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 **June 30, 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 filerx
            
            Accelerated fileroNon-accelerated filero(Do not check if a smaller reporting company)
            Smaller reporting companyo




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 – 57,794,880 shares as of August 6,
      2008.













**INDEX**





**FORM
      10-Q**





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





Page No.Part I.
            
            Financial
                Information
            
            3Item 1.
            
            Financial
                StatementsCondensed
                Consolidated Balance Sheets – June 30, 2008 (unaudited) and December
                31, 2007
            
            3Unaudited
                Condensed Consolidated Income Statements - Three and Six Months Ended
                June
                30, 2008 and 2007
            
            4Unaudited
                Condensed Consolidated Statement of Stockholders' Equity - Six Months
                Ended June 30, 2008
            
            5Unaudited
                Condensed Consolidated Statements of Cash Flows - Six Months Ended
                June
                30, 2008 and 2007
            
            6Notes
                to Unaudited Condensed Consolidated Financial Statements
            
            8Item 2.
            
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            20Item 3.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            24Item 4.
            
            Controls
                and Procedures
            
            25Part II.
            
            Other
                Information
            
            25Item 1.
            
            Legal
                Proceedings
            
            25Item 1A.
            
            Risk
                Factors
            
            25Item 2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            28Item 4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            28Item 6.
            
            Exhibits
            
            28Signatures
            
            
            
            30




2




Part
      I.
 Financial Information


Item
      1.
      Financial Statements





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


Condensed
      Consolidated Balance Sheets


(in
      thousands, except par value)




**June 30,**
              **2008**
            
            **December**
              **31,**
              **2007**(Unaudited)**Assets**Current
                Assets:Cash
                (including restricted cash of $1,341 in 2008 and $5,205 in
                2007)
            
            $
            67,313
            
            $
            53,272Accounts
                receivable, net of reserve of $3,519 in 2008 and 2007
            
            
            36,458
            
            
            29,757Deferred
                income taxes
            
            
            7,442
            
            
            7,442Prepaid
                advertising and other
            
            
            13,054
            
            
            5,397Total
                Current Assets
            
            
            124,267
            
            
            95,868Property
                and equipment:Furniture,
                fixtures and equipment
            
            
            7,028
            
            
            2,903Less:
                Accumulated depreciation
            
            
            (1,900
            )
            
            (1,610
            )5,128
            
            
            1,293Other
                Assets:Restricted
                cash
            
            
            15,886
            
            
            15,186Marketable
                securities
            
            
            10,660
            
            
            10,920Goodwill
            
            
            130,561
            
            
            128,898Trademarks
                and other intangibles, net
            
            
            1,034,856
            
            
            1,038,201Deferred
                financing costs, net
            
            
            7,397
            
            
            8,270Non-current
                deferred income taxes
            
            
            11,532
            
            
            21,158Other
            
            
            15,714
            
            
            16,3361,226,606
            
            
            1,238,969Total
                Assets
            
            $
            1,356,001
            
            $
            1,336,130**Liabilities
                and Stockholders' Equity**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            16,271
            
            $
            15,804Accounts
                payable, subject to litigation
            
            
            1,878
            
            
            1,878Deferred
                revenue
            
            
            1,883
            
            
            6,162Current portion of long-term debt
            
            
            33,486
            
            
            52,566Total
                current liabilities
            
            
            53,518
            
            
            76,410Non-current
                deferred income taxes
            
            
            75,137
            
            
            73,418Long-term
                debt, less current maturities
            
            
            643,724
            
            
            649,590Long
                term deferred revenue
            
            
            9,032
            
            
            8,792Total
                Liabilities
            
            
            781,411
            
            
            808,210Commitments
                and contingenciesStockholders'
                EquityCommon
                stock, $.001 par value-shares authorized 150,000; shares issued 57,773 and 57,330
                respectively
            
            
            58
            
            
            58Additional
                paid-in capital
            
            
            482,817
            
            
            469,941Retained
                earnings
            
            
            95,641
            
            
            60,941Accumulated
                other comprehensive loss
            
            
            (2,597
            )
            
            (2,353
            )Less:
                Treasury stock - 222 and 198 shares at cost, respectively
            
            
            (1,329
            )
            
            (667
            )Total
                Stockholders’ Equity
            
            
            574,590
            
            
            527,920Total
                Liabilities and Stockholders' Equity
            
            $
            1,356,001
            
            $
            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 June 30,
            
            Six Months Ended June 30,2008
            
            2007
            
            2008
            
            2007Licensing
                revenue
            
            $
            51,700
            
            
            39,071
            
            
            107,367
            
            
            69,912Selling,
                general and administrative expenses
            
            
            18,320
            
            
            9,011
            
            
            37,031
            
            
            16,730Expenses
                related to specific litigation
            
            
            195
            
            
            331
            
            
            386
            
            
            1,094Operating
                income
            
            
            33,185
            
            
            29,729
            
            
            69,950
            
            
            52,088Other
                expenses:Interest
                expense
            
            
            8,464
            
            
            7,872
            
            
            18,585
            
            
            11,407Interest
                income
            
            
            (849
            )
            
            (959
            )
            
            (2,414
            )
            
            (1,872
            )Interest
                expense - net
            
            
            7,615
            
            
            6,913
            
            
            16,171
            
            
            9,535Income
                before income taxes
            
            
            25,570
            
            
            22,816
            
            
            53,779
            
            
            42,553Provision
                for income taxes
            
            
            9,114
            
            
            8,027
            
            
            19,079
            
            
            15,017Net
                income
            
            $
            16,456
            
            
            14,789
            
            
            34,700
            
            
            27,536Earnings
                per share:Basic
            
            $
            0.29
            
            
            0.26
            
            
            0.60
            
            
            0.49Diluted
            
            $
            0.27
            
            
            0.24
            
            
            0.57
            
            
            0.45Weighted
                average number of common shares outstanding:Basic
            
            
            57,719
            
            
            56,625
            
            
            57,572
            
            
            56,451Diluted
            
            
            61,279
            
            
            61,364
            
            
            61,315
            
            
            61,241





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.


