to foreign currency fluctuations by requiring
      substantially all of its revenue to be paid in U.S. dollars.




The
      Company is exposed to potential loss due to changes in interest rates.
      Investments with interest rate risk include marketable securities. Debt with
      interest rate risk includes the fixed and variable rate debt. As of March 31,
      2008, the Company had approximately $255.1 million in variable interest debt
      under its Term Loan Facility. See Note 4 of the Notes to Unaudited Condensed
      Consolidated Financial Statements for further explanation. To mitigate interest
      rate risks, the Company is utilizing derivative financial instruments such
      as
      interest rate hedges to convert certain portions of the Company’s variable rate
      debt to fixed interest rates. If there were an adverse change in interest rates
      of 10%, the expected effect on net income would be immaterial.





The
      Company invested in certain investment grade auction rate securities. During
      the
      Current Quarter, our balance of auction rate securities failed to auction due
      to
      sell orders exceeding buy orders. These funds will not be available to us until
      a successful auction occurs or a buyer is found outside the auction process.
      As
      a result, $10.9 million of auction rate securities were written down to $10.7
      million as an unrealized pre-tax loss of $0.3 million to reflect a temporary
      decrease in fair value. The Company believes this decrease in fair value is
      temporary due to general macroeconomic market conditions, as the underlying
      securities have maintained their investment grade rating. As the write-down
      of
      $0.3 million has been identified as a temporary decrease in fair value, the
      write-down will not impact our earnings and is reflected as an other
      comprehensive loss in the consolidated statement of stockholders’ equity. The
      cumulative effect of the failure to auction since the third quarter of Fiscal
      2007 has resulted in an accumulated other comprehensive loss of $2.3 million
      which is reflected in the Stockholders’ equity section of the Unaudited
      Condensed Consolidated Balance Sheet.




In
      connection with the initial sale of convertible notes, the Company entered
      into
      convertible note hedge transactions with affiliates of Merrill Lynch and Lehman
      Brothers, which hedging transactions are expected, but are not guaranteed,
      to
      eliminate the potential dilution upon conversion of the convertible notes.
      At
      the same time, the Company entered into sold warrant transactions with the
      hedge
      counterparties. In connection with such transactions, the hedge counterparties
      entered into various over-the-counter derivative transactions with respect
      to
      the Company’s common stock and purchased the Company’s common stock; and they
      may enter into or unwind various over-the-counter derivatives and/or purchase
      or
      sell the Company’s common stock in secondary market transactions in the future.
      Such activities could have the effect of increasing, or preventing a decline
      in,
      the price of our common stock. Such effect is expected to be greater in the
      event we elect to settle converted notes entirely in cash. The hedge
      counterparties are likely to modify their hedge positions from time to time
      prior to conversion or maturity of the convertible notes or termination of
      the
      transactions by purchasing and selling shares of our common stock, other of
      our
      securities, or other instruments they may wish to use in connection with such
      hedging. In particular, such hedging modification may occur during any
      conversion reference period for a conversion of notes. In addition, we intend
      to
      exercise options we hold under the convertible note hedge transactions whenever
      notes are converted and we have elected, with respect to such conversion, to
      pay
      a portion of the consideration then due by us to the noteholder in shares of
      our
      common stock. In order to unwind their hedge positions with respect to those
      exercised options, the hedge counterparties will likely sell shares of our
      common stock in secondary market transactions or unwind various over-the-counter
      derivative transactions with respect to our common stock during the conversion
      reference period for the converted notes. The effect, if any, of any of these
      transactions and activities on the trading price of our common stock will depend
      in part on market conditions and cannot be ascertained at this time, but any
      of
      these activities could adversely affect the value of our common stock. Also,
      the
      sold warrant transaction could have a dilutive effect on our earnings per share
      to the extent that the price of our common stock exceeds the strike price of
      the
      warrants.




21




**Item
      4.**  **Controls
      and Procedures**





The
      Company, under the supervision and with the participation of its management,
      including its principal executive officer and principal financial officer,
      evaluated the effectiveness of the design and operation of its disclosure
      controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the
      Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the
      period covered by this report. The purpose of disclosure controls is to ensure
      that information required to be disclosed in our reports filed with or submitted
      to the SEC under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules and forms.
      Disclosure controls are also designed to ensure that such information is
      accumulated and communicated to our management, including our principal
      executive officer and principal financial officer, to allow timely decisions
      regarding required disclosure.





Based
      on
      this evaluation, the principal executive officer and principal financial officer
      concluded that the Company’s disclosure controls and procedures are effective in
      timely alerting them to material information required to be included in our
      periodic SEC filings and ensuring that information required to be disclosed
      by
      the Company in the reports that it files or submits under the Exchange Act
      is
      recorded, processed, summarized and reported within the time period specified
      in
      the SEC’s rules and forms.





