**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**




**FORM
      10-K**




**x****ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES**
              **EXCHANGE
                ACT OF 1934**




**FOR
                THE FISCAL YEAR ENDED DECEMBER 31, 2007****OR**




**o****TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES**
              **EXCHANGE
                ACT OF 1934****COMMISSION
                FILE NUMBER: 000-27707****NEXCEN
                BRANDS, INC.**(EXACT
                NAME OF REGISTRANT AS SPECIFIED IN ITS
                CHARTER)




**DELAWARE**
            
            **20-2783217**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (IRS
                Employer
              Identification
                Number)




**1330
                Avenue of the Americas, New York, N.Y.**
            
            **10019-5400**(Address
                of principal executive offices)
            
            (Zip
                Code)




(Registrant’s
                telephone number, including area code):**(212)
                277-1100**SECURITIES
                REGISTERED PURSUANT TO SECTION 12(b) OF THE
                ACT:




Title
                of Each Class
            
            Name
                of Each Exchange on Which Registered**Common
                Stock, par value $.01**
            
            **The
                NASDAQ Stock Market LLC**




SECURITIES
                REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                NONE


Indicate
                  by check mark if the registrant is a well-known****seasoned
                  issuer, as defined in Rule 405 of the Securities Act.
              YesoNoxIndicate
                  by check mark if the registrant is not required to file reports
                  pursuant
                  to Section 13 or Section 15(d) of the Act.
              YesoNox




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 if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of the registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of the Form 10-K or any amendment of
      this
      Form 10-K. o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
                accelerated filer
            o
            Accelerated
                filer
            x
            Non-accelerated
                filer
            o




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




The
      aggregate market value of the voting stock held by nonaffiliates of the
      registrant was $505,033,738 ($11.14 per share) as of June 30,
      2007.




As
      of
      March 1, 2008, 56,616,764 shares of the registrant’s common stock, $.01 par
      value per share, were outstanding.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




The
      registrant will disclose the information required under Part III, Items 10,
      11,
      12, 13, and 14 by (a) incorporating the information by reference from the
      registrant’s definitive proxy statement or (b) filing an amendment to this Form
      10-K which contains the required information no later than 120 days after the
      end of the registrant’s fiscal year.











**NEXCEN
      BRANDS, INC.**


**ANNUAL
      REPORT ON FORM 10-K**


**FOR
      THE YEAR ENDED DECEMBER 31, 2007**





**INDEX**





PART
                I
            
            3Item
                1
            
            Business
            
            3Item
                1A
            
            Risk
                Factors
            
            11Item
                1B
            
            Unresolved
                Staff Comments
            
            18Item
                2
            
            Properties
            
            18Item
                3
            
            Legal
                Proceedings
            
            19Item
                4
            
            Submission
                of Matters to a Vote of Security Holders
            
            20PART
                II
            
            20Item
                5
            
            Market
                for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            20Item
                6
            
            Selected
                Financial Data
            
            23Item
                7
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            25Item
                7A
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            34Item
                8
            
            Financial
                Statements and Supplementary Data
            
            35Item
                9
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            74Item
                9A
            
            Controls
                and Procedures
            
            74Item
                9B
            
            Other
                Information
            
            77PART
                III
            
            77Item
                10
            
            Directors,
                Executive Officers and Corporate Governance
            
            77Item
                11
            
            Executive
                Compensation
            
            77Item
                12
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            77Item
                13
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            77Item
                14
            
            Principal
                Accounting Fees and Services
            
            77PART
                IV
            
            78Item
                15
            
            Exhibits,
                Financial Statement Schedules
            
            78





**FORWARD-LOOKING
      STATEMENTS**





In
      this
      Annual Report on Form 10-K, we make statements that are considered
      forward-looking statements within the meaning of the Securities Act of 1934,
      as
      amended. The words “anticipate,” “believe,” “estimate,” “intend,” “may,” “will,”
“expect,” and similar expressions often indicate that a statement is a
“forward-looking statement.” Statements about non-historic results also are
      considered to be forward-looking statements. None of these forward-looking
      statements are guarantees of future performance or events, and they are subject
      to numerous risks, uncertainties and other factors. Given
      the
      risks, uncertainties and other factors, you should not place undue reliance
      on
      any forward-looking statements. Our
      actual results, performance or achievements could differ materially from those
      expressed in, or implied by, these forward-looking statements. Factors that
      could cause or contribute to such differences include those discussed in Item
      1A
      of this Report under the heading “Risk Factors,” as well as elsewhere in this
      Report. Forward-looking statements reflect our reasonable beliefs and
      expectations as of the time we make them, and we have no obligation to update
      or
      revise any forward-looking statements, whether as a result of new information,
      future events or otherwise.




2


**PART
      I**





**ITEM
      1. BUSINESS**





**General
      Overview**





NexCen
      Brands is a vertically integrated global brand management and franchising
      company. Our
      business is focused on managing, developing and acquiring intellectual property,
      which we refer to as IP, and IP-centric businesses operating in
      three
      segments: Consumer Branded Products, Retail Franchising and Quick Service
      Restaurant Franchising (which we refer to as “QSR” Franchising). We
      own,
      license, franchise and market a growing portfolio of brands including Bill
      Blass, Waverly, The Athlete's Foot, Shoebox New York, Great American Cookies,
      MaggieMoo's, Marble Slab Creamery, Pretzel Time, and Pretzelmaker. We license
      and franchise our brands to a network of leading retailers, manufacturers and
      franchisees that includes every major segment of retail distribution from the
      luxury market to the mass market in the United States and in over 50 countries
      around the world. Our franchise network consists of approximately 1,900 retail
      stores.




We
      commenced our current business in June 2006, when we acquired UCC Capital
      Corporation, which we refer to as UCC. Upon the closing of that acquisition,
      Robert W. D’Loren, who was the president and chief executive officer of UCC,
      became our president and chief executive officer and a member of our Board
      of
      Directors.




In
      November 2006, we entered the retail franchising business by acquiring Athlete’s
      Foot Brands, LLC, along with an affiliated company and certain related assets
      (“The Athlete’s Foot” or “TAF”). The Athlete’s Foot is one of the largest
      athletic footwear and apparel franchisors with approximately 640 franchised
      units in over 40 countries.




In
      February 2007, we entered the consumer branded products business by acquiring
      Bill Blass Holding Co., Inc. and two affiliated businesses (“Bill Blass”). The
      Bill Blass label represents timeless, modern American style.




Also
      in
      February 2007, we acquired MaggieMoo’s International, LLC (“MaggieMoo’s”) and
      the assets of Marble Slab Creamery, Inc. (“Marble Slab”), two well known and
      established brands within the hand-mixed, premium ice cream category, having
      a
      combined total of approximately 580 franchised units. With these acquisitions
      NexCen entered the QSR franchising business.




In
      May
      2007, we expanded our consumer branded products business by acquiring all
      of
      the intellectual property and license contracts related to the Waverly brand.  Waverly
      is a premier lifestyle brand with an array of licensed home furnishings
      products, including fabrics, wallpapers, paint, bedding, window treatments,
      and
      decorative accessories.




In
      August
      2007, we acquired substantially all of the assets of Pretzel Time Franchising,
      LLC (“Pretzel Time”) and Pretzelmaker Franchising, LLC (“Pretzelmaker”), adding two
      hand-rolled pretzel chains with approximately 380 franchised units
      worldwide to our
      QSR franchising business.




In
      January 2008, we acquired the t rademarks
      and other intellectual property of The Shoe Box, Inc. (“Shoebox”) in partnership
      with the Camuto Group, a premier women's fashion footwear company. Shoebox
      is a
      multi-brand luxury shoe retailer based in New York with nine locations. The
      partnership has begun franchising the Shoebox's luxury footwear concept
      domestically and internationally under the Shoebox New York brand.




In
      January 2008, we also acquired substantially
      all of the assets of Great American Cookie Company Franchising, LLC and Great
      American Manufacturing, LLC (collectively, “Great American Cookies”). This
      transaction added another premium treat brand and approximately 300 franchised
      units to our QSR portfolio.




More
      detailed information about The Athlete’s Foot, Bill Blass, MaggieMoo’s, Marble
      Slab, Pretzel Time, Pretzelmaker, Shoebox, Waverly and Great American Cookies
      acquisitions is included below under the caption “Company
      Segments.”




We
      are
      continuously evaluating various other potential acquisitions and are actively
      exploring opportunities to acquire additional IP-centric businesses.





We
      own
      the proprietary rights to a number of trademarks discussed in this report which
      are important to our business, including The Athlete’s Foot, Bill Blass, Great
      American Cookies, MaggieMoo’s, Marble Slab, Pretzel Time, Pretzelmaker, Shoebox
      New York and Waverly. We have omitted the “®” and “TM” trademark designations
      for such trademarks in this Report. Nevertheless, all rights to such trademarks
      named in this Report are reserved.




3





**Our
      Business**





***Operations
      and Strategy***





We
      operate a brand management and franchising business in three segments: Consumer
      Branded Products, Retail Franchising and QSR Franchising. We generate revenue
      from licensing, franchising and other commercial arrangements with third parties
      who want to use our brands and associated IP, including trademarks, trade names,
      copyrights, franchise rights, patents, trade secrets, know-how and other similar
      valuable property. These third parties pay us licensing, franchising and other
      contractual fees and royalties for the right to use our IP on either an
      exclusive or non-exclusive basis. Our contractual arrangements may apply to
      a
      specific demographic product market, a specific geographic market or to multiple
      demographics and/or geographic markets.




We
      receive licensing, franchising and other contractual fees that include a mixture
      of upfront payments, required periodic minimum payments (regardless of sales
      volumes), and volume-dependent periodic royalties (based upon the number or
      dollar amount of branded products sold). Accordingly, our revenues reflect
      both
      recurring and non-recurring payment streams.




We
      operate our brand management and franchising business in what we call a “value
      net” business model. This model does not require us to incur substantial
      operating or capital costs in running our business, as we generally do not
      manufacture, warehouse or distribute the branded products associated with the
      IP
      we acquire or build stores in the case of franchise operations. In connection
      with the recent acquisition of Great American Cookies, we do operate a cookie
      batter manufacturing facility, which manufactures and supplies cookie batter
      to
      our franchisees on a cost-plus-40% profit margin basis. The proprietary dough
      that is manufactured at the facility is considered a key factor in the product
      differentiation of Great American Cookies. Other than the special circumstances
      of the Great American Cookies franchise system, we rely on third-party licensees
      and other business partners to manufacture, warehouse and distribute branded
      products and incur the associated capital cost.




We
      believe that this business model mitigates much of the risks related to working
      capital (i.e. inventory and receivables) and capital expenditures. We also
      believe that this model allows us to maintain maximum operational and financial
      flexibility and positions us to succeed in today’s competitive global economy.
      As a result of our business model, we rely heavily on third parties, including
      licensees and franchisees, to make sales, generate revenues and help grow our
      business. Such reliance involves various risks and uncertainties, which are
      discussed below in *Item
      1A. Risk Factors* under
      the caption “Risks of Our Business.”




We
      leverage our brand management, franchising, marketing, and licensing expertise,
      as well as operational costs and infrastructure across our three operating
      segments. We oversee the marketing, promotion and quality control of products
      and services that make use of our brands. We also provide support services
      with
      respect to franchise operations through our state-of-the-art training, research,
      development and operations center located in Norcross, Georgia, which we call
      NexCen University. The following graphic provides a summary of the services
      that
      NexCen University provides across all of our franchise systems.




4









With
      NexCen University, we have consolidated the operations of all seven of our
      acquired franchise systems: The Athlete’s Foot, MaggieMoo’s, Marble Slab,
      Pretzel Time, Pretzelmaker, Shoebox and Great American Cookies. NexCen
      University was built to provide our Company with the infrastructure to operate
      and grow our current franchise systems and integrate additional franchise
      systems, all in a cost efficient manner. We believe we will be able to achieve
      cost savings and operational efficiencies by consolidating back office
      functionalities such as IT, HR, Legal, and Accounting, as well as front end
      drivers such as research and development, marketing and sales. We also believe
      that NexCen University will provide franchisees with the tools and support
      needed to optimize their performance in the marketplace.




***Diversification
      and Growth***





As
      we
      have built a portfolio of IP-centric businesses, we operate a business that
      is
      diversified in several ways:




·
            across
                industries, ranging from apparel, footwear and sporting goods to
                QSR and
                retail franchising;




·
            across
                channels of distribution, ranging from luxury to
                mass-market;




·
            across
                consumer demand categories, ranging from luxury to
                mass-market;




·
            across
                licensees and franchisees, ranging from large licensees to individual
                franchisees;




·
            across
                geographies (both within the United States and internationally);
                and




·
            across
                multiple demographic groups.




We
      believe that this multi-category diversification will help reduce potential
      volatility in our financial results (given the varied sources of royalty
      payments from franchisees and licensees of different types and in different
      markets, demographics, and geographies).




5




We
      believe that our business also offers a multi-tiered growth
      opportunity:




·
            our
                businesses can grow both domestically and internationally through
                organic,
                and synergistic growth;




·
            our
                businesses can grow organically by expanding and extending owned
                brands
                into new product categories and retail channels, increasing brand
                awareness and executing new licenses or selling new
                franchises;




·
            we
                can grow through acquisition by acquiring new brands or additional
                franchise systems; and




·
            our
                business can grow synergistically by leveraging our three operating
                segments.




The
      following graphic summarizes our three operating segments and the opportunities
      to cross-leverage those segments with each other.









Franchise
      concepts we purchased can be sold to our existing network of master franchisees
      who currently manage our franchise brands worldwide. Brands that we acquired
      can
      be sold through third party retail channels and channels that we own and
      control, allowing us to earn wholesale and retail royalties. For example, we
      have contracted with a third party to produce women’s footwear under the Bill
      Blass label for sale in our Shoebox New York franchisee stores. The manufacturer
      of the Bill Blass shoes who sells the product to the franchisees will pay us
      a
      royalty on those sales and in turn the franchisees who sell the shoes to their
      retail customers also will pay us a royalty on their sales. We believe we have
      created a flexible operating structure that allows us in certain cases to
      control our distribution channels and sell our owned brands through these
      channels as well as third party channels.




***Development
      of Our Brand Management and Franchising Business***





We
      entered the brand management and franchising business when we acquired UCC
      in
      June 2006. Historically, UCC provided strategic advice and structured finance
      solutions to IP-centric companies. At the time that we acquired UCC, UCC’s
      former president and chief executive officer, Robert D’Loren, became our
      president and chief executive officer, as well as a member of our Board of
      Directors.