4




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





Unaudited
      Condensed Consolidated Statement of Stockholders' Equity





Six
      Months Ended June 30, 2008


***(in
      thousands)***





AccumulatedAdditional
            
            
            
            OtherCommon Stock
            
            Paid-in
            
            Retained
            
            Comprehensive
            
            TreasuryShares
            
            Amount
            
            Capital
            
            Earnings
            
            Loss
            
            Stock
            
            TotalBalance
                at January 1, 2008
            
            
            57,330
            
            $
            58
            
            $
            469,941
            
            $
            60,941
            
            $
            (2,353
            )
            $
            (667
            )
            $
            527,920Shares
                issued on exercise of stock options
            
            
            401
            
            
            -
            
            
            1,715
            
            
            -
            
            
            -
            
            
            -
            
            
            1,715Shares
                issued on vesting of restricted stock
            
            
            42
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Tax
                benefit of stock option exercises
            
            
            -
            
            
            -
            
            
            6,806
            
            
            -
            
            
            -
            
            
            -
            
            
            6,806Amortization
                expense in connection with restricted stock
            
            
            -
            
            
            -
            
            
            4,220
            
            
            -
            
            
            -
            
            
            -
            
            
            4,220Stock
                option compensation
            
            
            -
            
            
            -
            
            
            135
            
            
            -
            
            
            -
            
            
            -
            
            
            135Shares
                repurchased on vesting of restricted stock and exercise of stock
                options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (662
            )
            
            (662
            )Comprehensive
                income:Net
                Income
            
            
            -
            
            
            -
            
            
            -
            
            
            34,700
            
            
            -
            
            
            -
            
            
            34,700Change
                in fair value of cash flow hedge
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            16
            
            
            -
            
            
            16Change
                in fair value of securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (260
            )
            
            -
            
            
            (260
            )Total
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            34,456Balance
                at June 30, 2008
            
            
            57,773
            
            
            58
            
            
            482,817
            
            
            95,641
            
            
            (2,597
            )
            
            (1,329
            )
            
            574,590





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.


5


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





Unaudited
      Condensed Consolidated Statements of Cash Flows


(in
      thousands)


Six Months Ended June 30,2008
                
                2007Cash
                    flows from operating activities:Net
                    income
                
                $
                34,700
                
                $
                27,536Depreciation
                    of property and equipment
                
                
                290
                
                
                78Amortization
                    of trademarks and other intangibles
                
                
                3,701
                
                
                2,388Amortization
                    of deferred financing costs
                
                
                879
                
                
                497Amortization
                    of convertible note discount
                
                
                646
                
                
                -Stock-based
                    compensation expense
                
                
                4,355
                
                
                819Bad
                    debt expense
                
                
                216
                
                
                1,137Accrued
                    interest on long-term debt
                
                
                -
                
                
                95Deferred
                    income taxes
                
                
                11,345
                
                
                15,017Changes
                    in operating assets and liabilities, net of business
                    acquisitions:Accounts
                    receivable
                
                
                (6,917
                )
                
                (9,881
                )Prepaid
                    advertising and other
                
                
                (8,657
                )
                
                (3,118
                )Other
                    assets
                
                
                638
                
                
                608Deferred
                    revenue
                
                
                (4,039
                )
                
                2,921Accounts
                    payable and accrued expenses
                
                
                467
                
                
                (1,703
                )Net
                    cash provided by operating activities
                
                
                37,624
                
                
                36,394Cash
                    flows used in investing activities:Purchases
                    of property and equipment
                
                
                (4,125
                )
                
                (40
                )Additions
                    to trademarks
                
                
                (356
                )
                
                (110
                )Earn-out
                    payment on acquisition
                
                
                (1,663
                )
                
                -Collection
                    on promissory note
                
                
                1,000
                
                
                -Purchase
                    of marketable securities
                
                
                -
                
                
                (196,400
                )Acquisition
                    of Danskin
                
                
                -
                
                
                (71,035
                )Acquisition
                    of Rocawear
                
                
                -
                
                
                (205,534
                )Net
                    cash used in investing activities
                
                
                (5,144
                )
                
                (473,119
                )Cash
                    flows provided by financing activities:Proceeds
                    from long-term debt
                
                
                -
                
                
                531,022Proceeds
                    from exercise of stock options and warrants
                
                
                1,715
                
                
                1,130Shares
                    repurchased on vesting of restricted stock and exercise of stock
                    options
                
                
                (662
                )
                
                -Payment
                    of long-term debt
                
                
                (25,592
                )
                
                (9,315
                )Payment
                    of expenses related to common stock issuance
                
                
                -
                
                
                (184
                )Deferred
                    financing costs
                
                
                (6
                )
                
                (4,415
                )Excess
                    tax benefit from share-based payment arrangements
                
                
                6,806
                
                
                -Payment
                    for purchase of convertible note hedge
                
                
                -
                
                
                (76,303
                )Restricted
                    cash - current
                
                
                3,864
                
                
                3,239Restricted
                    cash - non-current
                
                
                (700
                )
                
                (2,169
                )Net
                    cash provided by (used in) financing activities
                
                
                (14,575
                )
                
                443,005Net
                    increase in cash and cash equivalents
                
                
                17,905
                
                
                6,280Cash,
                    beginning of period
                
                
                48,067
                
                
                73,572Cash,
                    end of period
                
                $
                65,972
                
                $
                79,852Balance
                    of restricted cash - current
                
                
                1,341
                
                
                1,029Total
                    cash including current restricted cash, end of period
                
                $
                67,313
                
                $
                80,881





6




**Supplemental
      disclosure of cash flow information:**




Six Months Ended June 30,2008
            
            2007Cash
                paid during the period:Income
                taxes
            
            $
            5,209
            
            $
            1,136Interest
            
            $
            17,215
            
            $
            10,694





**Supplemental
      disclosures of non-cash investing and financing
      activities:**




Six Months Ended June 30,2008
            
            2007Net
                cost of hedge on convertible note
            
            $
            -
            
            $
            12,107Acquisitions:Common
                stock issued
            
            $
            -
            
            $
            496Warrants
                issued - acquisition cost
            
            $
            -
            
            $
            4,931




See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.


7




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





Notes
      to
      Unaudited Condensed Consolidated Financial Statements


June
      30,
      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"), all adjustments (consisting primarily of normal recurring accruals)
      considered necessary for a fair presentation have been included. Operating
      results for the three months (“Current Quarter”) and the six months (“Current
      Six Months”) ended June 30, 2008 are not necessarily indicative of the results
      that may be expected for a full fiscal year.