The
      principal executive officer and principal financial officer also conducted
      an
      evaluation of internal control over financial reporting (“Internal Control”) to
      determine whether any changes in Internal Control occurred during the quarter
      ended March 31, 2008 that may have materially affected or which are reasonably
      likely to materially affect Internal Control. Based on that evaluation, there
      has been no change in the Company’s Internal Control during the quarter ended
      March 31, 2008 that has materially affected, or is reasonably likely to affect,
      the Company’s Internal Control.





**PART
      II. Other Information**




**Item
      1.**  **Legal
      Proceedings**





See
      Note
      9 of Notes to Unaudited Condensed Consolidated Financial Statements.




**Item
      1A.**  **Risk
      Factors.**





In
      addition to the risk factors disclosed in Part 1, Item 1A, “Risk Factors” of our
      Annual Report on Form 10-K for the year ended December 31, 2007, set forth
      below
      are certain factors that have affected, and in the future could affect, our
      operations or financial condition. We operate in a changing environment that
      involves numerous known and unknown risks and uncertainties that could impact
      our operations. The risks described below and in our Annual Report on Form
      10-K
      for the year ended December 31, 2007 are not the only risks we face. Additional
      risks and uncertainties not currently known to us or that we currently deem
      to
      be immaterial also may materially adversely affect our financial condition
      and/or operating results.




*Our
      existing and future debt obligations could impair our liquidity and financial
      condition, and in the event we are unable to meet our debt obligations we could
      lose title to our trademarks.*




As
      of
      March 31, 2008, we had consolidated debt of approximately $681.9 million,
      including secured debt of $387.7 million ($255.1 million under our Term Loan
      Facility and $132.6 million under Asset-Backed Notes issued by our subsidiary,
      IP Holdings), primarily all of which was incurred in connection with our
      acquisition activities. We may also assume or incur additional debt, including
      secured debt, in the future in connection with, or to fund, future acquisitions.
      Our debt obligations:




22




·
            could
                impair our liquidity;




·
            could
                make it more difficult for us to satisfy our other
                obligations;




·
            require
                us to dedicate a substantial portion of our cash flow to payments
                on our
                debt obligations, which reduces the availability of our cash flow
                to fund
                working capital, capital expenditures and other corporate
                requirements;




·
            could
                impede us from obtaining additional financing in the future for working
                capital, capital expenditures, acquisitions and general corporate
                purposes;




·
            impose
                restrictions on us with respect to future
                acquisitions;




·
            make
                us more vulnerable in the event of a downturn in our business prospects
                and could limit our flexibility to plan for, or react to, changes
                in our
                licensing markets; and




·
            place
                us at a competitive disadvantage when compared to our competitors
                who have
                less debt.




While
      we
      believe that by virtue of the guaranteed minimum royalty payments due to us
      under our licenses we will generate sufficient revenues from our licensing
      operations to satisfy our obligations for the foreseeable future, in the event
      that we were to fail in the future to make any required payment under agreements
      governing our indebtedness or fail to comply with the financial and operating
      covenants contained in those agreements, we would be in default regarding that
      indebtedness. A debt default could significantly diminish the market value
      and
      marketability of our common stock and could result in the acceleration of the
      payment obligations under all or a portion of our consolidated indebtedness.
      In
      the case of our Term Loan Facility, it would enable the lenders to foreclose
      on
      the assets securing such debt, including the Ocean Pacific/OP, Danskin,
      Rocawear, Starter and Mossimo trademarks, as well as the trademarks acquired
      by
      us in connection with the Official-Pillowtex acquisition, and, in the case
      of IP
      Holdings’ Asset-Backed Notes, it would enable the holders of such notes to
      foreclose on the assets securing such notes, including the Candie’s, Bongo, Joe
      Boxer, Rampage, Mudd and London Fog trademarks.




*A
      substantial portion of our licensing revenue is concentrated with a limited
      number of licensees such that the loss of any of such licensees could decrease
      our revenue and impair our cash flows.*