Since
      June 2006, we have acquired and integrated nine IP-centric companies, fulfilling
      our stated objective of acquiring 3 to 5 businesses or significant IP assets
      per
      year. We have also been (and expect to continue to be) in active discussions
      with other potential acquisition candidates. We intend to maintain our objective
      of 3 to 5 acquisitions per year in 2008 and 2009, with transaction sizes
      generally in excess of $50 million total enterprise value.




6




We
      maintain a highly disciplined pricing approach to acquisitions. We have acquired
      and plan to acquire consumer branded products companies at transaction multiples
      that range from 4.5 to 5.5 times royalties. For franchise concepts, our target
      range has been and will be from 3.0 to 4.5 times revenues. We believe this
      approach has enabled us to make accretive acquisitions, using a combination
      of
      cash on hand, shares of our common stock and borrowings under debt facilities.
      For a discussion of limitations and risks associated with the use of our stock
      for acquisitions and to raise additional capital, as well as risks associated
      with our ability to gain access to additional funding for acquisitions, see *Item
      1A. Risk Factors* under
      the captions “Risk of Our Business” and “Risks of Our Acquisition
      Strategy.”




**Company
      Segments**




***Consumer
      Branded Products***




The
      brands that comprise our Consumer Branded Products segment are as
      follows:





Bill
      Blass




Founded
      by William Ralph Blass in 1970, Bill Blass defines timeless style and modern
      American fashion. From its inception, the Bill Blass brand has offered modern,
      sophisticated and tailored clothing. The internationally recognized Bill Blass
      brand provides contemporary apparel, home furnishings, and accessories for
      the
      discerning consumer.




On
      February 15, 2007, we acquired Bill Blass Holding Co., Inc. and two affiliated
      businesses.  The
      initial purchase price for this acquisition was $54.6 million, consisting of
      $39.1 million in cash and $15.5 million in our common stock (approximately
      2.2
      million shares which were valued at $7.09 per share, the average closing price
      of our common stock for the ten consecutive days that ended on December 19,
      2006, which is when we signed the agreement to purchase Bill Blass). To finance
      the acquisition, we borrowed approximately $27 million under our BTMU Credit
      Facility, which was secured by the acquired assets.




Waverly




Launched
      in 1923, Waverly is a
      premier home fashion and lifestyle brand and one of the most recognized names
      in
      home furnishings. Its signature look is expertly translated into countless
      classic styles among home furnishing products including fabrics, wall coverings,
      paint, bedding, window treatments and decorative accessories. Waverly is
      available through retailers and interior design showrooms in over 7,000 doors
      nationwide. Its family of brands consists of Waverly, Waverly Home, Waverly
      Home
      Classics, Waverly Baby, Waverly Sun N Shade, Gramercy and Village.




On
      May 2,
      2007, we completed the acquisition of all of the intellectual property and
      license contracts related to the Waverly brand products and services. The
      aggregate purchase price for the assets was $34.0 million paid in cash. We
      also
      paid $2.75 million in cash and issued a 10-year warrant to purchase 50,000
      shares of our common stock to Ellery Homestyles, LLC, an existing Waverly
      licensee, to cancel the right of first refusal held by Ellery to acquire the
      Waverly brand. The exercise price of the warrant is $12.43 per share, which
      was
      the closing price of our common stock on the day prior to the issuance of the
      warrant. To finance the acquisition, w e
      borrowed $22 million under the BTMU Credit Facility, secured by the acquired
      assets.




***Retail
      Franchising***





The
      brands that comprise our Retail Franchising segment are as follows:





The
      Athlete’s Foot (TAF)




The
      Athlete's Foot (TAF) **** is
      the
      world's first franchisor of athletic footwear stores and is recognized today
      as
      a world leader in athletic footwear franchising. Robert and David Lando opened
      the first The Athlete's Foot store in 1971 in Pittsburgh, Pennsylvania. It
      was
      the first athletic footwear specialty store of its kind in the United States.
      Soon thereafter, The Athlete's Foot began franchising domestically, with the
      first store opening in Oshkosh, Wisconsin. The first international franchise
      store opened in 1978 in Adelaide, Australia. TAF now has approximately 640
      retail locations in over 40 countries.




On
      November 7, 2006, we acquired Athlete’s Foot Brands, LLC, along with an
      affiliated advertising and marketing fund, and certain nominal fixed assets
      owned by an affiliated company. The purchase price for this acquisition,
      excluding contingent consideration, was $53.1 million, consisting of
      approximately $42.1 million in cash and $9.2 million in our common stock
      (approximately 1.4 million shares which were valued at $6.55 per share, which
      was the average closing price of our common stock for the five consecutive
      days
      that ended on November 6, 2006), and $1.8 million in other deal related costs.
      At the closing on November 7, 2006, we also issued to one of the sellers a
      three-year warrant to purchase an additional 500,000 shares of our common stock
      at a per share price of $6.49 (which was the closing price of our common stock
      on November 7, 2006). On March 14, 2007, we borrowed $26.5 million under our
      senior credit facility with BTMU Capital Corporation (the “BTMU Credit
      Facility”), secured by the assets of The Athlete’s Foot. This debt facility is
      discussed below in *Item
      7. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* under
      the
      caption “Liquidity and Capital Resources.”




7




In
      June
      2007, we launched a global re-branding effort for TAF. With a mission focused
      on
      meeting the needs of athletes every day, we are reinvigorating the 37 year-old
      brand with an innovative new modular merchandising system, new in-store design,
      a modernized company logo, and a line of TAF branded apparel.




Shoebox
      New York




Since
      1954, Shoebox **** has
      been
      one of New York’s top multi-brand retailers for women’s luxury footwear,
      handbags and accessories. Known for its vast product assortment and
      trend-setting styles, the Shoebox offers women the latest fashions from top
      European and American designers such as Jimmy Choo, Stuart Weitzman, D&G,
      Giuseppe Zanotti, Marc Jacobs, Chloé, Casadei, Salvatore Ferragamo, and Michael
      Kors.




We,
      in
      partnership with the Camuto Group, acquired the trademarks and other
      intellectual property of The Shoe Box, Inc. on January 15, 2008 for the total
      purchase price of $1.3 million. Our partnership with the Camuto Group brings
      together our management experience of owning and operating The Athlete’s Foot, a
      global retail footwear franchise system, with Camuto Group’s experience in
      design, sourcing and branding women’s shoes. The partnership has begun
      franchising the Shoebox’s luxury, multi-brand footwear concept domestically and
      internationally under the Shoebox New York brand.




***Quick
      Service Restaurant (QSR) Franchising***




The
      brands that comprise our QSR Franchising segment are as follows:





MaggieMoo’s





E ach
      MaggieMoo’s Treatery features a menu of freshly made super-premium ice creams,
      mix-ins, smoothies, sorbets and custom ice cream cakes. MaggieMoo’s has been
      consistently awarded The National Ice Cream Retailers Association’s prestigious
      Blue Ribbon Award for taste, texture and overall appearance of its most popular
      flavors. MaggieMoo’s is the franchisor of approximately 190 stores located
      across the United States.




On
        February 28, 2007, we acquired MaggieMoo’s International, LLC. The initial
        purchase price for this acquisition was $16.1 million, consisting of
        approximately $10.8 million of cash and debt repayment and $5.3 million in
        our
        common stock (approximately 515,000 shares which were valued at $10.21 per
        share, the average closing price our common stock for the fifteen consecutive
        days that ended on February 27, 2007). Pursuant to the purchase agreement,
        the
        sellers will receive additional consideration in the form of an earn-out,
        if
        certain revenue thresholds are met for 2007, which is payable on March 31,
        2008.


Marble
      Slab




Marble
      Slab Creamery is a
      purveyor of super-premium hand-mixed ice cream. All Marble Slab Creamery ice
      cream is made in small batches in franchise locations using the finest
      ingredients in the world and served in freshly baked waffle cones. Marble Slab
      has an international presence with approximately 390 locations in the United
      States, Canada and the United Arab Emirates.




On
      February 28, 2007, we acquired the assets of Marble Slab Creamery, Inc. The
      purchase price of the acquisition was $21 million, consisting of $16 million
      of
      cash, and the issuance of a total of $5.0 million of notes that matured and
      became payable on February 28, 2008. The notes accrued interest at an annual
      rate of 6% per annum until maturity, and 8% thereafter. On February 28, 2008,
      we
      paid the former owner of Marble Slab a total of $3,710,767 representing the
      full
      $3.5 million principal amount of the first note and $210,767 of accrued
      interest. As permitted by the terms of the second note for $1.5 million, we
      did
      not pay the note or the accrued interest thereon because we asserted indemnity
      claims in excess of $2 million under the asset purchase agreement. The former
      owner of Marble Slab has disputed our indemnity claims. We cannot predict
      whether we will be successful in collecting on our claims. Until these claims
      are resolved, a total of $1,596,107 million of our cash will remain in escrow
      as
      collateral for payments owned under the second note, and interest will continue
      to accrue on the unpaid amounts not ultimately recovered pursuant to
      indemnification claims at the rate of 8% per annum.




8




To
      finance the acquisition, we borrowed $19 million under the BTMU Credit Facility,
      secured by the assets of MaggieMoo’s and Marble Slab.




***Pretzel
      Time and Pretzelmaker***




Pretzel
      Time and Pretzelmaker introduced their famous soft pretzel in 1991 and have grown to become among
      the
      leaders in the soft pretzel category. Pretzelmaker and Pretzel
      Time specialize in offering steaming hot, freshly-baked, fresh twisted pretzels,
      pretzel dogs, freshly squeezed lemonade and cold beverages. Pretzel Time has
      approximately 190 stores located domestically and in Panama, Guatemala, Trinidad
      and Jordan. Pretzelmaker stores can be found in approximately 190 locations
      in
      the United States, Canada and Guam.




On
      August
      7, 2007, we acquired substantially all of the assets of Pretzel Time
      Franchising, LLC and Pretzelmaker Franchising, LLC for the purchase price of
      approximately $30.0 million, consisting of $22.0 million in cash and $7.3
      million in our common stock (approximately one million shares which were valued
      at $7.35 per share, the closing price per share of our common stock on the
      day
      immediately prior to the closing date). To finance the acquisition,
      w e
      borrowed $16 million under the BTMU Credit Facility, secured by the acquired
      assets.




***Great
      American Cookies***





Founded
      in 1977 on the strength of an old family chocolate chip cookie recipe, Great
      American Cookies has set
      the standard for gourmet cookie sales in shopping centers nationwide. With
      a
      strategy and quality product that has propelled over 30 years of growth, Great
      American Cookies now leads as the mall-based cookie system with approximately
      300 franchised units primarily located in the continental United
      States.





On
      January 29, 2008, we acquired substantially all of the assets of Great American
      Cookie Company Franchising, LLC and Great American Manufacturing, LLC for the
      purchase price of approximately $93.65 million, consisting of $89 **** million
      in cash and $4.65 million of our common stock (approximately 1.1 million shares
      which were valued at $4.23 per share, the closing price per share of our common
      stock the day immediately prior to the closing date. To finance the acquisition,
      w e
      borrowed $70 million under the BTMU Credit Facility, which
      was
      increased from $150 million to $181 million at that time.





Our
      total
      borrowing to date under the BTMU Credit Facility is approximately $181 million.
      Repayments of our borrowings through December 31, 2007 totaled $1.2 million.
      For
      a discussion of risks associated with borrowings, see *Item
      1A. Risk Factors* under
      the caption “Risks of Our Business - Any failure to meet our debt obligations
      would adversely affect our business and financial condition.”




**Competition**




Our
      brands are all subject to extensive competition by numerous domestic and foreign
      brands. Each of our brands has numerous competitors within each of our specific
      distribution channels. Each is subject to competitive risks and pressures,
      including price, quality and selection of merchandise, reputation, store
      location, advertising and customer service. Our degree of success is dependent
      on the image of our brands to consumers and our licensees' ability to design,
      manufacture and sell products bearing our brands. See *Item
      1A. Risk Factors* under
      the caption “Risks of Our Business **-** Our
      business depends on market acceptance of our brands in highly competitive
      markets.”




In
      seeking to make acquisitions of IP and IP-centric businesses, we compete with
      other companies and financial buyers (such as private equity funds). Competitors
      may be larger than us, have access to greater financial and other resources
      or
      be willing to pay higher prices in acquisitions or assume greater
      acquisition-related risks. See *Item
      1A. Risk Factors* under
      the caption “Risks of Our Acquisition Strategy **-** Competition
      may negatively affect our ability to complete suitable acquisitions.”




9





**Historical
      Operations**





***Historical
      Overview***





Until
      late 2004, we owned, acquired and operated a number of mobile and wireless
      communications businesses. These businesses never became profitable, and during
      2004 we sold these businesses and started a mortgage-backed securities, or
      MBS,
      business. During 2004 and 2005, we assembled a leveraged portfolio of MBS
      investments. However, market conditions for the MBS business changed
      significantly during 2005 and into 2006, and the profitability of our leveraged
      MBS portfolio declined. In light of these changing market conditions, in late
      2005 and into 2006, we began to explore additional and alternative business
      strategies that we thought could help us become profitable more quickly and
      create shareholder value. These efforts resulted in our decision to acquire
      UCC
      in June 2006. On October 31, 2006, at the 2006 Annual Meeting of Stockholders,
      our stockholders approved the sale of our MBS portfolio for the purpose of
      discontinuing our MBS business and allocating all cash proceeds from such sale
      to the growth and development of our brand management and franchising business.
      We sold our MBS investments in November 2006, and since that time, we have
      focused entirely on our brand management and franchising business.




***Holding
      Company Reorganization and Name Change***





Aether
      Systems Inc. (“Aether Systems”), the historical entity through which we
      previously conducted the Mobile Government, EMS and Transportation businesses,
      was formed in January 1996. On July 12, 2005, the stockholders of Aether Systems
      approved a holding company reorganization of Aether Systems in which each share
      of Aether Systems common stock was exchanged for one share of common stock
      of
      Aether Holdings, Inc. (“Aether Holdings”), and Aether Systems became a wholly
      owned subsidiary of Aether Holdings. The reorganization was undertaken to
      implement restrictions on certain changes in the ownership of our common stock
      in an effort to protect the long-term value of our substantial net operating
      loss and capital loss carry forwards (as described in further detail below).
      In
      recognition of the changing business strategy of the Company, on October 31,
      2006, our stockholders approved a change of our Company name from Aether
      Holdings to NexCen Brands. Effective November 1, 2006, we changed our “ticker”
symbol, under which our common stock is traded on the Nasdaq Global Market,
      from
“AETH” to “NEXC.”