Certain
      prior period amounts have been reclassified to conform to the current period’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 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 at June
      30, 2008:


8





Carrying Amount as of
              June 30, 2008
              *(000’s omitted)*
            
            Level 1
            
            Level 2
            
            Level 3
            
            Valuation
              TechniqueMarketable
                Securities
            
            
            -
            
            
            -
            
            $
            10,660
            
            
            (B)Cash
                Flow Hedge
            
            $
            71
            
            
            -
            
            
            -
            
            
            (A)





In
      accordance with the provisions of FSP No. FAS 157-2, Effective Date of FASB
      Statement No. 157, the Company has elected to defer implementation of SFAS
      157
      as it relates to its non-financial assets and non-financial liabilities until
      January 1, 2009 and is evaluating the impact, if any, this standard will have
      on
      its financial statements.





*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 income statement.





As
      of
      June 30, 2008, the Company held auction rate securities with a face value of
      $13.0 million and a fair value of $10.7 million. Although these auction rate
      securities continue to pay interest according to their stated terms, during
      the
      Current Six Months 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 the fair value of the marketable securities
      reflecting failed auctions 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 the Company 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:




Description*(000's omitted)*
            
            Auction
              Rate
              SecuritiesBalance
                at January 1, 2008
            
            $
            10,920Additions
            
            
            -Gains
                (losses) reported in earnings
            
            
            -Gains
                (losses) reported in other comprehensive income (loss)
            
            
            (260
            )Balance
                at June 30, 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 June 30, 2008, the fair value of the
      Interest Rate Cap was $71,000, resulting in an other comprehensive gain of
      $16,000 for the Current Six Months, which is reflected in the Unaudited
      Condensed Consolidated Balance Sheet and Statement of Stockholders’ Equity,
      respectively.


9




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




Trademarks
      and other intangibles, net consist of the following:




June 30, 2008
            
            December 31, 2007Estimated
            
            Gross
            
            
            
            GrossLives in
            
            Carrying
            
            Accumulated
            
            Carrying
            
            Accumulated***(****000's omitted)*
            
            Years
            
            Amount
            
            Amortization
            
            Amount
            
            AmortizationTrademarks:Indefinite
                life trademarks
            
            
            indefinite
            
            $
            1,007,731
            
            $
            9,498
            
            $
            1,007,625
            
            $
            9,498Definite
                life trademarks
            
            
            10-15
            
            
            19,147
            
            
            1,554
            
            
            18,897
            
            
            856Non-compete
                agreements
            
            
            2-15
            
            
            10,075
            
            
            5,341
            
            
            10,075
            
            
            4,585Licensing
                agreements
            
            
            1.5-6
            
            
            21,093
            
            
            7,087
            
            
            21,093
            
            
            4,897Domain
                names
            
            
            5
            
            
            570
            
            
            280
            
            
            570
            
            
            223$
            1,058,616
            
            $
            23,760
            
            $
            1,058,260
            
            $
            20,059




Amortization
      expense for intangible assets for the Current Six Months and the six months
      ended June 30, 2007 (“Prior Year Six Months”) was $3.7 million and $2.4 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 has been recorded in the Company's consolidated income statements.
      Instead, each of these intangible assets will be tested for impairment at least
      annually as separate single units of accounting, 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:




June 30,
            
            December 31,*(000’s omitted)*
            
            2008
            
            2007Convertible
                Senior Subordinated Notes
            
            $
            282,361
            
            $
            281,714Term
                Loan Facility
            
            
            255,144
            
            
            270,751Asset-Backed
                Notes
            
            
            127,519
            
            
            137,505Sweet
                Note (Note 7)
            
            
            12,186
            
            
            12,186Total
                Debt
            
            $
            677,210
            
            $
            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.


10





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
      June
      30, 2008, the balance of the Convertible Notes was $282.4 million. The
      Convertible Notes do not provide for any financial covenants.




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, 2007 and is being recognized over the term of the Convertible Notes.
      As of June 30, 2008, the balance of deferred income tax assets related to this
      transaction was $21.4 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.




Pursuant
      to Emerging Issues Task Force (EITF) Issue No. 00-19 “Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock,” (EITF 00-19), and EITF Issue No. 01-06, “The Meaning of Indexed to a
      Company’s Own Stock” (EITF 01-06), the convertible note hedge and the proceeds
      received from the issuance of the warrants were recorded as a charge and an
      increase, respectively, in additional paid-in capital in stockholders’ equity as
      separate equity transactions. As a result of these transactions, the Company
      recorded a net reduction to additional paid-in-capital of $12.1 million in
      June
      2007.





As
      the
      Convertible Note Hedge transactions and the warrant transactions were separate
      transactions entered into by the Company with the Counterparties, they 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.


11




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.




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.


In
        May
        2008 the Financial Accounting Standards Board (“FASB”) issued FASB Staff
        Position (“FSP”) APB 14-1 “Accounting for Convertible Debt Instruments That May
        Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)”
(previously FSP APB 14-a), which will change the accounting treatment for
        convertible securities that the issuer may settle fully or partially in cash.
        Under the final FSP, cash-settled convertible securities will be separated
        into
        their debt and equity components. The value assigned to the debt component
        will
        be the estimated fair value, as of the issuance date, of a similar debt
        instrument without the conversion feature. As a result, the debt will be
        recorded at a discount to adjust its below-market coupon interest rate to
        the
        market coupon interest rate for the similar debt instrument without the
        conversion feature. The difference between the proceeds for the convertible
        debt
        and the amount reflected as the debt component represents the value of the
        conversion feature and will be recorded as additional paid-in capital. The
        debt
        will subsequently be accreted to its par value over its expected life, with
        an
        offsetting increase in interest expense on the income statement to reflect
        the
        market rate for the debt component at the date of issuance.
 
 Beginning
        with fiscal 2009, and applied retrospectively to all past periods
        presented, the Company will be required to adopt the provisions of FSP
        APB 14-1 as they relate to the Convertible Notes. As compared to the
        current accounting for the Convertible Notes, adoption of the proposal will
        reduce long-term debt, increase stockholders’ equity, and reduce net income and
        earnings per share. Adoption of the proposal would not affect the
        Company's cash flows. The Company is currently evaluating the
        impact of the adoption of FSP APB 14-1 on its financial
        statements.