Our
      licensees Target, Kohl's and Kmart were our three largest direct-to-retail
      licensees during the Current Quarter, representing approximately 14%, 5% and
      5%,
      respectively, of our total revenue for such period. Our license agreement with
      Kohl's grants it the exclusive U.S. license with respect to the Candie's
      trademark for a wide variety of product categories for a term expiring in
      January 2011; our license agreement with Kmart grants it the exclusive U.S.
      license with respect to the Joe Boxer trademark for a wide variety of product
      categories for a term expiring in December 2010; and our license agreement
      with
      Target grants it the exclusive U.S. license with respect to the Mossimo
      trademark for substantially all Mossimo-branded products for an initial term
      expiring in January 2010; and, our other license agreement with Target grants
      it
      the exclusive U.S. license with respect to our Fieldcrest trademark for
      substantially all Fieldcrest-branded products for an initial term expiring
      in
      July 2010. Because we are dependent on these licensees for a significant portion
      of our licensing revenue, if any of them were to have financial difficulties
      affecting its ability to make guaranteed payments, or if any of these licensees
      decides not to renew or extend its existing agreement with us, our revenue
      and
      cash flows could be reduced substantially. For example, as of September 2006,
      Kmart had not approached the sales levels of Joe Boxer products needed to
      trigger royalty payments in excess of its guaranteed minimums since 2004, and,
      as a result, when we entered into the current license agreement with Kmart
      in
      September 2006 expanding its scope to include Sears stores and extending its
      term from December 2007 to December 2010, we agreed to reduce the guaranteed
      annual royalty minimums by approximately half, as a result of which our revenues
      from this license were substantially reduced.








*We
      have a material amount of goodwill and other intangible assets, including our
      trademarks, recorded on our balance sheet. As a result of changes in market
      conditions and declines in the estimated fair value of these assets, we may,
      in
      the future, be required to write down a portion of this goodwill and other
      intangible assets and such write-down would, as applicable, either decrease
      our
      profitability or increase our net loss.*




As
      of
      March 31, 2008, goodwill represented approximately $128.9 million, or
      approximately 9.6% of our total assets, and trademarks and other intangible
      assets represented approximately $1,036.4 million, or approximately 77.5%
      of our total assets. Under SFAS No. 142, goodwill and indefinite life
      intangible assets, including some of our trademarks, are no longer amortized,
      but instead are subject to impairment evaluation based on related estimated
      fair
      values, with such testing to be done at least annually. While, to date, no
      impairment write-downs have been necessary, any write-down of goodwill or
      intangible assets resulting from future periodic evaluations would, as
      applicable, either decrease our net income or increase our net loss and those
      decreases or increases could be material.




23




*Proposed
      changes in the accounting method for convertible debt securities could, if
      implemented, have an adverse impact on our reported or future financial
      results.*




For
      the
      purpose of calculating diluted earnings per share, a convertible debt security
      providing for net share settlement of the excess of the conversion value over
      the principal amount, if any, and meeting specified requirements under EITF
      90-19, “Convertible Bonds with Issuer Option to Settle for Cash upon
      Conversion,” such as our convertible notes, is accounted for similar to
      non-convertible debt, with the stated coupon constituting interest expense
      and
      any shares issuable upon conversion of the security being accounted for under
      the treasury stock method. The effect of the treasury stock method in relation
      to our convertible notes is that the shares potentially issuable upon conversion
      of the notes are not included in the calculation of our diluted earnings per
      share until the conversion price is “in the money,” at which time we are assumed
      to have issued the number of shares of common stock necessary to
      settle.




In
      July
      2007, the FASB voted unanimously to reconsider the current accounting treatment
      for convertible debt securities that require or permit settlement in cash,
      either in whole or in part, upon conversion, or cash settled debt securities
      (which would include our outstanding convertible notes). Under a proposed staff
      position issued by the FASB in August 2007 for a method of accounting that
      would
      be applied retroactively, the debt and equity components of such cash settled
      debt securities would be bifurcated and accounted for separately in a manner
      that reflects the issuer’s economic interest cost. While the effect on us of
      this proposal cannot be quantified unless and until the FASB finalizes its
      guidance, under this proposal, we could recognize higher interest on our
      convertible notes at effective rates more comparable to what we would have
      incurred had we issued nonconvertible debt with otherwise similar terms.
      Therefore, if the proposed method of accounting for cash settled debt securities
      is adopted by the FASB as described above, it would have an adverse impact
      on
      our past and future reported financial results. In addition, any other change
      that could affect the accounting for convertible securities, including any
      changes in generally accepted accounting principles in the U.S., could have
      a
      material impact on our reported or future financial results.




The
      comment period for the proposed FASB staff position described above expired
      on
      October 15, 2007. We cannot determine at this time whether this staff position
      will ultimately be adopted in its present form or at all. In the event the
      proposed method of accounting described above is adopted, we will, pursuant
      to
      the terms of the indenture governing our outstanding convertible notes, have
      the
      right for a period of 90 days thereafter, at our option, to call the convertible
      notes for redemption. However, although we will have such redemption right,
      we
      may not have sufficient cash to pay, or may not be permitted to pay, the
      required cash portion of the consideration that would be due to holders of
      the
      convertible notes in the event we elected to exercise such right or the ability
      to raise funds through debt or equity financing within the time period required
      for us to make such an election.