**Tax
      Loss Carry Forwards**





As
      a
      result of the substantial losses incurred by our predecessor businesses through
      2004, as of December 31, 2007, we had federal net operating loss carry forwards
      of approximately $782 million that expire on various dates between 2011 and
      2026. These tax loss carry forwards are generally available to offset federal
      income taxes. We expect to remain subject to certain state, local, and foreign
      tax obligations, as well as to a portion of the federal alternative minimum
      tax,
      as discussed below in *Item
      1A. Risk Factors* under
      the caption “Risks of Our Tax Loss Carry Forwards.” In addition, we had capital
      loss carry forwards of approximately $188 million that expire between 2008
      and
      2011. If we had an “ownership change” as defined in Section 382 of the Internal
      Revenue Code of 1986, as amended (“IRC”), our net operating loss carry forwards
      and capital loss carry forwards generated prior to the ownership change would
      be
      subject to annual limitations, which could reduce, eliminate, or defer the
      utilization of these losses.




Generally,
      an ownership change occurs if one or more stockholders, each of whom owns 5%
      or
      more in value of a corporation’s stock, increase or decrease their aggregate
      percentage ownership by 50% or more as compared to the lowest percentage of
      stock owned by such stockholders at any time during the preceding three-year
      period. For example, if a single stockholder owning 10% of our stock acquired
      an
      additional 50% of our stock in a three-year period, a change of ownership would
      occur. Similarly, if ten persons, none of whom owned our stock, each acquired
      slightly over 5% of our stock within a three-year period (so that such persons
      own, in the aggregate more than 50%) an ownership change would occur. Ownership
      of stock is determined by certain constructive ownership rules which can
      attribute ownership of stock owned by entities (such as estates, trusts,
      corporations, and partnerships) to the ultimate indirect owner.




For
      purposes of this rule, all holders who each own less than 5% of a corporation’s
      stock are generally treated together as one (or, in certain cases, more than
      one) 5% stockholder. Transactions in the public markets among stockholders
      owning less than 5% of the equity securities generally are not included in
      the
      calculation. Special rules can result in the treatment of options (including
      warrants) or other similar interests as having been exercised if such treatment
      would result in an ownership change.




As
      a
      result of the holding company reorganization that we completed in 2005, as
      described above under the caption “Holding Company Reorganization and Name
      Change,” shares of our common stock are subject to transfer restrictions
      contained in our certificate of incorporation. In general, the transfer
      restrictions prohibit any person from acquiring 5% or more of our stock without
      our consent. Persons who owned 5% or more of our stock prior to May 4, 2005
      are
      permitted to sell the shares owned as of May 4, 2005 without regard to the
      transfer restrictions. Shares acquired by such persons after May 4, 2005 are
      subject to the transfer restrictions. While we expect that these transfer
      restrictions will help guard against a change of ownership occurring under
      Section 382 and the related rules, we cannot guarantee that these restrictions
      will prevent a change of ownership from occurring because we are using stock
      as
      consideration to make acquisitions, because we may decide (or need) to sell
      additional shares of our common stock in the future to raise capital for our
      business and because persons who held 5% or more of our stock prior to these
      restrictions taking effect can sell (and in some cases have sold) shares of
      our
      stock. Our Board of Directors also has the right to waive the application of
      these restrictions to any transfer.




10




One
      of
      our important business objectives is to operate profitably so that we can
      realize value, in the form of tax savings, from our accumulated tax loss carry
      forwards. The Company monitors the change in shareholdings on a monthly basis
      and has an outside accounting firm (other than our independent auditor) perform
      a quarterly analysis to determine the cumulative percent change through the
      end
      of the particular quarter. Based upon a review of past changes in our ownership,
      as of December 31, 2007, we do not believe that we have experienced an ownership
      change (as defined under Section 382) that would result in any limitation on
      our
      future ability to use these net operating loss and capital loss carry forwards.
      However, we cannot be certain that the IRS or some other taxing authority may
      not disagree with our position and contend that we have already experienced
      such
      an ownership change, which would severely limit our ability to use our net
      operating loss carry forwards and capital loss carry forwards to offset future
      taxable income.




For
      a
      discussion on the risks associated with our tax loss carry forwards, please
      refer to *Item
      1A. Risk Factors* under
      the caption “Risks of Our Tax Loss Carry Forwards.”




**Employees**





As
      of
      December 31, 2007, we employed a total of 107 persons. None of our employees
      is
      covered by a collective bargaining agreement. We believe that our relations
      with
      our employees are good. As we acquire additional businesses, our employee base
      may increase.




**General
      Corporate Matters**





Our
      executive offices are located at 1330 Avenue of the Americas, 34 th Floor,
      New York, NY 10019. Our telephone number is (212) 277-1100 and our fax number
      is
      (212) 277-1160.




**Availability
      of Information**





We
      maintain a website at www.nexcenbrands.com ,
      which
      provides a wide variety of information on each of our brands. You may read
      and
      copy any materials we file with the Securities and Exchange Commission at the
      SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. For
      further information concerning the SEC’s Public Reference Room, you may call the
      SEC at 1-800-SEC-0330. Some of this information may also be accessed on the
      SEC’s website at www.sec.gov .
      We also
      make available free of charge, on or through our website, our annual report
      on
      Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
      amendments to those reports filed or furnished to the SEC pursuant to Section
      13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the
      “Exchange Act”) as soon as reasonably practicable after we electronically file
      such material with, or furnish it to, the SEC. We also maintain, in some cases
      through our licensees, sites for each of the Company's brands and operations, www.theathletesfoot.com , www.billblass.com , www.greatamericancookies.com , www.maggiemoos.com , www.marbleslab.com , www.pretzeltime.com , www.pretzelmaker.com , www.shoeboxny.com ,
      and www.waverly.com .
      We are
      providing the address of our internet website solely for the information of
      investors. We do not intend the internet address to be an active links, and
      the
      contents of these websites are not incorporated into, and do not constitute
      a
      part of, this Report.




**ITEM
      1A. RISK FACTORS**





You
      should carefully consider the following risks along with the other information
      contained in this Annual Report on Form 10-K. All of the following risks could
      materially and adversely affect our business, financial condition or results
      of
      operations. In addition to the risks discussed below and elsewhere in this
      Annual Report on 10-K, other risks and uncertainties not currently known to
      us
      or that we currently consider immaterial could, in the future, materially and
      adversely affect our business, financial condition and financial
      results.




11




**Risks
      of Our Business**




**Acquisitions
      involve numerous risks that we may not be able to address or overcome and that
      may negatively affect our business and financial results.**





We
      have
      built our brand management and franchising business through acquisitions. Our
      recent acquisitions may not deliver the value we paid or will pay for them.
      Excessive expenses may result if we do not successfully integrate them, or
      if
      the costs and management resources we expend in connection with the integrations
      exceed our expectations. We expect that our recent acquisitions, and any
      acquisitions, investments or strategic alliances that we may pursue in the
      future, will have a continuing, significant impact on our business, financial
      condition and operating results. The value of the companies that we acquired
      or
      may in the future acquire may be less than the amount we paid or will pay,
      and
      our financial results may be adversely affected if we fail to realize
      anticipated benefits from our acquisitions, including various synergies and
      economies of scope and scale. Risks associated with our past and future
      acquisitions include, among others:





·
            overpaying
                for acquired assets or businesses;




·
            being
                unable to license, market or otherwise exploit IP that we acquire
                on
                anticipated terms or at all;




·
            negative
                effects on reported results of operations from acquisition-related
                expenses, amortization or impairment of acquired intangibles and
                impairment of goodwill;




·
            diversion
                of management's attention from management of day-to-day operational
                issues;




·
            failing
                to maintain focus on, or ceasing to execute, core strategies and
                business
                plans as our brand portfolio grows and becomes more
                diversified;




·
            failing
                to achieve synergies across our diverse brand
                portfolio;




·
            failing
                to acquire or hire additional successful managers, or being unable
                to
                retain critical acquired managers;




·
            potential
                adverse effects of a new acquisition on an existing business or business
                relationship;




·
            failing
                to integrate acquired businesses with our existing businesses due
                to
                unanticipated costs and difficulties, which may disrupt our existing
                businesses or delay or diminish our ability to realize financial
                and
                operational benefits from those acquisitions;
                and




·
            underlying
                risks of the businesses that we acquire, which may differ from one
                acquisition to the next, including those related to entering new
                lines of
                business or markets in which we have little or no prior
                experience.




**We
      may be unable to increase profitability unless we can identify and acquire
      IP
      and IP-centric businesses on favorable terms.**





Our
      ability to achieve our business objective of increasing profitability may depend
      on our ability to identify and acquire suitable acquisitions on favorable terms,
      so that we can increase our revenues and our operating income. If we are unable
      to complete additional acquisitions on favorable terms, the expenses associated
      with our brand management and franchising business may be disproportionate
      to
      our revenues. There is no assurance that we will be able to complete any future
      acquisitions or that such transactions, if completed, will contribute positively
      to our operations and financial results and condition.




**Our
      ability to grow through the acquisition of additional IP assets and business
      will depend on the availability of capital to complete
      acquisitions.**





We
      financed our acquisitions of The Athlete’s Foot, Bill Blass, Great American
      Cookies, MaggieMoo’s, Marble Slab, Pretzel Time, Pretzelmaker, and Waverly with
      a combination of cash and equity. We intend to finance many of our future IP
      acquisitions through a combination of available cash, bank or other
      institutional financing, and issuances of equity and possibly debt securities.
      As of March 14, 2008, we had approximately $19 million of cash on hand
      (excluding restricted cash) after borrowing $181 million under the BTMU Credit
      Facility, which we entered into on March 12, 2007 and which was amended on
      January 29, 2008 to increase
      the maximum amount of borrowing that may be outstanding thereunder at any one
      time from $150 million to $181 million .
      There
      is no assurance that we will be able to secure borrowings in the future to
      fund
      acquisitions, either on terms that we consider reasonable or at all. In
      addition, under Section 382 of the Internal Revenue Code of 1986, as amended,
      we
      face limitations on the number of shares of equity that we can issue without
      triggering limitations on our future ability to use our substantial accumulated
      tax loss carry forwards. Under certain circumstances, these limitations (if
      triggered) could significantly or, under certain circumstances, totally reduce
      the future value of our tax loss carry forwards (assuming we are able to
      generate taxable income that would benefit from the use of the tax loss carry
      forwards).




12




As
      a
      result of these factors, we may lack access to sufficient capital to complete
      acquisitions that we identify and want to complete. In such a case, our
      inability to complete acquisitions could have a material adverse effect on
      our
      business, our financial results and the trading price of our common
      stock.




**We
      are dependent upon our president and chief executive officer, Robert W. D’Loren.
      If we lose Mr. D’Loren’s services, we may not be able to successfully implement
      our brand management and franchising business strategy.**




Although
      we have established a corporate structure and hired personnel with expertise
      in
      franchise and brand management, the successful implementation of our business
      strategy remains dependent upon the efforts of Mr. D’Loren, our president and
      chief executive officer. Mr. D’Loren is the person primarily responsible for
      conceiving of and implementing our brand management and franchising business
      strategy. Although we have an employment agreement with Mr. D’Loren that runs
      through June 2009, there is no guarantee that he will remain employed by us
      throughout the term or thereafter. If he ceases to work with us, or if his
      services are reduced, we will need to identify and hire other qualified
      executives, and we may not be successful in finding or hiring adequate
      replacements. This could impede our ability to fully implement our brand
      management and franchising business strategy, which would harm our business
      and
      prospects.




**Any
      failure to meet our debt obligations would adversely affect our business and
      financial condition.**





On
      March
      12, 2007, we entered into a $150 million master loan agreement with BTMU Capital
      Corporation (“BTMU”). In connection with the financing of our acquisition of
      Great American Cookies on January 29, 2008, we increased
      the maximum amount of borrowing that may be outstanding at any one time from
      $150 million to $181 million and modified certain defined terms used in the
      original loan documentation and related documents to take into account the
      Company’s acquisition of real estate assets in the Great American Cookies
      transaction. With the exception of these changes, the increase to the BTMU
      Credit Facility is substantially on the same terms as the original credit
      facility.




As
      of
      March 14, 2008, we have approximately $179 million of long-term debt outstanding
      under the master loan agreement with BTMU. Interest rates for our master loan
      agreement vary based upon changes in the debt service coverage ratio, which
      is
      the outstanding balance compared to operating revenue of the underlying
      collateral, and based changes in the London Interbank Offering Rate
      ("LIBOR").





Our
      master loan agreement contains affirmative and negative covenants customary
      for
      senior secured credit facilities, including, among other things, restrictions
      on
      indebtedness, liens, fundamental changes, loans, acquisitions, capital
      expenditures, restricted payments, transactions with affiliates, common stock
      repurchases, dividends and other payment restrictions affecting subsidiaries
      and
      sale leaseback transactions. Although these covenants are limited to the
      collateral-holding entities and do not apply to the Company itself, our failure
      to comply with the financial and other restrictive covenants relating to our
      indebtedness could result in a default under the indebtedness, which could
      materially adversely affect our business, financial condition and results of
      operations. These restrictions may also limit our ability to operate our
      businesses and may prohibit or limit our ability to enhance our operations
      or
      take advantage of potential business opportunities as they arise.





As
      a
      result of our indebtedness, a substantial portion of cash flow from our
      operations is needed to pay principal and interest. This reduces the cash
      available to finance our operations and other business activities and could
      limit our flexibility in planning for or reacting to changes in our business.
      Although the master loan agreement does not restrict our ability to obtain
      future financings, it may limit our ability to do so, which could negatively
      impact our business, financial condition, results of operations and growth.
      The
      amount of our debt may also cause us to be more vulnerable to economic downturns
      and adverse developments in our business.





**Our
      business depends on market acceptance of our brands in highly competitive
      markets.**





Continued
      market acceptance of our brands is critical to our future success and subject
      to
      great uncertainty. The retail franchising, consumer branded products and QSR
      franchising business segments in which we operate and on which we expect to
      focus our acquisition activities are extremely competitive, both in the United
      States and overseas. Accordingly, we and our current and future licensees,
      franchisees and other business partners face and will face intense and
      substantial competition with respect to marketing and expanding products and
      services under our brands. As a result, we may not be able to attract licensees,
      franchisees and other business partners on favorable terms or at all. In
      addition, licensees, franchisees and other third parties with whom we deal
      may
      not be successful in selling products and services that make use of our brands.
      They (and we) also may not be able to expand the distribution of such products
      and services into new markets.