*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, a Delaware limited liability company (“Mossimo Holdings”),
      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 (the
“Additional Borrowing”). The net proceeds received by the Company from the
      Additional Borrowing were $60 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 subsidiaries subject
      to
      the Term Loan Facility, as described in the Credit Agreement, 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 subsidiaries subject
      to the Term Loan Facility for Fiscal 2007. As a result of such payment, the
      Company is no longer required to pay the quarterly installments described above.
      The Term Loan Facility requires the Company to repay the principal amount of
      the
      term loan outstanding in an amount equal to 50% of the excess cash flow of
      the
      subsidiaries subject to the Term Loan Facility for the most recently completed
      fiscal year. If the Term Loan Facility had required the Company to repay the
      principal amount of the term loan outstanding based on the excess cash flow
      of
      such subsidiaries for the six months ended June 30, 2008 rather than based
      upon
      the fiscal year end results, the Company would have been required to pay
      approximately $20.5 million, representing 50% of the excess cash flow of such
      subsidiaries for that six-month period. However, in accordance with the terms
      of
      the Term Loan Facility as noted above, the next calculation for determining
      the actual excess cash flow payment the Company will be required to make under
      the Term Loan Facility will be based on the results of the subsidiaries subject
      to the Term Loan Facility for the 12 months ending December 31, 2008. The
      interest rate as of June 30, 2008 was 5.06%. At June 30, 2008, the balance
      of
      the Term Loan Facility was $255.1 million.  As of June 30, 2008, the
      Company was in compliance with all material covenants set forth in the Credit
      Agreement. 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.


12


*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 June 30, 2008,
      the balance of the Asset-Backed Notes was $127.5 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, $1.3 million and $5.2 million as of June 30,
      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 June 30, 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 June 30, 2008 are as follows: $44.5 million principal amount bears interest
      at a fixed interest rate of 8.45% with a six year term, $19.7 million principal
      amount bears interest at a fixed rate of 8.12% with a six year term, and $63.3
      million principal amount bears interest at a fixed rate of 8.99% with a six
      and
      a half year term. The Asset-Backed Notes have no financial covenants by which
      the Company or its subsidiaries need comply. The aggregate principal amount
      of
      the Asset-Backed Notes will be fully paid by February 22, 2013.




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).




*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 Six Months, 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
      Sportswear/Unzipped litigation. See Note 9.





The
      judgment 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 June 30, 2008
      is
      approximately $12.2 million and included in the current portion of long-term
      debt.





In
      addition, in November 2007 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 in Fiscal 2007. This
      receivable is included in other assets - non-current and bears interest, which
      was accrued for in the Current Six Months, at the rate of 8% per
      year.




13


*Debt
        Maturities*
 
 The
        Company's debt maturities are the following:
  *(000’s
                  omitted)*
              
              Total
              
              2008
              
              2009
              
              2010
              
              2011
              
              2012
              
              thereafterConvertible
                  Notes
              
              $
              282,361
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              282,361
              
              $
              -Term
                  Loan Facility
              
              
              255,144
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              255,144Asset-Backed
                  Notes
              
              
              127,519
              
              
              21,300
              
              
              23,202
              
              
              25,275
              
              
              27,533
              
              
              30,209
              
              
              -Sweet
                  Note
              
              
              12,186
              
              
              12,186
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
                  Debt
              
              $
              677,210
              
              $
              33,486
              
              $
              23,202
              
              $
              25,275
              
              $
              27,533
              
              $
              312,570
              
              $
              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.
 
 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 at various times, either
        five,
        seven or ten years from the date of grant, depending on the particular
        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
              
              
              418,905
              
              
              4.24Expired
              
              
              -
              
              
              -Outstanding
                  June 30, 2008
              
              
              4,687,638
              
              
              4.23Exercisable
                  at June 30, 2008
              
              
              4,651,304
              
              
              4.18
  14
 
 Warrants
              
              Weighted-
                Average
                Exercise
                  PriceOutstanding
                  January 1, 2008
              
              
              266,900
              
              $
              16.76Granted
              
              
              -
              
              
              -Canceled
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Expired
              
              
              -
              
              
              -Outstanding
                  June 30, 2008
              
              
              266,900
              
              $
              16.76Exercisable
                  at June 30, 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.
 
 *Restricted
        stock*
 
 Compensation
        cost for restricted stock is measured as the excess, if any, of the quoted
        market price of the Company’s 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.
 
 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 up 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
        Six
        Months, the Company awarded an aggregate of 1,658,698 restricted stock-based
        awards, of which 315,116 are performance based. During the Prior Year Six
        Months, the Company awarded an aggregate of 68,383 restricted stock-based
        awards. The securities awarded during the Current Six Months and the Prior
        Year
        Six Months have a vesting period of up to five years and a fair market value
        of
        approximately $32.9 million and $1.4 million, respectively. As of June 30,
        2008,
        64,368 restricted stock-based awards had vested.
 
 Unearned
        compensation expense related to restricted securities grants for the Current
        Six
        Months and the Prior Year Six Months was approximately $4.3 million and $0.4
        million, respectively. An additional amount of $26.9 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
              
              
              1,658,698
              
              
              19.86Vested
              
              
              (64,368
              )
              
              18.99Forfeited
              
              
              -
              
              
              -Non-vested,
                  June 30, 2008
              
              
              1,738,457
              
              $
              19.85
  15
 
 *Stockholder
        Rights Plan*
 
 In
        January 2000, the Company's Board of Directors adopted a stockholder rights
        plan. Under the plan, each holder 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.
 
 *Securities
        Available for Issuance*
 
 As
        of
        June 30, 2008, the number of securities remaining available for issuance
        under
        the Company’s 2001, 2002 and 2006 equity compensation plans, excluding
        securities to be issued upon exercise of outstanding options, warrants, and
        rights, is 51,750, 32,274, and 138,465, respectively.
 
 **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 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
        June 30, 2008, of the total potentially dilutive shares related to
        restricted stock-based awards, stock options and warrants, 1.9 million were
        anti-dilutive. As of June 30 2007, 3.6 million warrants to purchase common
        stock
        shares were anti-dilutive, and no restricted stock-based awards or stock
        options
        were anti-dilutive.
 
 As
        of
        June 30, 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 1.9 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 June 30, 2008 and therefore not included in this
        calculation.
 