*Due
      to the recent downturn in the market, certain of the marketable securities
      we
      own may take longer to auction than initially anticipated.*





Marketable
      securities consist of investment grade auction rate securities. From the third
      quarter of 2007 to the present, our balance of auction rate securities failed
      to
      auction due to sell orders exceeding buy orders. These funds will not be
      available to us until a successful auction occurs or a buyer is found outside
      the auction process. As a result, $13.0 million of auction rate securities
      were
      written down to $10.7 million, based on third party estimates, as an unrealized
      pre-tax loss to reflect a temporary decrease in fair value, reflected as an
      accumulated other comprehensive loss of $2.3 million in the stockholders’ equity
      section of our unaudited condensed consolidated balance sheet. We believe this
      decrease in fair value is temporary due to general macroeconomic market
      conditions, as the underlying securities have maintained their investment grade
      rating. There are no assurances that a successful auction will occur, or that
      we
      can find a buyer outside the auction process.





*A
      decline in general economic conditions resulting in a decrease in
      consumer-spending levels and an inability to access capital may adversely affect
      our business.*





Many
      economic factors beyond our control may impact our forecasts and actual
      performance. These factors include consumer confidence, consumer spending
      levels, employment levels, availability of consumer credit, recession,
      deflation, inflation, a general slowdown of the U.S. economy or an uncertain
      economic outlook. Furthermore, changes in the credit and capital markets,
      including market disruptions, limited liquidity and interest rate fluctuations,
      may increase the cost of financing or restrict our access to potential sources
      of capital for future acquisitions.




24




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




The
      following table represents information with respect to purchases of common
      stock
      made by the Company during the three months ended March 31, 2008:




Month
                of purchase
            
            
            Total
                number
              of
                shares
              purchased(1)
            
            
            Average
              price
              paid
                per share
            
            
            Total
                number of
              shares
              purchased
                as
              part
                of publicly announced plans or programs
            
            
            Maximum
              dollar
              value
                of shares
              that
                may yet be
              purchased
              under
                the plans or
              programsJanuary
                1 - January 31, 2008
            
            
            —
            
            $
            —
            
            $
            —
            
            $
            —February
                1 - February 29, 2008
            
            
            —
            
            $
            —
            
            $
            —
            
            $
            —March 1
                - March 31, 2008
            
            
            13,871
            
            $
            19.00
            
            $
            —
            
            $
            —Total
            
            
            13,871
            
            $
            19.00
            
            $
            —
            
            $
            —




(1)
            
            Represents
                shares of common stock surrendered to the Company to pay employee
                withholding taxes due upon the vesting of restricted
                stock.




**Item
      5. Other Information**





None
      noted.




**Item
      6.**  **Exhibits**





EXHIBIT
                NO.
            DESCRIPTION
                OF EXHIBITExhibit
                10.1
            Employment
                Agreement between Neil Cole and the Company dated January 28, 2008
                (1)*Exhibit
                10.2
            Restricted
                Stock Grant Agreement dated February 19, 2008 between the Company
                and Neil
                Cole (2)*Exhibit
                10.3
            Restricted
                Stock Performance Unit Agreement dated February 19, 2008 between
                the
                Company and Neil Cole (2)*Exhibit
                31.1
            Certification
                of Chief Executive Officer Pursuant To Rule 13a-14 or 15d-14 of The
                Securities Exchange Act of 1934, As Adopted Pursuant To Section 302
                Of The
                Sarbanes-Oxley Act of 2002Exhibit
                31.2
            Certification
                of Chief Financial Officer Pursuant To Rule 13a-14 or 15d-14 of The
                Securities Exchange Act of 1934, As Adopted Pursuant To Section 302
                Of The
                Sarbanes-Oxley Act of 2002Exhibit
                32.1
            Certification
                of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As
                Adopted
                Pursuant To Section 906 of The Sarbanes-Oxley Act of
                2002Exhibit
                32.2
            Certification
                of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As
                Adopted
                Pursuant To Section 906 of The Sarbanes-Oxley Act of
                2002


_________


(1)
                Filed as an exhibit to the Company’s Current Report on Form 8-K for the
                event dated January 28,2008
                and incorporated by reference herein.(2)
                Filed as an exhibit to the Company’s Annual Report on Form 10-K for the
                period ended December 31, 2007 and incorporated by reference
                herein.*
                Denotes management compensation plan or
                arrangement.




25




**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.




**Iconix
                Brand Group, Inc.**
              **(Registrant)**Date:
                May 7, 2008
            
            
            /s/
                Neil
                ColeNeil
                Cole
              Chairman
                of the Board, President
              and
                Chief Executive Officer
              (on
                Behalf of the Registrant)




Date:
                  May 7, 2008
            
            
            /s/
                Warren ClamenWarren
                Clamen
              Chief
                Financial Officer




26