13




In
      general, competitive factors include quality, price, style, name recognition
      and
      service. In addition, the presence in the marketplace of short-lived “fads” and
      the limited availability of shelf space can affect competition for many consumer
      products. Changes in consumer tastes, discretionary spending priorities,
      demographic trends, traffic patterns and the type, number and location of
      competing products and outlets also can affect market results. Competing
      trademarks and brands may have the backing of companies with greater financial,
      distribution, marketing, capital and other resources than we or our licensees
      and other business partners do. This may increase the obstacles that we and
      they
      face in competing successfully. Among other things, we may have to spend more
      on
      advertising and marketing or may need to reduce the amounts that we charge
      licensees and other business partners. This could have a negative impact on
      our
      business and financial results.




**Deterioration
      of general economic conditions and declines in consumer spending can negatively
      affect our business.**




Our
      business is sensitive to consumer spending patterns and preferences. Market
      and
      general economic conditions affect the level of discretionary spending on the
      merchandise we, our licensees and our franchisees offer, including general
      business conditions, interest rates, taxation, the availability of consumer
      credit and consumer confidence in future economic conditions. Any unfavorable
      occurrences in these economic conditions on a local, regional, national or
      multi-national level may adversely affect our growth, sales and profitability.
      Given the significance of our domestic business, the likely negative impact
      of a
      recession in the general economy in the United States or a general decline
      in
      domestic consumer spending may not be wholly mitigated by our business outside
      the United States.




Many
      of
      our franchisees’ stores are located in shopping malls, particularly in the
      United States. Our franchisees derive revenue, in part, from the high volume
      of
      traffic in these malls. The inability of mall *"anchor"* tenants
      and other area attractions to generate consumer traffic around our franchised
      stores or the decline in popularity of malls as shopping destinations could
      reduce our licensing and franchising revenue dependent on sales volume.




**Because
      we rely on unaffiliated third parties to market, distribute, sell and in some
      cases design products and services using our brands under license, the success
      of our business may depend upon various factors that are beyond our
      control.**





Substantially
      all of our earnings come from royalties generated from licensees, franchisees
      and similar contractual relationships involving our IP. Licensees, franchisees
      and other business partners are independent operators, and we do not exercise
      day-to-day control over any of them. As a result, our business faces a number
      of
      risks, including the following:




·
            Products
                using our IP are generally manufactured by third party licensees,
                either
                directly or through third-party manufacturers on a subcontract basis.
                All
                manufacturers have limited production capacity, and the ones with
                whom we
                work (directly or indirectly) may not, in all instances, be able
                to
                satisfy manufacturing requirements for our (and our licensees’)
                products.





·
            We
                provide limited training and support to franchisees. Consequently,
                franchisees may not successfully operate their businesses in a manner
                consistent with our standards and requirements, or may not hire and
                train
                qualified managers and other store
                personnel.





·
            While
                we will try to ensure that our licensees and other business partners
                maintain a high quality of products and services that use our IP,
                they may
                take actions that adversely affect the value of our IP or our business
                reputation.




**We
      operate a global business that exposes us to additional risks that may
      negatively affect our results of operations and financial
      condition.**




Our
      franchisees operate in over 50 countries. In addition, the brands and other
      IP
      assets that we own and manage are currently used, and in the future are expected
      to be used, for products and services that will be advertised and sold in many
      different countries. As a result, we are subject to risks associated with doing
      business globally.  We intend to continue to pursue growth opportunities
      for our IP business outside the United States, which could expose us to greater
      risks.  The risks associated with our IP business outside the United States
      include:




·
            Political
                and economic instability or civil unrest;




·
            Armed
                conflict, natural disasters or terrorism;




·
            Health
                concerns or similar issues, such as a pandemic or epidemic;




·
            Multiple
                foreign regulatory requirements that are subject to change and that
                differ
                between jurisdictions;




14




·
            Changes
                in trade protection laws, policies and measures, and other regulatory
                requirements effecting trade and investment;




·
            Differences
                from one country to the next in legal protections applicable to IP
                assets,
                including trademarks and similar assets, enforcement of such protections
                and remedies available for infringements;




·
            Fluctuations
                in foreign currency exchange rates and interest rates; and




·
            Adverse
                consequences from changes in tax
                laws.




The
      effects of these risks, individually or in the aggregate, could have a material
      adverse impact on our brand management and franchising business.




**Our
      failure to protect our proprietary rights could decrease the value of those
      assets.**





We
      own a
      combination of trademarks, copyrights, franchise rights, service marks, trade
      secrets and similar intellectual property rights. The success of our brand
      management and franchising business will depend in part on our ability to
      license our intellectual property for use by third parties in selling various
      products and services and developing brand and product awareness in new
      geographic and product markets. Although much of our intellectual property
      is
      protected by registration or other legal rules in the United States, in some
      cases registration may not be in place or available, particularly outside of
      the
      United States. In some cases, third parties may be using similar trademarks
      or
      other intellectual property in certain countries, and we may not be able to
      use
      certain of our intellectual property in those countries.




We
      monitor on an ongoing basis unauthorized use and filings for registrations
      that
      conflict with our trademarks and other intellectual property rights. We rely
      primarily upon a combination of trademark, copyright, know-how, trade secrets
      laws and contractual restrictions to protect our intellectual property rights.
      We believe that such measures afford only limited protection and, accordingly,
      there can be no assurance that actions taken in the past, or that we take in
      the
      future, to establish and protect our proprietary rights will be adequate to
      prevent infringement by others, or prevent a loss of revenue or other damages.
      In addition, the laws of some countries do not protect intellectual property
      rights to the same extent as the laws of the United States.




**We
      may be required to spend significant time and money on protecting or defending
      our intellectual property rights.**





We
      may
      from time to time be required to institute litigation to enforce legal
      protections that we believe apply to our intellectual property, including to
      protect our trade secrets. Such litigation could result in substantial costs
      and
      diversion of resources and could negatively affect our sales, profitability
      and
      prospects, regardless of whether we are able to successfully enforce our rights.
      In addition, to the extent that any of our intellectual property is deemed
      to
      violate the proprietary rights of others, we could be prevented from using
      it,
      which could cause a termination of licensing and other commercial arrangements.
      This would adversely affect our revenues and cash flow. We also could be
      required to defend litigation brought against us, which can be costly and
      time-consuming. It could also result in a judgment or monetary damages being
      levied against us.




**The
      acquisition of IP assets and IP-centric businesses resulted in our recording
      a
      material amount of goodwill and other intangible assets on our balance sheet.
      If
      we are required to write down a portion of this goodwill and other intangible
      assets, our financial results would be adversely affected.**





As
      a
      result of our acquisition strategy, we recorded a material amount of good will
      and other identifiable intangible assets with indefinite lives on our balance
      sheet. We will not amortize goodwill. We may not be able to realize the full
      fair value of intangible assets with indefinite lives and goodwill from our
      acquisitions. We will evaluate on at least an annual basis whether all or a
      portion of identifiable intangible assets and goodwill and intangible assets
      may
      be impaired. A ny
      write-down of intangible assets or goodwill resulting from future periodic
      evaluations would decrease our net income, and those decreases could be
      material .




**Material
      weaknesses in disclosure controls and procedures and internal control over
      financial reporting of the businesses we acquire could adversely impact our
      ability to provide timely and accurate financial
      information.**





The
      integration of acquisitions includes ensuring that our disclosure controls
      and
      procedures and our internal control over financial reporting effectively apply
      to and address the operations of newly acquired businesses. While we have made
      every effort to thoroughly understand any acquired entity’s business processes,
      our planning for proper integration into our company can give no assurance
      that
      we will not encounter operational and financial reporting difficulties impacting
      our controls and procedures. As a result, we may be required to change our
      disclosure controls and procedures or our internal control over financial
      reporting to accommodate newly acquired operations, and we may also be required
      to remediate historic weaknesses or deficiencies at acquired businesses. Our
      review and evaluation of disclosure controls and procedures and internal
      controls of the companies we have acquired may take time and require additional
      expense, and if they are not effective on a timely basis could adversely affect
      our business and the market’s perception of our company.




15




**Risks
      of Our Acquisition Strategy**




**Competition
      may negatively affect our ability to complete suitable
      acquisitions.**





We
      face
      competition for acquisitions. Existing and future competitors may be larger
      than
      us and have access to greater financial and other resources. As a result,
      acquisitions may become more expensive, and we may face greater difficulty
      in
      identifying suitable acquisition candidates on terms that we believe will make
      sense. If we are unable to expand our business by completing acquisitions on
      favorable terms, our financial results may be negatively affected.




**The
      market price of our common stock has been, and may continue to be, volatile,
      which could reduce the market price of our common stock and, among other things,
      make it more expensive and difficult for us to complete acquisitions using
      our
      stock as consideration.**





Since
      we
      announced the acquisition of UCC and the hiring of Mr. D’Loren, the trading
      price of our common stock has experienced significant price and volume
      fluctuations. This market volatility could reduce the market price of our common
      stock, regardless of our operating performance. In addition, the trading price
      of our common stock could change significantly over short periods of time in
      response to actual or anticipated variations in our quarterly operating results,
      announcements by us or by third parties on whom we rely or against whom we
      compete, factors affecting the markets in which we do business or changes in
      national or regional economic conditions. The market price of our common stock
      also could be reduced by general market price declines or market volatility
      in
      the future or future declines or volatility in the prices of stocks for
      companies against whom we compete or companies in the industries in which our
      licensees compete. If our stock price declines, sellers of IP and IP-centric
      businesses may be less willing to accept shares of our common stock as
      consideration for a portion of future acquisitions. In addition, if sellers
      are
      willing to accept shares of our common stock, we may be required to issue
      additional shares to complete acquisitions, which would make acquisitions more
      dilutive to our stockholders. The volatility in the price of our common stock
      may also limit our ability to pursue equity sales as a financing
      strategy.




**Shares
      eligible for future resale by our current stockholders may depress our share
      price.**





We
      issued
      a large number of shares of our common stock and securities convertible into
      common stock in connection with the acquisitions of UCC, The Athlete’s Foot,
      Bill Blass, MaggieMoo’s, Waverly, Pretzel Time, Pretzelmaker and Great American
      Cookies. We have agreed to register for public resale substantially all of
      the
      shares issued in these acquisitions. In registration statements filed with
      the
      SEC on September 15, 2006 and May 4, 2007, we registered the resale of
      10,728,191 shares of our common stock related to the UCC, The Athlete’s Foot,
      Bill Blass, MaggieMoo’s, and Waverly acquisitions. We also have a registration
      statement pending with the SEC to register the resale of 3,697,671 shares of
      our
      common stock related to the Pretzel Time and Pretzelmaker acquisitions and
      an
      earn-out related to the UCC acquisition and we are required under the terms
      of
      our acquisition of Great American Cookies to register the resale of an
      additional 1,399,290 shares of our common stock. Additionally, we may issue
      shares of our common stock in future acquisitions and become obligated to
      register additional shares. Although some of the shares that we registered
      are
      subject to contractual restrictions on resale (as we discuss in our filings),
      the resale of substantial amounts of our common stock in the public markets
      could have an adverse effect on the market price of our common stock. Such
      an
      adverse effect on the market price of our common stock would make it more
      difficult for us to sell our shares in the future at prices which we deem
      appropriate or to use our shares as currency for future
      acquisitions.




**Risks
      of Our Tax Loss Carry Forwards**





**If
      we experience an ownership change, our ability to realize value from our tax
      loss carry forwards could be significantly limited.**





As
      of
      December 31, 2007 **,** we
      had
      federal net operating loss carry forwards of approximately $782 million that
      expire between 2011 and 2026. In addition, we had capital loss carry forwards
      of
      approximately $188 million that expire between 2008 and 2011. If we had an
      “ownership change” as defined in Section 382 of the Internal Revenue Code, our
      net operating loss carry forwards and capital loss carry forwards generated
      prior to the ownership change would be subject to annual limitations, which
      could reduce, eliminate, or defer the utilization of these losses. Based upon
      a
      review of past changes in our ownership, as of December 31, 2007, we do not
      believe that we have experienced an ownership change (as defined under Section
      382) that would result in any limitation on our future ability to use these
      net
      operating loss and capital loss carry forwards. However, we cannot assure you
      that the IRS or some other taxing authority may not disagree with our position
      and contend that we have already experienced such an ownership change, which
      would severely limit our ability to use our net operating loss carry forwards
      and capital loss carry forwards to offset future taxable income.




16




While
      we
      expect that the transfer restrictions on our stockholders approved and adopted
      in July 2005 will help guard against an ownership change occurring under Section
      382 and the related rules, we cannot guarantee that these restrictions will
      prevent a change of ownership from occurring because we are using stock as
      consideration to make acquisitions, and because we may decide (or need) to
      sell
      additional shares of our common stock in the future to raise capital for our
      business and because persons who held more than 5% of our stock prior to these
      restrictions taking effect can sell (and in some cases have sold) shares of
      our
      stock.




**We
      may not be able to use our tax loss carry forwards because we may not generate
      taxable income** *.*





The
      use
      of our net operating loss carry forwards is subject to uncertainty because
      it is
      dependent upon the amount of taxable income we generate. Similarly, the extent
      of our actual use of our capital loss carry forwards is also subject to
      uncertainty because their use depends on the amount of capital gains we
      generate. There can be no assurance that we will have sufficient taxable income
      (or capital gains) in future years to use the net operating loss carry forwards
      or capital loss carry forwards before they expire. This is especially true
      for
      our capital loss carry forwards, because they expire over a shorter period
      of
      time than our net operating loss carry forwards.




**The
      IRS could challenge the amount of our tax loss carry
      forwards.**





The
      amount of our net operating loss carry forwards and capital loss carry forwards
      has not been audited or otherwise validated by the IRS. The IRS could challenge
      the amount of our net operating loss carry forwards and capital loss carry
      forwards, which could result in an increase in our liability for income taxes.
      In addition, calculating whether an ownership change has occurred is subject
      to
      uncertainty, both because of the complexity and ambiguity of Section 382 and
      because of limitations on a publicly traded company’s knowledge as to the
      ownership of, and transactions in, its securities. Therefore, we cannot assure
      you that the calculation of the amount of our net loss carry forwards may not
      be
      changed as a result of a challenge by a governmental authority or our learning
      of new information about the ownership of, and transactions in, our
      securities.




**We
      expect to be subject to state, local and foreign taxes, as well as the
      alternative minimum tax. Our net loss carry forwards would not offset the
      alternative minimum tax in its entirety.**





We
      will
      continue to be subject to state, local, and foreign taxes. As a result of our
      capital loss carry forwards and net operating loss carry forwards, we anticipate
      our federal income tax liability over the next several years will be reduced
      substantially. However, we expect to be subject to the alternative minimum
      tax
      provisions of the Internal Revenue Code which limits the use of net operating
      loss carry forwards. These provisions would result, in effect, in 10% of our
      alternative minimum taxable income being subject to the 20% alternative minimum
      tax assessed on corporations. This amounts to a 2% effective tax rate on our
      alternative minimum taxable income.