 A
        reconciliation of shares used in calculating basic and diluted earnings per
        share follows:
  For the Three
              
              For the SixMonths Ended
              
              Months Ended*(000's omitted)*
              
              June 30,
              
              June 30,2008
              
              2007
              
              2008
              
              2007Basic
              
              
              57,719
              
              
              56,625
              
              
              57,572
              
              
              56,451Effect
                  of exercise of stock options
              
              
              3,416
              
              
              4,589
              
              
              3,585
              
              
              4,715Effect
                  of contingent common stock issuance
              
              
              144
              
              
              -
              
              
              144
              
              
              -Effect
                  of assumed vesting of restricted stock
              
              
              -
              
              
              150
              
              
              14
              
              
              75-
              
              
              -
              
              
              -
              
              
              -Diluted
              
              
              61,279
              
              
              61,364
              
              
              61,315
              
              
              61,241
 
 **7.
        Unzipped Apparel, LLC (** ***“Unzipped”*** **)**
 
 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.
  16
  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.
 
 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 Six Months
        and the Prior Year Six Months.
 
 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 to the “expenses related to specific
        litigation”.
 
 As
        a
        result of the judgment, in Fiscal 2007 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 an expense related
        to specific litigation. The remaining $2.8 million of the increase was
        attributed to related interest on the Sweet Note and recorded as interest
        expense. As of June 30, 2008, the full $12.2 million current balance of the
        Sweet Note and $0.7 million of accrued interest are included in the current
        portion of long term debt and accounts payable and accrued expenses,
        respectively.
 
 In
        addition, in November 2007 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 June 30, 2008, this
        receivable and the associated accrued interest of $0.4 million for the Current
        Six Months are included in other assets - non-current.
 
 **8.  Expenses
        Related to Specific Litigation**
 
 Expenses
        related to specific litigation consist of legal expenses and costs related
        to
        the Unzipped litigation. For the Current Six Months and Prior Year Six Months,
        the Company recorded expenses related to specific litigation of $0.4 million
        and
        $1.1 million, respectively. See Note 7 for information relating to
        Unzipped.
 
 **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%.
  17
  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 write-down 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 plaintiffs’ petition
        seeking in excess of $15.0 million attorneys’ fees and costs, which hearing was
        concluded on April 18, 2008. By order dated May 6, 2008, the Court awarded
        plaintiffs certain statutory costs against the Guez defendants. The Court
        also
        determined that plaintiffs were entitled to pursue recovery of their
        non-statutory costs, comprised primarily of expert witness fees, incurred
        in
        connection with this action. The hearing with regard to plaintiffs’ recovery of
        non-statutory costs is scheduled to be conducted on August 7 and 8, 2008.
        The
        Company expects the Court to render a decision with regard to the pending
        requests for attorneys’ fees and non-statutory costs following the conclusion of
        this hearing.
 
 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 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.
 
 ***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 that they asserted, 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.
  18
  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. By opinion
        and
        order dated July 8, 2008, the District Court granted BAI’s/TKO’s motion to the
        extent that it sought dismissal of the Company’s and IP Holding’s claim for
        breach of the duty of due care, and denied the motion in all other respects.
        The
        Company also voluntarily withdrew two trademark claims that it had asserted
        against BAI and TKO. IP Holdings is continuing to pursue these
        claims.
 
 On
        July
        14, 2008, the Company and IP Holdings filed a motion with the District Court
        seeking leave to file a second amended complaint. The contemplated second
        amended complaint seeks to join James Tate, Kenneth Tate, TKO-Evolution Apparel,
        Inc., TKO-Globetex Apparel, Inc., Tate Management, Inc., TKO Apparel Licensing,
        Inc. and TKO Evolution Licensing #1, Inc., as defendants in the action due
        to
        the involvement of these individuals and entities in the dissipation of BAI’s
        and TKO’s assets. The contemplated second amended complaint also seeks to add a
        claim for breach of fiduciary duty against James Tate and Kenneth Tate. This
        motion is currently pending. 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 Six Months
        and Prior Year Six Months, the Company earned $0.6 million and $0.5 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 June 30, 2008
        and
        December 31, 2007, respectively, which is included in prepaid advertising
        and
        other on the unaudited condensed consolidated balance sheet. 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 $199,000 for the Current Six Months
        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.  There
        were no such expenses in the Prior Year Six Months. Management believes that
        all
        transactions were made on terms and conditions similar to those available
        in the
        marketplace from unrelated parties.
  19
  **11.  Segment
        Data**
 
 The
        Company has one reportable segment, licensing revenue generated from its
        brands.
        The geographic regions consist of the United States and Other (which principally
        represents Canada, Japan and Europe). Long lived assets are substantially
        all
        located in the United States. Revenues attributed to each region are based
        on
        the location in which licensees are located.
 
 The
        revenues by type of license and information by geographic region are as
        follows:
  For
                  the three months ended
              
              For
                  the six months ended*(000's
                omitted)*
              
              June
                  30,
              
              June
                  30,2008
              
              2007
              
              2008
              
              2007Revenues
                  by product line:Direct-to-retail license
              
              $
              13,902
              
              $
              12,341
              
              $
              29,774
              
              $
              26,516Wholesale license
              
              
              37,191
              
              
              26,201
              
              
              76,411
              
              
              42,389Other
              
              
              607
              
              
              529
              
              
              1,182
              
              
              1,007$
              51,700
              
              $
              39,071
              
              $
              107,367
              
              $
              69,912Revenues
                  by geographic region:United States
              
              $
              47,956
              
              $
              36,594
              
              $
              100,792
              
              $
              65,586Other
              
              
              3,744
              
              
              2,477
              
              
              6,575
              
              
              4,326$
              51,700
              
              $
              39,071
              
              $
              107,367
              
              $
              69,912
  **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 portfolio of consumer
        brands. The Company’s brands are sold across every major segment of retail
        distribution, from luxury to mass. As of June 30, 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 220 direct-to-retail and traditional 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 June 30, 2008*
 