**The
      IRS may seek to impose the accumulated earnings tax on some or all of the
      taxable income we retain.**





We
      expect
      to retain all or a substantial portion of future earnings over the next several
      years to finance the development and growth of our IP business. As a result,
      we
      may not declare or pay any significant dividends on shares of our common stock
      for an extended period. If the IRS believed we were accumulating earnings beyond
      our reasonable business needs, the IRS could seek to impose an accumulated
      earnings tax, or AET, of 15% on our accumulated taxable income. We do not
      believe that we will be subject to the AET due to various reasons, including
      the
      existence of our large deficit in accumulated earnings and profits. However,
      the
      IRS may disagree with us on this point, and the IRS may attempt to impose the
      AET on all or a portion of our taxable income. In such event, we would expect
      to
      challenge any attempt by the IRS to impose the AET on our business, but the
      outcome of such a challenge is uncertain.




If
      we
      distributed our accumulated taxable income for each year to our stockholders
      as
      dividends, we would not be subject to the AET for the amounts so distributed,
      but would be subject to the AET only for the amount of earnings retained. If
      we
      paid dividends to stockholders out of current earnings, these dividends would,
      generally speaking, be eligible to be treated as “qualified dividends” for
      federal income tax purposes, taxed at the current maximum federal rate of 15%,
      assuming that the recipient stockholder met the various requirements under
      the
      Internal Revenue Code for such treatment. The maximum rate for qualified
      dividends is currently projected to increase to the maximum federal income
      tax
      rate applicable to ordinary income (currently 35%) for tax years beginning
      after
      December 31, 2010 in accordance with the Jobs and Growth Tax Relief
      Reconciliation Act of 2003, as amended by the Tax Increase Prevention and
      Reconciliation Act of 2005.




17




**Limits
      on ownership of our common stock could have an adverse consequence to you and
      could limit your opportunity to receive a premium on our
      stock.**





As
      noted
      above, it is important that we avoid an ownership change under Section 382
      of
      the Internal Revenue Code, in order to retain the ability to use our net
      operating loss carry forwards and capital loss carry forwards to offset future
      income. Under transfer restrictions that have been applicable to our common
      stock since 2005, no one is permitted to acquire 5% or more of our stock without
      the consent of our Board of Directors. In addition, even if our Board of
      Directors consented to a significant stock acquisition, a potential buyer might
      be deterred from acquiring our common stock while we still have significant
      tax
      losses being carried forward, because such an acquisition might trigger an
      ownership change and severely impair our ability to use our tax losses against
      future income. Thus, this potential tax situation could have the effect of
      delaying, deferring or preventing a change in control and, therefore, could
      affect adversely our shareholders’ ability to realize a premium over the then
      prevailing market price for our common stock in connection with a change in
      control.




The
      transfer restrictions that apply to shares of our common stock, although
      designed as a protective measure to avoid an ownership change, may have the
      effect of impeding or discouraging a merger, tender offer or proxy contest,
      even
      if such a transaction may be favorable to the interests of some or all of our
      shareholders. This effect might prevent our stockholders from realizing an
      opportunity to sell all or a portion of their common stock at a premium to
      the
      prevailing market price.




**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None.





**ITEM
      2. PROPERTIES**





As
      of
      December 31, 2007, we leased a total of approximately 49,500 square feet of
      office space for our operations. Our principal executive office totals 10,250
      square feet and is located in New York, New York. Our Waverly showroom totals
      7,150 square feet, and our Bill Blass showroom totals 11,700 square feet. These
      showrooms are both located in New York, New York. Our retail franchising and
      QSR
      brands are centralized in one facility totaling approximately 20,400 square
      feet
      located in Norcross, Georgia. We believe that our facilities are adequate for
      the purposes for which they are presently used and that replacement facilities
      are available at comparable cost, should the need arise.





We
      are
      also obligated under a lease for space in Marlborough, Massachusetts that we
      used for the Mobile Government business that we sold in 2005. We have sublet
      this office space to BIO-Key International, Inc., the company that purchased
      the
      Mobile Government business (“BIO-Key”). In addition, we assumed leases for
      office space in connection with our acquisitions of MaggieMoo’s and Marble Slab
      which we no longer use. We have negotiated a settlement of the MaggieMoo’s lease
      for a one-time payment of $330,000 which was made in January 2008. We have
      sublet the Marble Slab office in Houston, Texas to a third party through the
      lease expiration in April 2009.





On
      January 29, 2008, in connection with the acquisition of Great American Cookies,
      we acquired a cookie dough manufacturing facility. The facility is located
      on
      approximately four acres of land in Atlanta, Georgia and totals 37,400 square
      feet. The acquisition of the cookie dough manufacturing facility was financed
      under our BTMU Credit Facility and consequently is subject to BTMU’s security
      interest.





As
      we
      acquire additional businesses, we expect to own or lease additional office
      space. Such additions may come through assuming leases of businesses we acquire,
      purchasing property owned by acquired businesses as part of the acquisitions,
      or
      entering into new leases either to consolidate operations in multiple locations
      or to accommodate the needs of our business as it expands. We do not own or
      lease property used by our franchisees, but in connection with certain
      acquisitions we have become obligated under guarantees for certain franchise
      location leases.




18





**ITEM
      3. LEGAL PROCEEDINGS**





IPO
      Litigation .
      NexCen
      is among the hundreds of defendants named in a series of  class
      action lawsuits seeking damages due to alleged violations of securities
      law.  The case is being heard in the United States District Court for the
      Southern District of New York.  The court has consolidated the actions by
      all of the named defendants that actually issued the securities in
      question.  There are approximately 310 consolidated cases before Judge
      Scheindlin, including this action, under the caption *In
      Re
      Initial Public Offerings Litigation* ,
      Master
      File 21 MC 92 (SAS).




As
      to
      NexCen, these actions were filed on behalf of persons and entities that acquired
      the Company’s stock after its initial public offering in October 20,
      1999.  Among other things, the complaints claim that prospectuses, dated
      October 20, 1999 and September 27, 2000 and issued by NexCen in
      connection with the public offerings of common stock, allegedly contained untrue
      statements of material fact or omissions of material fact in violation of
      securities laws.  The complaint alleges that the prospectuses allegedly
      failed to disclose that the offerings’ underwriters had solicited and received
      additional and excessive fees, commissions and benefits beyond those listed
      in
      the arrangements with certain of their customers, which were designed to
      maintain, distort and/or inflate the market price of the Company’s common stock
      in the aftermarket.  The actions seek unspecified monetary damages and
      rescission.  NexCen believes the claims are without merit and is vigorously
      contesting these actions.




After
      initial procedural motions and the start of discovery in 2002 and 2003, the
      plaintiffs voluntarily dismissed without prejudice the officer and director
      defendants of each of the 310 named issuers, including NexCen.  Then
      in June 2003, the Plaintiff’s Executive Committee announced a proposed
      settlement with the issuer-defendants, including NexCen, and the officer and
      director defendants of the issuers (the “Issuer Settlement”).  A settlement
      agreement was signed in 2004 and presented to the District Court for approval.
      The proposed Issuer Settlement did not include the
      underwriter-defendants, and they continued to defend the actions
      and objected to the proposed settlement.  (One of the
      defendant-underwriters signed a memorandum of understanding in April 2006
      agreeing to a $425 million settlement of claims against it.)  Under
      terms of the proposed Issuer Settlement, NexCen has a reserve of
      $465,000 for its estimated exposure.




The
      District Court granted preliminary approval of the proposed Issuer Settlement
      in
      2005 and held a fairness hearing on the matter in April 2006.  In December
      2006, before final action by the District Court on the proposed Issuer
      Settlement, the U.S. Court of Appeals for the Second Circuit issued a ruling
      vacating class certification for certain plaintiffs in the actions against
      the
      underwriter-defendants (the “Miles Decision”).  Plaintiffs filed a petition
      in early 2007 seeking rehearing of this decision and/or a rehearing en
      banc.  On April 6, 2007, the Second Circuit denied the petition for
      rehearing in an opinion.  After careful consideration by the parties of the
      effect of the Miles Decision on the proposed settlement (i.e., whether in light
      of the Miles Decision no class may be certified in these actions, even a
      settlement class), plaintiffs and the issuer-defendants executed a stipulation
      and proposed order terminating the proposed Issuers’ Settlement on June 22,
      2007.  The district court “so ordered” the stipulation and proposed order,
      terminating the proposed Issuers’ Settlement shortly thereafter.





Discovery
      in the actions has resumed, and plaintiffs filed amended complaints in the
      focus cases shortly thereafter.  Defendants have moved to dismiss the
      amended complaints.  Plaintiffs have also filed motions for class
      certification in the focus cases.  Defendants have filed papers
      opposing class certification.  Neither the motion to dismiss nor the
      motion for class certification has been ruled upon by the Court.





Transportation
      Business Sale. On March
      13, 2006, a complaint, captioned *Geologic
      Solutions, Inc., v. Aether Holdings, Inc.,* was
      filed against the Company in the Supreme Court for the State of New York, New
      York County. The complaint alleged that plaintiff Geologic was damaged as a
      result of certain alleged breaches of contract and fraudulent inducement arising
      out of NexCen’s alleged misrepresentations and failure to disclose certain
      information in connection with the asset purchase agreement dated as of July
      20,
      2004 for the purchase and sale of our Transportation business. In July 2007,
      the
      Company settled all claims with the plaintiff for a payment of $600,000. The
      case has been dismissed with prejudice. The Company’s costs in connection with
      the defense of this case have been recorded against discontinued operations,
      further increasing the loss on the sale of the Transportation segment, and
      decreasing the amount of cash we have available for acquisitions and operations.
      The settlement amount has also been recorded against discontinued
      operations.





Legacy
      UCC Litigation .
      UCC and
      Mr. D’Loren in his capacity as president of UCC are parties along with unrelated
      parties to litigation resulting from a default on a loan to The Songwriter
      Collective, LLC (“TSC”), which UCC had referred to a third party. A shareholder
      of TSC filed a lawsuit in the U.S. District Court for the Middle District of
      Tennessee, captioned *Tim
      Johnson v. Fortress Credit Opportunities I, L.P., et al.,* in which
      the plaintiff alleged that certain misrepresentations by TSC and its agents
      (including UCC and D’Loren) induced the shareholder to contribute certain rights
      to musical compositions to TSC. UCC and Mr. D’Loren filed cross-claims claiming
      indemnity against TSC and certain TSC officers. TSC filed various cross and
      third-party claims against UCC, Mr. D’Loren and another TSC shareholder, Annie
      Roboff. Roboff filed a separate action in the Chancery Court in Davidson County,
      Tennessee, captioned *Roboff
      v. Mason, et al.* ,
      as well
      as claims in the federal court lawsuit, against UCC, Mr. D’Loren, TSC and the
      other parties. The parties reached a global settlement on December 19, 2007,
      with UCC contributing a total of $125,000 to the settlement amount, which amount
      has been included in discontinued operations. The case has been dismissed with
      prejudice.




19





Other . The
      Company and its subsidiaries are subject to other litigation in the ordinary
      course of business, including contract, franchisee, trademark and
      employment-related litigation. In the course of operating its franchise systems
      and enforcing its rights under existing and former franchisee agreements, we
      are
      also subject to complaints, letters threatening litigation and law suits,
      particularly in cases involving defaults and terminations of
      franchises.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.





**PART
      II**





**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES**





PRICE
      RANGE OF COMMON STOCK





Our
      common stock has been quoted on the Nasdaq Global Market under the symbol NEXC
      since November 1, 2006. Prior to that time, the symbol AETH had been used,
      starting with our initial public offering on October 20, 1999. The
      following table sets forth, for the periods indicated, the high and low prices
      per share of the common stock as reported on the Nasdaq Global
      Market.





**2007**
            
            **2006****QUARTER
                ENDED**
            
            **HIGH**
            
            **LOW**
            
            **HIGH**
            
            **LOW**March 31
            
            $
            11.04
            
            $
            7.42
            
            $
            3.85
            
            $
            3.13June 30
            
            $
            12.98
            
            $
            9.98
            
            $
            5.50
            
            $
            3.75September 30
            
            $
            11.41
            
            $
            5.56
            
            $
            6.33
            
            $
            5.54December 31
            
            $
            7.37
            
            $
            3.89
            
            $
            7.42
            
            $
            5.71





APPROXIMATE
      NUMBER OF EQUITY SECURITY HOLDERS





The
      number of stockholders of record of NexCen’s common stock as of
      February 29, 2008 was 352.





DIVIDENDS





We
      have
      never declared or paid any cash dividends on our capital stock or, when we
      were
      organized as a limited liability company, did we make any distributions to
      our
      members. For the period that our accumulated tax loss carry forwards remain
      available for use, we expect to retain earnings, if any, to support the
      development of our business, rather than pay periodic cash dividends. Our Board
      of Directors may reconsider or change this policy in the future. Payment of
      future dividends, if any, will be at the discretion of our Board of Directors,
      after taking into account such factors as it considers relevant, including
      our
      financial condition, the performance of our business, the perceived benefits
      to
      the Company and our stockholders of re-investing earnings, anticipated future
      cash needs of our business, the tax consequences of retaining earnings and
      the
      tax consequences to the Company and its stockholders of making dividend
      payments.




20




SECURITIES
      AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS





**Plan
                Category**
            
            **Plan
                Name**
            
            **Number
                of**
              **securities**
              **to**
              **be
                issued upon**
              **exercise**
              **of
                outstanding**
              **options,**
              **and**
              **restricted
                stock**
            
            **Weighted-average**
              **exercise
                price of**
              **outstanding**
              **options,**
              **and
                restricted stock**
            
            **Number
                of**
              **securities**
              **remaining**
              **available
                for**
              **future**
              **issuance
                under**
              **equity**
              **compensation**
              **plans**Equity
                compensation plans approved by security holders
            
            1999
                Equity
              Incentive
                Plan
            
            
            3,964,064
            
            $
            4.40
            
            
            —2006
                Equity
              Incentive
                Plan
            
            
            1,973,666
            
            $
            7.34
            
            
            1,526,334Equity
                compensation plans not approved by security holders
            
            Acquisition
              Incentive
                Plan
            
            
            89,127
            
            $
            2.71
            
            
            —Total
            
            
            
            
            6,026,857
            
            $
            5.34
            
            
            1,526,334





The
      1999
      Equity Incentive Plan (the “1999 Plan”) provides for the issuance of NexCen
      common stock, pursuant to grants of stock options or restricted stock, in an
      amount equal to 20% of the Company’s outstanding shares. On September 2, 2005,
      the Company filed a registration statement with the Securities and Exchange
      Commission on Form S-8 registering an additional 973,866 shares under the 1999
      Plan.





The
      Acquisition Incentive Plan (the “2000 Plan”) was effective December 15,
      2000. Grants under the 2000 Plan may be made to all employees, consultants
      and
      certain other service providers (other than directors and executive officers)
      of
      the Company. Under the 2000 Plan, NexCen’s Board of Directors has authorized the
      issuance of up to 1,900,000 shares of NexCen common stock in connection with
      the
      grant of stock options or restricted stock. All options granted under the 2000
      Plan must be nonqualified stock options. Any shares covered by an award that
      are
      used to pay the exercise price or any required withholding tax will become
      available for re-issuance under the plan. In the event of a “change of control”
as such term is defined in the 2000 Plan, awards of restricted stock and stock
      options will become fully vested or exercisable, as applicable, to the extent
      the award agreement granting such restricted stock or options provides for
      such
      acceleration. (Individuals receive an award agreement upon grant of an award
      under the 2000 Plan.) A participant will immediately forfeit any and all
      unvested options and forfeit all unvested restricted stock at the time of
      termination from NexCen, unless the award agreement provides otherwise. No
      participant may exercise vested options after the 90 th day from
      the date of termination from NexCen, unless the award grant provides otherwise.





Effective
      October 31, 2006, the Company adopted the 2006 Plan to replace the 1999 Plan
      and
      the 2000 Plan. The Company’s stockholders approved the adoption of the 2006 Plan
      at the Annual Meeting held on October 31, 2006. The 2006 Plan is now the sole
      plan for providing stock-based compensation to eligible employees, directors
      and
      consultants. The 1999 Plan and the 2000 Plans will remain in existence solely
      for the purpose of addressing the rights of holders of existing awards already
      granted under those plans. No new awards will be granted under the 1999 Plan
      and
      the 2000 Plan. A total of 3.5 million shares of common stock are initially
      reserved for issuance under the 2006 Plan, which represented approximately
      7.4%
      of NexCen’s outstanding
      shares at the time of adoption .
      Options
      under the 2006 Plan expire after ten years and are granted at an exercise price
      no less than the fair value of the common stock on the grant date.




21




**PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
      PURCHASERS**





The
      following table presents shares surrendered by employees to exercise stock
      options and to satisfy tax withholding obligations on vested restricted stock
      and stock option exercises.





**Period**
            
            **Total
                Number**
              **of
                Shares**
              **Purchased**
            
            **Average
                Price**
              **Paid
                for Shares**
            
            **Total
                Number**
              **of
                Shares**
              **Purchased
                as**
              **Part
                of Publicly**
              **Announced**
              **Plans
                or**
              **Programs**
            
            **Maximum
                Number**
              **of
                Shares that**
              **May
                Yet Be**
              **Purchased
                Under**
              **the
                Plans and**
              **Programs**January
                1 - January 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -February
                1 - February 28, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -March
                1 - March 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -April
                1 - April 30, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -May
                1 - May 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -June
                1 - June 30, 2007
            
            
            4,000
            
            $
            3.75
            
            
            -
            
            
            -July
                1 - July 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -August
                1 - August 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -September
                1 - September 30, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -October
                1 - October 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -November
                1 - November 30, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -December
                1 - December 31, 2007
            
            
            2,000
            
            $
            3.75
            
            
            -
            
            
            -Total
            
            
            6,000
            
            $
            3.75
            
            
            -
            
            
            -





22




**ITEM
      6. SELECTED FINANCIAL DATA**





The
      table
      that follows presents portions of our Consolidated Financial Statements and
      is
      not a complete presentation in accordance with U.S. generally accepted
      accounting principles. You should read the following Selected Financial Data
      together with our Consolidated Financial Statements and related notes and with
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” included in Item 7 of this Report. The historical results presented
      below are not necessarily indicative of the results to be expected for any
      future fiscal year.





The
      results of operations in the following Selected Financial Data, as well as
      in
      our Consolidated Financial Statements, present the results of our brand
      management and franchising business as continuing operations. We began operating
      this business in 2006, but we owned only one of our nine brands in 2006 (and
      only for the last seven weeks of that fiscal year). In fiscal 2007, we acquired
      six additional brands. We acquired two of our current nine brands in January
      2008. The results of the mobile and data communications business that we sold
      during 2004 and the mortgage-backed securities business that we sold in 2006
      are
      reported as discontinued operations. Loss from continuing operations does not
      include any financial results of these discontinued operations. As a result
      of
      the reclassification of our former businesses to discontinued operations, these
      results differ from the results that we presented in reporting periods prior
      to
      the fourth quarter of 2006.




23




**YEAR
                ENDED DECEMBER 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****(IN
                THOUSANDS, EXCEPT PER SHARE AMOUNTS)**CONSOLIDATED
                STATEMENT OF OPERATIONS DATA:Royalty
                revenues
            
            $
            15,289
            
            $
            1,175
            
            $
            —
            
            $
            —
            
            $
            —Franchise
                fee revenues
            
            
            3,464
            
            
            749
            
            
            —
            
            
            —
            
            
            —Licensing
                revenues
            
            
            15,542
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
                revenues
            
            
            34,295
            
            
            1,924
            
            
            —
            
            
            —
            
            
            —Total
                operating expenses
            
            
            (32,105
            )
            
            (10,413
            )
            
            (5,241
            )
            
            (14,643
            )
            
            (21,796
            )Operating
                income (loss)
            
            
            2,190
            
            
            (8,489
            )
            
            (5,241
            )
            
            (14,643
            )
            
            (21,796
            )Total
                non-operating income (loss)
            
            
            (2,950
            )
            
            3,337
            
            
            1,690
            
            
            (10,000
            )
            
            (3,900
            )Loss
                from continuing operations before taxes
            
            
            (760
            )
            
            (5,152
            )
            
            (3,551
            )
            
            (24,643
            )
            
            (25,696
            )Income
                taxes:
            
            
            
            
            
            
            
            
            
            
            
            —
            
            
            —Current
            
            
            (236
            )
            
            (81
            )
            
            —
            
            
            —
            
            
            —Deferred
            
            
            (3,067
            )
            
            —
            
            
            —
            
            
            —
            
            
            —Loss
                from continuing operations
            
            
            (4,063
            )
            
            (5,233
            )
            
            (3,551
            )
            
            (24,643
            )
            
            (25,696
            )Income
                (loss) from discontinued operations, net of tax expense of $64 and
                $75 for 2006 and 2003, respectively
            
            
            (586
            )
            
            2,358
            
            
            225
            
            
            (44,510
            )
            
            (23,756
            )Gain
                (loss) on sale of discontinued operations
            
            
            —
            
            
            755
            
            
            (1,194
            )
            
            20,825
            
            
            —Net
                loss
            
            $
            (4,649
            )
            $
            (2,120
            )
            $
            (4,520
            )
            $
            (48,328
            )
            $
            (49,452
            )Loss
                per share (basic and diluted) from continuing operations
            
            $
            (0.08
            )
            $
            (0.11
            )
            $
            (0.08
            )
            $
            (0.57
            )
            $
            (0.60
            )Income
                (loss) per share (basic and diluted) from discontinued
                operations
            
            
            (0.01
            )
            
            0.07
            
            
            (0.02
            )
            
            (0.54
            )
            
            (0.56
            )Net
                loss per share - basic and diluted
            
            $
            (0.09
            )
            $
            (0.04
            )
            $
            (0.10
            )
            $
            (1.11
            )
            $
            (1.16
            )Weighted
                average shares outstanding -basic
                and diluted
            
            
            51,889
            
            
            45,636
            
            
            44,006
            
            
            43,713
            
            
            42,616CONSOLIDATED
                BALANCE SHEET DATA:Cash
                and cash equivalents (including restricted cash of $7 and $1 million
                in 2007 and 2006, respectively)
            
            $
            53,275
            
            $
            84,834
            
            $
            9,725
            
            $
            69,555
            
            $
            39,682Investments
                available for sale - discontinued operations
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            220,849Trademarks
                and goodwill
            
            $
            278,048
            
            $
            64,607
            
            $
            —
            
            $
            —
            
            $
            —Mortgage-backed
                securities, at fair value, discontinued operations
            
            $
            —
            
            $
            —
            
            $
            253,900
            
            $
            62,184
            
            $
            —Total
                assets
            
            $
            359,207
            
            $
            158,385
            
            $
            266,008
            
            $
            136,586
            
            $
            398,105Repurchase
                agreements related to discontinued operations
            
            $
            —
            
            $
            —
            
            $
            133,924
            
            $
            —
            
            $
            —Total
                debt
            
            $
            109,578
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            154,942Stockholders’
                equity
            
            $
            192,813
            
            $
            146,613
            
            $
            126,387
            
            $
            130,590
            
            $
            179,301




24




**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





The
      following discussion of the results of operations and financial condition of
      NexCen Brands, Inc. should be read in conjunction with the information contained
      in the Consolidated Financial Statements and related Notes, which appear in
      Item
      8 of this Report.





OVERVIEW





NexCen
      Brands is a vertically integrated global brand management and franchising
      company. Our business is focused on managing, developing and acquiring IP and
      IP-centric businesses, operating in three vertical segments: consumer branded
      products, retail franchising and QSR franchising. We own, license, franchise
      and
      market a growing portfolio of brands. We license and franchise our brands to
      a
      network of leading retailers, manufacturers and franchisees that includes every
      major segment of retail distribution from the luxury market to the mass market
      in the United States and in over 50 countries around the world. Our franchise
      network consists of approximately 1,900 retail stores. We discuss our business,
      our operating strategy, our three business segments and our brands in detail
      in
      Item 1 of this Report.





We
      commenced our current business in June 2006 when we acquired UCC Capital
      Corporation. Upon the closing of that acquisition, Robert W. D’Loren, who was
      the president and chief executive officer of UCC, became our president and
      chief
      executive officer and a member of our Board of Directors.





We
      generate revenue from licensing, franchising and other commercial arrangements
      with third parties who want to use our brands and associated IP, including
      trademarks, trade names, copyrights, franchise rights, patents, trade secrets,
      know-how and other similar valuable property.




These
      third parties pay us licensing, franchising and other contractual fees and
      royalties for the right to use our IP on either an exclusive or non-exclusive
      basis. Our contractual arrangements may apply to a specific demographic product
      market, a specific geographic market, or to multiple demographic and/or
      geographic markets.





We
      receive licensing, franchising and other contractual fees that include a mixture
      of upfront payments, required periodic minimum payments (regardless of sales
      volumes), and volume-dependent periodic royalties (based upon the number or
      dollar amount of branded products sold). Accordingly, our revenues reflect
      both
      recurring and non-recurring payment streams. Our revenue represents a relatively
      small percentage of the revenue of our licensees and franchisees (typically
      a 6%
      royalty). Our revenue depends upon our ability to negotiate successful licensing
      and franchising arrangements for our acquired brands, our ability to expand
      our
      franchised business and the ability of our licensees and franchisees to sell
      products and services that make use of our IP (which will entitle us to receive
      fees and royalties from them).




Our
      principal assets are intangible assets (the trademarks and other IP assets
      and
      associated goodwill related to the brands and businesses that we acquire, manage
      and develop) and our people. We do not expect to have substantial tangible
      assets, as our business model is not designed to require significant capital
      investment in tangible assets.




Through
      March 17, 2008, we have acquired nine brands, as follows:





Brand
      Management:


Consumer
      Branded Products





·
            Bill
                Blass (acquired February 15, 2007)·
            Waverly
              (acquired May 2, 2007)




Franchise
      Management:


Retail
      Franchising





·
            The
                Athlete’s Foot (acquired November 7,
                2006)





·
            Shoebox
                (acquired January 15, 2008)





25


QSR
      franchising




·
            MaggieMoo’s
                (acquired February 28, 2007)




·
            Marble
                Slab (acquired February 28, 2007)





·
            Pretzel
                Time (acquired August 7, 2007)





·
            Pretzelmaker
                (acquired August 7, 2007)





·
            Great
                American Cookies (acquired January 29,
                2008)





Our
      operating segments are discussed in *Note
      23-Segment Reporting* to
      our *Consolidated Financial Statements* included
      in this Report. Because we owned only one brand in 2006 (and then only for
      the
      last seven weeks of that year) and did not operate in our current three business
      segments until the first quarter of 2007, we do not include any discussion
      of
      period-to-period comparisons for the results of our three business segments
      in
      the discussion that follows.





We
      are
      continuously evaluating additional potential acquisitions and are actively
      exploring opportunities to acquire additional IP-centric businesses. However,
      as
      of the date of this Report, we have not entered into any binding agreements
      to
      complete any additional acquisitions.





Before
      transitioning to our current business, we managed a leveraged portfolio of
      MBS.
      We liquidated our MBS portfolio and exited that business in the fourth quarter
      of 2006. We also previously owned and operated various mobile and wireless
      communications businesses, which we sold in 2004. For the periods reflected
      in
      our financial statements, the MBS business and related assets and liabilities,
      as well as anything related to our former mobile and wireless communications
      businesses, are reported as discontinued operations. The results of our brand
      management and franchising business are reported as our continuing
      operations.




In
      reviewing our results for the year ended December 31, 2007, you should keep
      in
      mind the following factors:





·
            Comparisons
                to prior periods are not yet meaningful, because we did not initiate
                our
                current business strategy until the second half of 2006 and did not
                begin
                to earn royalties or license and franchise fees until halfway through
                the
                fourth quarter of 2006, when we acquired The Athlete’s
                Foot.




·
            Of
                the seven IP brands we owned and operated as of December 31, 2007,
                we
                owned only one -- The Athlete’s Foot -- for the entire year of 2007. Our
                results through December 31, 2007 include Bill Blass for ten and
                one half
                months, MaggieMoo’s and Marble Slab for ten months, Waverly for
                approximately eight months, and Pretzel Time and Pretzelmaker for
                approximately five months. In addition, MaggieMoo’s and Marble Slab’s,
                Pretzel Time, and Pretzelmaker, revenue streams are subject to wide
                seasonal fluctuations. Consequently, our annual results are not indicative
                of what we expect our results to be in future
                periods.




·
            If
                we continue to acquire IP-centric businesses (as we expect to do),
                future
                period results will continue to change due to the inclusion of such
                additional businesses. Accordingly, period-to-period fluctuations
                may
                continue to be significant. However, as we own a group of businesses
                for a
                longer period, we expect to be able to evaluate changes in our results
                from those businesses owned for multiple periods (isolating the effect
                on
                our results of newly acquired
                businesses).