 *Revenue.* Revenue
        for the Current Quarter increased to $51.7 million from $39.1 million during
        the
        Prior Year Quarter. The primary driver of this growth of $12.6 million was
        a
        full quarter of revenue generated from the acquisitions of the
        Official-Pillowtex brands (i.e. Cannon, Royal Velvet, Fieldcrest, Charisma)
        and
        Starter made during the fourth quarter of Fiscal 2007, which had no comparable
        revenue in the Prior Year Quarter.
  20
  *Operating
        Expenses.* Selling,
        general and administrative (“SG&A”) expenses totaled $18.3 million in the
        Current Quarter compared to $9.0 million in the Prior Year Quarter. The increase
        of $9.3 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 the fourth quarter of Fiscal 2007, with no comparable advertising
        expense in the Prior Year Quarter; (ii) an increase of approximately $3.5
        million in payroll costs, primarily due to an increase of $1.6 million in
        non-cash stock compensation expense, from $0.5 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) amortization of intangible assets (mainly contracts
        and non-competes) as a direct result of the Mossimo, Ocean Pacific, Danskin,
        Rocawear and the Official-Pillowtex brands acquisitions accounted for $2.0
        million in the Current Quarter and $1.5 million in the Prior Year Quarter.
        The
        remaining increase in SG&A of $2.0 million is primarily attributed to an
        increase in other general and administrative expenses associated with the
        Danskin, Rocawear, Official-Pillowtex, and Starter acquisitions.
 
 For
        the
        Current Quarter and Prior Year Quarter, the Company’s expenses related to
        specific litigation (formerly called special charges), included an expense
        for
        professional fees of $0.2 million and $0.3 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 $33.2 million, or
        approximately 64% of total revenue, compared to $29.7 million or approximately
        76% 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 $0.6 million in the Current Quarter to $8.5
        million, compared to interest expense of $7.9 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 Official-Pillowtex and
        Starter, as well as interest related to the Sweet Note, offset by a decrease
        in
        the interest rate for our variable rate debt (i.e. our Term Loan Facility)
        and
        interest income related to our judgment against Herbert Guez and ADS. See
        Note 4
        of Notes to Unaudited Condensed Consolidated Financial Statements. Deferred
        financing costs increased by $0.5 million in the Current Quarter to $0.8
        million
        from $0.3 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 35.6%
        resulting in the $9.1 million income tax expense, as compared to an effective
        income tax rate of 35.2% in the Prior Year Quarter which resulted in the
        $8.0
        million income tax expense.
 
 *Net
        Income* .
        The
        Company’s net income was $16.5 million in the Current Quarter, compared to net
        income of $14.8 million in the Prior Year Quarter, as a result of the factors
        discussed above.
 
 *For
        the six months ended June 30, 2008*
 
 *Revenue.* Revenue
        for the Current Six Months increased to $107.4 million from $70.0 million
        during
        the Prior Year Six Months. The driver of this growth of $37.4 million was
        two
        full quarters of revenue generated from the acquisitions of Rocawear and
        Danskin, as compared to only one quarter of revenue from these brands in
        the
        Prior Year Six Months, and two full quarters of revenue generated from the
        acquisitions of the Official-Pillowtex brands and Starter made during the
        fourth
        quarter of 2007, which had no comparable revenue in the Prior Year Six
        Months.
 
 *Operating
        Expenses.* SG&A
        expenses totaled $37.0 million in the Current Six Months compared to $16.7
        million in the Prior Year Six Months. The increase of $20.3 million was
        primarily related to: (i) an increase of approximately $6.9 million in
        advertising mainly driven by increased advertising related to brands acquired
        in
        Fiscal 2007, with no comparable advertising expense in the Prior Year Six
        Months; (ii) an increase of approximately $7.5 million in payroll costs,
        primarily due to an increase of $3.4 million in non-cash stock compensation
        expense, from $0.8 million in the Prior Year Six Months to $4.2 million in
        the
        Current Six Months, of which $2.7 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) amortization of intangible assets (mainly contracts and non-competes)
        as a
        direct result of the Mossimo, Ocean Pacific, Danskin, Rocawear and the
        Official-Pillowtex brands acquisitions accounted for $3.7 million in the
        Current
        Six Months and $2.4 million in the Prior Year Six Months. The remaining increase
        in SG&A of $5.3 million is primarily attributed to an increase in other
        general and administrative expenses associated with the Danskin, Rocawear,
        Official-Pillowtex, and Starter acquisitions.
 
 For
        the
        Current Six Months and Prior Year Six Months, the Company’s expenses related to
        specific litigation, formerly known as special charges, included an expense
        for
        professional fees of $0.4 million and $1.1 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 Six Months increased to $70.0 million, or
        approximately 65% of total revenue, compared to $52.1 million or approximately
        75% of total revenue in the Prior Year Six Months. The decrease in our operating
        margin percentage is primarily the result of the increase in operating expenses
        for the reasons detailed above.
  21
  *Interest
        Expense - Net* -
        Interest expense increased by $7.2 million in the Current Six Months to $18.6
        million, compared to interest expense of $11.4 million in the Prior Year
        Six
        Months. 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,
        offset by a decrease in interest rates for our variable rate debt (i.e. our
        Term
        Loan Facility) and interest income related to our judgment against Herbert
        Guez
        and ADS. See Note 4 of Notes to Unaudited Condensed Consolidated Financial
        Statements. Specifically, for the Current Six Months, there was a total interest
        expense relating to the Term Loan Facility, Convertible Notes and the Sweet
        Note
        of approximately $8.2 million, $2.7 million and $0.5 million respectively
        with
        no comparable interest expense in the Prior Year Six Months. Deferred financing
        costs increased by $1.0 million in the Current Six Months to $1.5 million
        from
        $0.5 million in the Prior Year Six Months due to additional financing obtained
        in Fiscal 2007.
 
 *Provision
        for Income Taxes.* The
        effective income tax rate for the Current Six Months is approximately 35.5%
        resulting in the $19.1 million income tax expense, as compared to an effective
        income tax rate of 35.3% in the Prior Year Six Months which resulted in the
        $15.0 million income tax expense.
 