DISCONTINUED
      OPERATIONS





In
      November 2006, we exited the MBS business by selling our remaining $75.5 million
      of MBS investments and recognizing a gain of $755,000. Earlier in 2006, we
      sold
      $140 million of our MBS investments and used the proceeds primarily to repay
      indebtedness under repurchase agreements that had been incurred to purchase
      MBS.
      In 2007, we settled litigation and other claims related to the mobile and
      wireless communications business we sold in 2004, which amounts were charged
      to
      discontinued operations. These settlements are discussed in *Note
      13*to*our Consolidated Financial Statements* .




26





CRITICAL
      ACCOUNTING POLICIES





Our
      critical accounting policies affect the amount of income and expense we record
      in each period as well as the value of our assets and liabilities and our
      disclosures regarding contingent assets and liabilities. In applying these
      critical accounting policies, we must make estimates and assumptions to prepare
      our financial statements that, if made differently, could have a positive or
      negative effect on our financial results. We believe that our estimates and
      assumptions are both reasonable and appropriate, and in accordance with the
      applicable accounting rules. However, estimates involve judgments with respect
      to numerous factors that are difficult to predict and are beyond management’s
      control. As a result, actual amounts could materially differ from
      estimates.




Management
      believes that the following accounting policies represent “critical accounting
      policies,” which the Securities and Exchange Commission defines as those that
      are most important to the portrayal of a company’s financial condition and
      results of operations and require management’s most difficult, subjective, or
      complex judgments, often because management must make estimates about uncertain
      and changing matters.


·
            Valuation
                of deferred tax assets - We have deferred tax assets as a result
                of years
                of accumulated tax loss carry forwards. Management is developing
                plans to
                achieve profitable operations in future years that may enable us
                to
                recover the benefit of our deferred tax assets. We presently do not
                have
                sufficient objective evidence to support management’s belief and,
                accordingly, we maintain a full valuation allowance for our net deferred
                tax assets as required by U.S. generally accepted accounting
                principles.




·
            Valuation
                of trademarks, goodwill and intangible assets - Trademarks represent
                the
                present value of future royalty income associated with the ownership
                of
                each trademark. The Company expects its trademarks to contribute
                to cash
                flows indefinitely, and therefore will not amortize any trademarks
                unless
                their useful life is no longer deemed indefinite. Goodwill represents
                the
                excess of the acquisition cost over the fair value of the net assets
                acquired and is not amortized. Goodwill is evaluated for impairment
                annually, or more frequently as required in accordance with SFAS
                No. 142
                “Goodwill and Other Intangible Assets.” Intangible assets with estimable
                useful lives are amortized over their respective estimated useful
                lives
                and are reviewed for impairment in accordance with SFAS No. 144
                “Accounting for Impairment or Disposal of Long-Lived Assets.” We will
                evaluate the fair value of trademarks and goodwill to assess potential
                impairments on an annual basis, or more frequently if events or other
                circumstances indicate that we may not be able to recover the carrying
                amount of the asset. We will evaluate the fair value of trademarks
                and
                goodwill at the reporting unit level and make that determination
                based upon future cash flow projections. Assumptions to be used in
                these
                projections, such as forecasted growth rates, cost of capital and
                multiples to determine the terminal value of the reporting units,
                will be
                consistent with internal projections and operating plans. We will
                record
                an impairment loss when the implied fair value of the trademarks
                and
                goodwill assigned to the reporting unit is less than the carrying
                value of the reporting unit, including trademarks and goodwill. In
                accordance with SFAS No. 144, “Accounting for the Impairment or Disposal
                of Long-Lived Assets,” whenever events or changes in circumstances
                indicate that the carrying values of long-lived assets (which include
                our
                intangible assets with determinable useful lives) may be impaired,
                we will
                perform an analysis to determine the recoverability of the asset’s
                carrying value. These events or circumstances may include, but are
                not
                limited to; projected cash flows which are significantly less than
                the
                most recent historical cash flows; a significant loss of management
                contracts without a realistic expectation of a replacement; and economic
                events which could cause significant adverse changes and uncertainty
                in
                business patterns. In our analysis, to determine the recoverability
                of the
                asset’s carrying value, we will make estimates of the undiscounted cash
                flows from the expected future operations of the asset. If the analysis
                indicates that the carrying value is not recoverable from future
                cash
                flows, the asset will be written down to estimated fair value and
                an
                impairment loss will be recognized.





Goodwill
      and trademarks acquired in a purchase business combination which are determined
      to have an indefinite useful life are not amortized. We believe our business
      model enables us to leverage our brand management, marketing, and licensing
      expertise, costs and professionals across our reporting units, increasing the
      value of each brand. We evaluate the estimated lives of our identifiable
      intangible assets at each reporting period.





·
            Valuation
                of stock-based compensation - Under the provisions of SFAS 123R,
                share-based compensation cost is measured at the grant date, based
                on the
                calculated fair value of the award, and is recognized as an expense
                over
                the employee’s requisite service period (generally the vesting period of
                the equity grant).  SFAS No. 123R also requires the related
                excess tax benefit received upon exercise of stock options or vesting
                of
                restricted stock, if any, to be reflected in the statement of cash
                flows
                as a financing activity rather than an operating activity.





27




We
      used
      the Black-Scholes option pricing model to value the compensation expense
      associated with our stock option awards under SFAS 123R.  In addition,
      we estimated forfeitures when recognizing compensation expense associated with
      our stock options, and adjusted our estimate of forfeitures when they were
      expected to differ.  Key input assumptions used to estimate the fair
      value of stock options included the market value of the underlying shares at
      the
      date of grant, the exercise price of the award, the expected option term, the
      expected volatility (based on historical volatility) of our stock over the
      option’s expected term, the risk-free interest rate over the option’s expected
      term, and the expected annual dividend yield, if any.





·
            Valuation
                of Allowance for Doubtful Accounts - We maintain an allowance for
                doubtful
                accounts for estimated losses resulting from the inability of our
                customers to make required payments. In evaluating the collectability
                of
                accounts receivable, we consider a number of factors, including the
                age of
                the accounts, changes in status of the customers’ financial condition and
                other relevant factors. Estimates of uncollectible amounts are revised
                each period, and changes are recorded in the period they become
                known.




RECENT
      ACCOUNTING PRONOUNCMENTS




In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements* ,”
which
      applies to any other accounting pronouncements that require or permit fair
      value
      measurements.  SFAS No. 157 provides a common definition of fair value as
      the price that would be received to sell an asset or paid to transfer a
      liability in a transaction between market participants. The new standard also
      provides guidance on the methods used to measure fair value and requires
      expanded disclosures related to fair value measurements.  SFAS No. 157 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007.  We are currently assessing the impact that this
      standard will have on our consolidated results of operations, financial
      position, and cash flows. ****





In
      February 2007, the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Financial
      Liabilities.* ”
SFAS
      No. 159 permits entities to choose to measure most financial instruments and
      certain other items at fair value that are currently required to be measured
      at
      historical costs. Adoption of SFAS No. 159 is optional. We currently do not
      expect to adopt SFAS No. 159.





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), “ *Business
      Combinations.”* Under
      SFAS No. 141(R), acquiring entities will recognize assets acquired and
      liabilities assumed in connection with business combinations at fair market
      value with limited exception. Among its provisions, SFAS No. 141(R) requires
      that: (a) acquisition costs will generally be expensed as incurred and not
      capitalized, (b) contingent consideration will be recognized at estimated fair
      value at the time of acquisition, and (c) noncontrolling interests will be
      valued at the fair value at the acquisition date. SFAS No. 141(R) is effective
      for annual periods beginning on or after December 15, 2008. We are currently
      assessing the impact this statement will have on our consolidated results of
      operations, financial position, and cash flows.





In
      December 2007, The FASB issued SFAS No. 160, *“Noncontrolling
      Interests in Consolidated Financial Statements- An Amendment of ARB No.
      51.”* SFAS No.
      160 provides that noncontrolling interests in a subsidiary (minority interests)
      are to be recorded as a component of equity, separate from the parent’s equity.
      SFAS No. 160 also provides for changes in the way minority interest expense
      is
      recorded in the income statement, and will require expanded disclosure regarding
      the interests of the parent and its noncontrolling interest. SFAS No. 160 is
      effective for years and interim periods beginning on or after December 15,
      2008.
      We are currently assessing the impact this statement will have on our
      consolidated results of operations, financial position, and cash
      flows.




28





RESULTS
      OF CONTINUING OPERATIONS





*Loss
      from Continuing Operations before Income Taxes*





Loss
      from
      continuing operations before income taxes of $760,000 in 2007 improved by $4.4
      million, or 85% in 2007, from a loss of $5.2 million in 2006, reflecting the
      implementation of our brand management and franchising business. No revenues
      were earned in the first ten months of 2006 in connection with our new
      business.




Loss
      from
      continuing operations before income taxes of $5.2 million in 2006 increased
      $1.6
      million, or 45% in 2006, from a loss of $3.6 million in 2005. The increase
      in
      the amount of the loss primarily reflects increases in selling, general and
      administrative costs and stock based compensation following the acquisition
      of
      UCC and increased restructuring charges related to the relocation of our
      headquarters from Baltimore, Maryland to New York City, partially offset by
      $1.9
      million of royalty and franchise revenues and increases in interest income
      and
      other income. As discussed above, we recorded revenue for only seven weeks
      of
      2006 (after the November 7, 2006 acquisition of The Athlete’s Foot), while we
      incurred expenses for the entire year and also incurred expenses associated
      with
      the process of transitioning to a new senior management team (following the
      completion of the UCC acquisition).




*Royalty,
      Licensing and Franchise Fee Revenue*





We
      recognized $34.3 million in revenues during the fiscal year 2007, as a result
      of
      owning our seven brands compared to $1.9 million in revenues for 2006 when
      we
      owned only one brand for seven weeks. Of the $34.3 million in revenues
      recognized in 2007, $15.3 million related to franchising royalties, $15.5
      million related to licensing, and $3.5 million related to franchise fees. In
      2006, $1.2 million in revenues was from royalties and $749,000 was from
      franchise fees. Royalty and licensing revenues are recorded as they are earned
      and become receivable from franchisees. Franchise fee revenue is recognized
      when
      all initial services are performed, which is generally considered to be upon
      the
      opening of the applicable franchisee store. Our revenues, especially those
      derived from our QSR franchisees, are subject to seasonal
      fluctuations.





As
      discussed above, all revenues from the MBS and the mobile and wireless
      communications businesses that we have sold have been reclassified to
      discontinued operations and are included in income (loss) from discontinued
      operations.





*Total
      Operating Expenses*





Operating
      expenses of $32.1 million in 2007 increased by $21.7 million, or 208% in 2007,
      from $10.4 million in 2006. The increase reflects an increase in selling,
      general and administrative costs and stock based compensation resulting from
      the
      acquisitions of the brands we own.





Operating
      expenses of $10.4 million in 2006 increased $5.2 million, or 99% in 2006, from
      $5.2 million in 2005. The increase primarily reflects an increase in selling,
      general and administrative costs and stock based compensation following the
      acquisition of UCC, and increased restructuring charges related to the
      relocation of our headquarters from Baltimore, Maryland to New York City and
      the
      transition of our senior management team.





*Selling,
      General and Administrative Expenses*





Selling,
      general and administrative (“SG&A”) expenses consist primarily of
      compensation, stock compensation expense and personnel related costs, rent,
      facility related support costs, travel and advertising.




Corporate
        SG&A expenses increased $5.7 million, or 79%, to $13.0 million in 2007 from
        $7.3 million in 2006. The increase primarily reflects additional costs resulting
        from the hiring of corporate staff to support our acquisition activity, stock
        compensation expense and growth of the Company. In accordance with accounting
        rules, included in corporate SG&A expense for 2007 is $408,000 of state tax
        expense. This is included in SG&A because it is a tax based on capital and
        not income. Additionally, we recorded SG&A expenses for our brands of $14.4
        million, an increase of $13.9 million from $453,000 in 2006. Of the $14.4
        million of brand related SG&A expenses in 2007, $4.8 million related to our
        QSR segment, $5.6 million related to our retail franchising segment, and
        $4.0
        million related to our consumer branded products segment. Personnel employed
        by
        the Company increased from 36 employees to 107 employees as of December 31,
        2007
        as a result of our acquisitions.


SG&A
      expenses increased $4.1 million, or 112%, to $7.7 million in 2006 from $3.6
      million in 2005. The increase primarily reflects additional costs resulting
      from
      our acquisitions of UCC, The Athlete’s Foot, and stock compensation expense.
      Excluding these acquisitions, SG&A expenses would have decreased $800,000.
      The primary drivers of the increase relate to personnel related costs at UCC
      and
      The Athlete’s Foot which we did not own in 2005. The personnel hired through the
      UCC acquisition comprise our new executive and management team, and the majority
      of our corporate staff.




29





*Stock
      Compensation Expense*





We
      adopted SFAS No. 123R,*“Share-Based Payment”* in the first quarter of
      2006. Accordingly, we began to recognize compensation expense over the service
      period for the fair value of all equity based award grants issued after January
      1, 2006, as well as expense attributable to the remaining service period for
      all
      prior grants that had not fully vested by that date. Stock based compensation
      expense is included in Corporate SG&A expenses.





Stock
      based compensation expense of $4.2 million in 2007 reflects the expense
      associated with option and warrant grants. The increase results from the
      granting of a total of approximately 7.1 million options and warrants in 2007
      and 2006. Substantially all of the options granted in 2006 were granted from
      June through the end of the year, so a significant reason for the increase
      in
      stock compensation expense in 2007 over 2006 was because the options were
      outstanding for a full year in 2007 and only a portion of the year in 2006.
      These options and warrants were issued to provide long-term incentive packages
      to new key executives and other senior managers that we hired in 2007 and 2006,
      including individuals who were employed by UCC, The Athlete’s Foot, Bill Blass,
      Marble Slab, and Waverly prior to their acquisition by us and warrants to the
      sellers of The Athlete’s Foot, Bill Blass, Maggie Moo’s, Waverly, Pretzel Time
      and Pretzelmaker. Stock compensation expense of $1.6 million and $76,000 in
      2006
      and 2005, respectively, represents the cost associated with the grants of
      restricted stock and increased approximately $1.5 million from 2005 to 2006.
      In
      2005, stock compensation expense was recorded using the intrinsic-value method. *See*  *Note
      2* to
      our *Consolidated Financial Statements* .