 *Net
        Income* .
        The
        Company’s net income was $34.7 million in the Current Six Months, compared to
        net income of $27.5 million in the Prior Year Six Months, 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 June 30, 2008 and December 31, 2007, the
        Company’s cash totaled $67.3 million and $53.3 million, respectively, including
        short-term restricted cash of $1.3 million and $5.2 million,
        respectively.
 The
          Term
          Loan Facility requires the Company to repay the principal amount of the
          term
          loan outstanding in an amount equal to 50% of the excess cash flow of the
          subsidiaries subject to the Term Loan Facility for the most recently completed
          fiscal year. If the Term Loan Facility had required the Company to repay
          the
          principal amount of the term loan outstanding based on the excess cash
          flow of
          such subsidiaries for the six months ended June 30, 2008 rather than based
          upon
          the fiscal year end results, the Company would have been required to pay
          approximately $20.5 million, representing 50% of the excess cash flow of
          such
          subsidiaries for that six-month period. However, in accordance with the
          terms of
          the Term Loan Facility as noted above, the next calculation for determining
          the
          actual excess cash flow payment the Company will be required to make under
          the
          Term Loan Facility will be based on the results of the subsidiaries subject
          to
          the Term Loan Facility for the 12 months ending December 31,
          2008.
 
 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
        June 30, 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, using Level 3 inputs with present value techniques as
        described by the fair value hierarchy and the income approach outlined in
        SFAS
        157, 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 has not impacted 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
        June
        30, 2008 and December 31, 2007 the working capital ratio (current assets
        to
        current liabilities) was 2.32 to 1 and 1.25 to 1, respectively. This increase
        was driven by an increase in cash as well as the factors set forth
        below:
 
 *Operating
        Activities*
 
 Net
        cash
        provided by operating activities totaled $37.6 million in the Current Six
        Months, as compared to $36.4 million of net cash provided by operating
        activities in the Prior Year Six Months. Cash provided by operating activities
        in the Current Six Months increased primarily due to net income of $34.7
        million, stock-based compensation expense of $4.4 million, amortization of
        intangibles of $3.7 million, and a net increase of $11.3 million in deferred
        income taxes primarily related to the provision for income taxes for the
        Current
        Six Months, offset primarily by increases of $8.7 million in prepaid advertising
        and other and $6.9 million in accounts receivable, and a decrease of $4.0
        million in deferred revenue. The Company continues to rely upon cash generated
        from licensing operations to finance its operations.
  22
  *Investing
        Activities*
 
 Net
        cash
        used in investing activities in the Current Six Months totaled $5.1 million,
        as
        compared to $473.1 million used in the Prior Year Six Months. In the Prior
        Year
        Six Months, the Company paid $71.0 million in cash for certain assets related
        to
        the Danskin brand, $205.5 million in cash for certain assets related to the
        Rocawear brand, and $196.4 million for the purchase of certain marketable
        securities. Capital expenditures for the Current Six Months were $4.1 million,
        compared to less than $0.1 million in capital expenditures in the Prior Year
        Six
        Months, primarily relating to the purchase of fixtures for certain
        brands.
 
 *Financing
        Activities*
 
 Net
        cash
        used in financing activities was $14.6 million in the Current Six Months,
        compared with $443.0 million of net cash provided by financing activities
        in the
        Prior Year Six Months. Of the $14.6 million in net cash used in financing
        activities, $25.6 million was used for principal payments related to the
        Asset-Backed Notes and the Term Loan Facility. This was offset by $1.1 million
        from net proceeds in connection with the exercise of stock options and warrants,
        $6.8 million from excess tax benefit from share-based payment arrangements,
        and
        a net decrease of $3.2 million in total restricted cash.
 
 ***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.
 
 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.
  23
  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.
 
 The
        Company adopted FIN 48 beginning January 1, 2007. The implementation of FIN
        48
        did not have a significant impact on the Company’s financial position or results
        of operations. The total unrecognized tax benefit was $1.1 million at the
        date
        of adoption. At June 30, 2008, the total unrecognized tax benefit was $1.1
        million. However, the liability is not recognized for accounting purposes
        because the related deferred tax asset has been fully reserved in prior years.
        The Company is continuing its practice of recognizing interest and penalties
        related to income tax matters in income tax expense. There was no accrual
        for
        interest and penalties related to uncertain tax positions for the Current
        Six
        Months. The Company files federal and state tax returns and is generally
        no
        longer subject to tax examinations for fiscal years prior to 2003.
 
 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.
 In
          May
          2008 the Financial Accounting Standards Board (“FASB”) issued FASB Staff
          Position (“FSP”) APB 14-1 “Accounting for Convertible Debt Instruments That May
          Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)”
(previously FSP APB 14-a), which will change the accounting treatment for
          convertible securities that the issuer may settle fully or partially in
          cash.
          Under the final FSP, cash-settled convertible securities will be separated
          into
          their debt and equity components. The value assigned to the debt component
          will
          be the estimated fair value, as of the issuance date, of a similar debt
          instrument without the conversion feature. As a result, the debt will be
          recorded at a discount to adjust its below-market coupon interest rate
          to the
          market coupon interest rate for the similar debt instrument without the
          conversion feature. The difference between the proceeds for the convertible
          debt
          and the amount reflected as the debt component represents the value of
          the
          conversion feature and will be recorded as additional paid-in capital.
          The debt
          will subsequently be accreted to its par value over its expected life,
          with an
          offsetting increase in interest expense on the income statement to reflect the
          market rate for the debt component at the date of issuance.
 
 Beginning
          with fiscal 2009, and applied retrospectively to all past periods
          presented, the Company will be required to adopt the provisions of FSP
          APB 14-1 as they relate to the Convertible Notes. As compared to the
          current accounting for the Convertible Notes, adoption of the proposal will
          reduce long-term debt, increase stockholders’ equity, and reduce net income and
          earnings per share. Adoption of the proposal would not affect the
          Company's cash flows. The Company is currently evaluating the
          impact of the adoption of FSP APB 14-1 on its financial
          statements.
 *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 June
        30,
        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.
  24
  The
        Company invested in certain investment grade auction rate securities. During
        the
        Current Six Months, 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 $0.2 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 approximately $0.2 million has been identified as a temporary
        decrease in fair value, the write-down did 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.
  **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 June 30, 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
        June 30, 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.
  25
  *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
        June 30, 2008, we had consolidated debt of approximately $677.2 million,
        including secured debt of $382.6 million ($255.1 million under our Term Loan
        Facility and $127.5 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:
  ·
              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, Kmart were our four largest direct-to-retail licensees
        during the Current Six Months, representing approximately 15%, 5%,and 5%,
        respectively, of our total revenue for such periods. 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; 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; and, 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. 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.
  26
  *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
        net income or increase our net loss.*
 
 As
        of
        June 30, 2008, goodwill represented approximately $130.6 million, or
        approximately 10% of our total assets, and trademarks and other intangible
        assets represented approximately $1,034.9 million, or approximately 76.% 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.
 
 *Changes
        in the accounting method for convertible debt securities will, when adopted
        by
        us, 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 Emerging
        Issues Task Force, or EITF, Issue No. 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 Convertible 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
        May
        2008 the Financial Accounting Standards Board (“FASB”) issued FASB Staff
        Position (“FSP”) APB 14-1 “Accounting for Convertible Debt Instruments That May
        Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)”
(previously FSP APB 14-a), which will change the accounting treatment for
        convertible securities that the issuer may settle fully or partially in cash.
        Under the final FSP, cash-settled convertible securities will be separated
        into
        their debt and equity components. The value assigned to the debt component
        will
        be the estimated fair value, as of the issuance date, of a similar debt
        instrument without the conversion feature. As a result, the debt will be
        recorded at a discount to adjust its below-market coupon interest rate to
        the
        market coupon interest rate for the similar debt instrument without the
        conversion feature. The difference between the proceeds for the convertible
        debt
        and the amount reflected as the debt component represents the value of the
        conversion feature and will be recorded as additional paid-in capital. The
        debt
        will subsequently be accreted to its par value over its expected life, with
        an
        offsetting increase in interest expense on the income statement to reflect
        the
        market rate for the debt component at the date of issuance.
 
 Beginning
        with fiscal 2009, and applied retrospectively to all past periods presented,
        we
        will be required to adopt the provisions of FSP APB 14-1 as they relate to
        our
        Convertible Notes. As compared to our current accounting for our Convertible
        Notes, adoption of the proposal will reduce long-term debt, increase
        stockholders’ equity, and reduce net income and earnings per share. Adoption of
        the proposal would not affect our cash flows. We are currently evaluating
        the
        impact of the adoption of FSP APB 14-1 on our financial statements.
 
 At
        the
        time FSP APB 14-1 is implemented 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, if at
        all.*
 
 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 our analysis, 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.
  27
  *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.
  **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 June 30, 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
                programsApril 1 - April
                  30, 2008
              
              
              6,908
              
              $
              19.10
              
              $
              -
              
              $
              -May
                  1 – May 31, 2008
              
              
              1,267
              
              $
              20.52
              
              $
              -
              
              $
              -June 1
                  - June 30, 2008
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -Total
              
              
              8,175
              
              $
              19.32
              
              $
              —
              
              $
              —
  (1)
              
              Represents
                  shares of common stock surrendered to the Company to pay employee
                  withholding taxes due upon the vesting of restricted
                  stock.
 
 **Item
        4. Submission of Matters to a Vote of Security Holders**
 
 At
        the
        Company’s Annual Meeting of Stockholders held on May 15, 2008, the stockholders
        of the Company voted on proposals to: (i) elect the seven individuals named
        below to serve as Directors of the Company, (ii) approve an amendment to
        the
        Company’s 2006 Equity Incentive Plan to increase the number of shares of common
        stock that the Company has authority to issue under the plan by 1.5 million
        shares, (iii) approve the Company’s Executive Incentive Bonus Plan and to (iv)
        ratify the appointment of BDO Seidman, LLP as the Company’s independent
        registered public accountants for the fiscal year ending December 31, 2008.
 
 1)
        The
        votes cast by stockholders with respect to the election of Directors (all
        of
        whom were elected) were as follows:
  Director
              
              Votes Cast
                "For"
              
              Votes
                WithheldNeil
                  Cole
              
              
              50,159,030
              
              
              2,615,754Barry
                  Emmanuel
              
              
              49,871,564
              
              
              2,903,220Steven
                  Mendelow
              
              
              50,091,256
              
              
              2,683,528Drew
                  Cohen
              
              
              48,269,295
              
              
              4,505,489F.
                  Peter Cuneo
              
              
              50,092,566
              
              
              2,682,218Mark
                  Freidman
              
              
              50,081,164
              
              
              2,693,620James
                  A. Marcum
              
              
              50,251,641
              
              
              2,523,143
  28
 
 2)
        The
        votes cast by stockholders with respect to the amendment to the Company’s 2006
        Equity Incentive Plan (which was not approved) were as follows:
 
 Votes
                  Cast
                "For"
              
              Votes
                  Cast
                Against
              
              Votes
                "Abstaining"23,113,514
              
              
              24,587,951
              
              
              125,437
 
 In
        addition, there were 4,947,882 “broker non-votes” with respect to this
        proposal.
 
 3)
        The
        votes cast by stockholders with respect to the approval of the Company’s
        Executive Incentive Bonus Plan (which was approved) were as
        follows:
 
 Votes
                  Cast
                "For"
              
              Votes
                  Cast
                Against
              
              Votes
                "Abstaining"42,627,527
              
              
              5,058,200
              
              
              141,175
 
 In
        addition, there were 4,947,882 “broker non-votes” with respect to this proposal
        .
 
 4)
        The
        votes cast by stockholders with respect to the ratification of the appointment
        of BDO Seidman, LLP were as follows:
 
 Votes
                  Cast
                "For"
              
              Votes
                  Cast Against
              
              Votes
                  "Abstaining"52,618,602
              
              
              136,298
              
              
              19,884
 
 **Item
        6.**  **Exhibits**
 
 EXHIBIT
                  NO.
              
              DESCRIPTION
                  OF EXHIBITExhibit
                  10.1
              
              Iconix
                  Brand Group, Inc. Executive Incentive Bonus Plan (1)*Exhibit
                  10.2
              
              Agreement
                  dated May 2008 between the Company and Neil Cole*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)
                  Incorporated by reference to Annex B to the Company’s Definitive Proxy
                  Statement on Schedule 14A filed with the SEC on April 7,
                  2008.*
                  Denotes management compensation plan or
                  arrangement.
  29
 
 **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:
                  August 6, 2008
              /s/
                  Neil
                  ColeNeil
                  Cole
                Chairman
                  of the Board, President
                and
                  Chief Executive Officer
                (on
                  Behalf of the Registrant)
  Date:
                  August 6, 2008
              /s/
                  Warren ClamenWarren
                  Clamen
                Chief
                  Financial Officer
  30