*Professional
      Fees*





Corporate
      professional fees of $1.6 million, $1.1 million and $1.4 million in 2007, 2006
      and 2005, respectively, represent the costs of outside professionals, primarily
      related to **** legal
      expenses associated with our public reporting, compliance, and corporate finance
      activities, and accounting fees related to auditing and tax services.
      Professional fees related to our brands of $1.6 million in 2007, include
      accounting fees and legal expenses associated with franchising activities,
      trademark and copyright maintenance. The increase in professional fees reflects
      the increased costs of compliance and auditing associated with the growth of
      the
      Company and the integration of acquisitions.





*Depreciation
      and Amortization*





Depreciation
      expenses arise from property and equipment purchased for use in our operations.
      Amortization costs arise from intangible assets acquired in
      acquisitions.





Depreciation
      and amortization increased $1.1 million, or 243%, to $1.6 million in 2007 from
      $471,000 in 2006. The increase primarily reflects the amortization of intangible
      assets related to a non-compete agreement with our chief executive officer,
      and
      amortization of intangibles of franchise agreements, license agreements, and
      master development agreements related to the TAF, Bill Blass, Marble Slab,
      MaggieMoo’s, Waverly, and Pretzel Time and Pretzelmaker
      acquisitions.




*Interest
      Income*





Interest
      income decreased $537,000, or 20%, to $2.1 million in 2007 from $2.6 million
      in
      2006, which primarily reflects the change in our cash balances. Interest income
      increased $1.1 million or 78% to $2.6 million in 2006 from $1.5 million in
      2005.
      The amounts recognized in each year reflect interest earned on our cash
      balances. In part of 2006 and in all of 2005, most of our available cash was
      invested in MBS, and earnings on such investments are reported as part of the
      results of discontinued operations.





*Interest
      Expense*





Interest
      expense increased $5.1 million to $5.1 million in 2007 reflecting interest
      expense incurred in connection with our borrowings under the BTMU Credit
      Facility ( *See
      Note 8* to
      our *Consolidated Financial Statements* ),
      and
      $186,000 of imputed interest related to a long-term agreement liability
      assumed with The Athlete’s Foot acquisition, which expires in 2028. We had no
      outstanding borrowings under the BTMU Credit Facility prior to 2007.





*Other
      Income (Expense)*





Other
      income of $318,000 for the 2007 decreased $382,000 from 2006, and primarily
      reflects loan servicing revenue. The Company acquired UCC in June 2006, and
      UCC
      services a portfolio of loans. As a result, the Company’s operating results for
      the second half of 2006 and all of 2007 include loan servicing revenue derived
      from loans initiated and/or serviced by UCC. We expect the loan servicing
      activity to continue to decrease throughout 2008 and beyond as the underlying
      loans are repaid. Other income in 2007 also includes recoveries of $49,000
      received from a venture capital investment, which had been written off in 2002.
      We record these recoveries as we receive them as the extent of future payments,
      if any, cannot be readily determined. Other income of $700,000 in 2006 primarily
      reflects $525,000 of payments received from a venture capital investment, which
      we wrote-off in 2002. We also recorded $148,000 of loan servicing revenue
      received by UCC in 2006. We expect the loan servicing activity to decrease
      over
      time as the underlying loans are paid-off.




30





*Minority
      Interest*





Minority
      interest expense of $269,000 for 2007 represents approximately 10% of the after
      tax net income attributable to the Bill Blass business which is owned 90% by
      NexCen Acquisition Corp. and 10% by Designer Equity Holdings, LLC, an entity
      controlled by a licensee of the Bill Blass trademark. We acquired Bill Blass
      in
      2007.




*Income
      Taxes*




We
        recorded a current income tax expense in 2007 of $236,000. This reflects
        approximately $231,000 of foreign taxes withheld on franchise royalties received
        from franchisees located outside of the United States in accordance with
        tax
        treaties between the U.S. and the respective foreign countries, $43,000 of
        state
        income tax expense and a credit for a federal tax refund of $38,000. The
        combined federal and state deferred tax expense of $3.1 million for 2007
        results
        primarily from timing differences relating to the amortization of trademarks.
        Trademarks are amortized over fifteen years for tax purposes. However, under
        U.S. generally accepted accounting principles (GAAP), there is no amortization
        for book purposes. The Company is not permitted to offset this deferred tax
        expense against its deferred tax assets that it accumulated under tax loss
        carry
        forwards because the deferred tax expense relates to an indefinite-lived
        asset
        that is not anticipated to reverse in the same period. The Company expects
        that
        it will continue to record a significant deferred tax expense in future years
        but that cash paid for income taxes for 2007 and in future years will be
        lower
        due to the amortization of trademarks for tax purposes, interest expense
        and the
        availability of net operating loss carry forwards. The Company anticipates
        that
        it will only pay foreign taxes withheld at the source, which are based on
        gross
        revenue, and certain state and local income taxes. Current tax expense reflects
        the Company’s expectation of its cash tax obligations for 2007.





Under
      GAAP, we are not able to offset our deferred tax liabilities relating to
      amortization differences with our deferred tax assets attributable primarily
      to
      our tax loss carry forwards until such time as we have satisfied GAAP
      requirements that there be objective evidence of our ability to generate
      sustainable taxable income from our operations. As we have a history of losses,
      we have not satisfied this requirement as of December 31, 2007. Even if we
      are
      able to report net income in 2008 and beyond, we may not satisfy this accounting
      requirement over the next several quarters (and perhaps longer) since continued
      amortization of trademarks in future periods may generate additional tax losses.
      As a result, we are likely to continue to record a deferred tax expense in
      our
      statement of operations for 2008. This income tax expense is not a cash expense,
      but is required to be recorded under GAAP. We are able to use our accumulated
      net tax loss carry forwards in preparing our tax returns to reduce or eliminate
      our current cash tax obligations. When we are permitted, under GAAP, to offset
      the deferred tax liability against the deferred tax asset resulting from our
      accumulated tax loss carry forwards, we will do so.




As
      discussed in *Item
      1* . *Business* under
      the caption “Tax Loss Carry Forwards,” our net tax loss carry forwards will not
      offset state, local and foreign tax liabilities, and we also will remain subject
      to alternative minimum taxes, as discussed in *Item
      1A. Risk Factors* under
      the caption “Risks of Our Tax Loss Carry Forwards- We expect to be subject in
      the alternative minimum tax and our net loss carry forwards would not offset
      this tax in its entirety.” Our state, local and foreign tax position is
      discussed in *Note
      9* to
      our *Consolidated Financial Statements* ,
      and the
      $236,000 expense for 2007 reflects primarily the net amount of current state,
      local and foreign taxes incurred in 2007. Our continuing operations were not
      subject to any alternative minimum tax in 2007. If our continuing operations
      generate taxable income in the future, we expect to record current tax
      liabilities for state, local, foreign and federal alternative minimum taxes,
      as
      our net tax loss carry forwards will not offset such tax liabilities in their
      entirety. We cannot yet estimate the effective tax rate that would result from
      these taxes, though we expect them to result in a modest overall effective
      tax
      rate.





Our
      income (loss) from discontinued operations included no net tax expense in 2005
      or 2007, as there was a net loss in those years, and a net tax expense of
      $64,000 in 2006, when there was net income. This net tax expense was
      attributable to the application of the alternative minimum tax.





*Discontinued
      Operations*





During
      2007, net losses from discontinued operations of $(586,000), or $0.01 per share,
      reflects settlement costs, legal fees and other costs of $508,000 incurred
      in
      connection with litigation related to the Transportation business sale,
      partially offset by the reversal of $647,000 in sales tax liabilities where
      the
      statute of limitations has expired and includes tax settlements with three
      states related to income tax and voluntary disclosure events, related to our
      former mobile and wireless communications business. In 2007, the Company
      recorded settlements in the amount of $600,000 relating to the Transportation
      business sale and $125,000 relating to the UCC litigation, both of which are
      discussed in *Note
      13* to
      our *Consolidated Financial Statements.*




31





FINANCIAL
      CONDITION





During
      2007 our total assets increased by $201 million, while our total liabilities
      increased by $152 million. These changes reflect the additional trademarks
      and
      goodwill acquired in the acquisitions of Bill Blass, MaggieMoo’s, Marble Slab,
      Waverly, Pretzel Time and Pretzelmaker Brands, offset by a decrease in cash
      which was utilized for the acquisitions. In addition, we borrowed $110.8 in
      2007
      secured by the assets of The Athlete’s Foot, Bill Blass, Waverly, MaggieMoo’s,
      Marble Slab, Pretzel Time and Pretzelmaker under our BTMU Credit Facility,
      which
      is described in *Note
      8* to
      our *Condensed Consolidated Financial Statements.* These
      borrowings increased both our cash on hand and our indebtedness.





*Liquidity
      and Capital Resources*





Liquidity
      refers to our ability to meet financial obligations that arise during the normal
      course of business. Sources of liquidity can include cash generated by
      operations, available borrowings, and proceeds from the sale of securities
      or
      assets. Our operations have not been profitable historically, and thus they
      have
      consumed, rather than generated, cash. One of our key objectives is to achieve
      profitability, so that our operations will enhance our liquidity and increase
      the amount of cash we have available for investment in the growth and
      development of our business.





Our
      business model does not involve significant capital asset investment (other
      than
      acquisitions of additional IP assets and IP-centric businesses.) Accordingly,
      we
      do not expect to be required to fund any material capital expenditures outside
      of our acquisition program.





As
      of
      December 31, 2007, we had available cash on hand of approximately $46
      million. We used approximately $22 million of this balance in connection with
      the acquisition of Great American Cookies in January 2008. We were able to
      increase our BTMU Credit Facility to $181 million (as discussed below) to
      finance the remainder of the acquisition costs. We anticipate that cash on
      hand
      and cash generated from operations will provide us with sufficient liquidity
      to
      meet the expenses of operations, including our debt service obligations, for
      at
      least the next twelve months. As discussed below, additional sources of capital
      will be needed to fund additional acquisitions, even taking into account
      anticipated cash flows from operations.





Although
      we had more than $83 million of cash on hand as of December 31, 2006, we
      concluded that securing an additional source of liquidity was important to
      ensure our continued ability to fund acquisitions and the expansion of our
      business. Accordingly, on March 12, 2007 we entered into a $150 million bank
      credit facility with BTMU, the terms of which are discussed in *Note
      8* to
      our *Consolidated Financial Statements* .
      As
      noted above, we increased this facility to $181 million in January 2008.





We
      expect
      that additional sources of capital will be needed to fund future acquisitions.
      Such additional capital may be available through additional bank borrowings
      and
      market sales or private placements of debt or equity securities. We cannot
      assure that any such additional borrowings or sales of securities will be
      available to us (should they be needed in the future) on favorable terms and
      conditions or at all. Such sources of additional liquidity are subject to many
      risks and uncertainties that are not within our control, such as changes in
      the
      condition of the capital markets and prevailing bank loan terms, as well as
      the
      trading price of our common stock. See *Item
      1A. Risk Factors* under
      the captions “Risk of Our Acquisition Strategy -- The market price of our common
      stock has been, and may continue to be, volatile, which could reduce the market
      price of our common stock and, among other things, make it more expensive for
      us
      to complete acquisitions using our stock as consideration” and “Risk of Our
      Business -- Our ability to grow through the acquisition of additional IP assets
      and business will depend on the availability of capital to complete
      acquisitions” for a discussion of risks relating to our ability to fund
      additional acquisitions.”





The
      following table reflects use of net cash for operations, investing, and
      financing activities:




**(IN
                  THOUSANDS)**
              
              **2007**
              
              **2006**
              
              **2005**Net
                  cash (used in) provided by operating activities
              
              $
              (4,149
              )
              $
              (890
              )
              $
              2,128Net
                  cash (used in) provided by investing activities
              
              
              (146,106
              )
              
              217,609
              
              
              (195,708
              )Net
                  cash provided by (used in) financing activities
              
              
              113,064
              
              
              (134,275
              )
              
              133,949Net
                  (decrease) increase in cash and cash equivalents
              
              $
              (37,191
              )
              $
              82,444
              
              $
              (59,631
              )





32




Net
      cash
      used in operating activities was $4.1 million in 2007, compared to net cash
      used
      in operating activities of $890,000 and net cash provided by operating
      activities of $2.1 million for 2006 and 2005, respectively. The cash used in
      operating activities in 2007 is primarily a result of the increase in accounts
      receivable and prepaid expenses and other assets reflecting growth in the
      businesses we acquired. The cash used in and provided by operating activities
      in
      2006 and 2005 reflected the results of our discontinued operations and our
      corporate expenses (primarily in 2006 and entirely in 2005). In 2006, we owned
      UCC for six months and The Athlete’s Foot for seven weeks.





Net
      cash
      used in investing activities was $146 million in 2007, primarily results from
      the acquisitions of Bill Blass, Marble Slab, MaggieMoo’s, Waverly, Pretzel Time,
      and Pretzelmaker. Net cash provided by investing activities of $218 million
      for
      2006, primarily reflecting $254 million of MBS sales and principal repayments,
      partially offset by $43.2 million of cash used in the acquisitions of UCC and
      The Athlete’s Foot. Net cash used in investing activities of $196 million for
      2005, primarily related to $387 million used to purchase MBS, partially offset
      by $85 million of principal repayments on our MBS and proceeds from the sale
      of
      $107 million of MBS.





Net
      cash
      provided by financing activities in 2007 of $113 million primarily reflects
      borrowing on the BTMU Credit Facilit *y* which is
      discussed in *Note
      8* to
      our *Consolidated Financial Statements* ,
      as well
      as the funds received by the Company from the sale of minority interest in
      Bill
      Blass Jeans, LLC as discussed in *Note
      18* to
      our *Consolidated Financial Statements.* Net cash
      used in financing activities in 2006 of $134 million primarily reflects the
      repayment of short-term repurchase agreements that were used to fund MBS
      investments. Net cash provided by financing activities in 2005 of $134 million
      which primarily related to the funding we received through repurchase agreements
      to purchase MBS.





*Contractual
      Obligations*





The
      following table reflects our contractual commitments, including our future
      minimum lease payments as of December 31, 2007:




Payments
                due by periodLess
                than
            
            1-3
            
            3-5
            
            More
                thanTotal
            
            1
                year
            
            years
            
            years
            
            5
                yearsContractual
                Obligations(in
                thousands)Long-Term
                Debt
            
            $
            109,578
            
            $
            6,340
            
            $
            30,017
            
            $
            65,856
            
            $
            7,365Capital
                Lease Obligations
            
            
            48
            
            
            27
            
            
            21
            
            
            -
            
            
            -Operating
                Leases
            
            
            16,303
            
            
            1,821
            
            
            3,679
            
            
            3,731
            
            
            7,072Purchase
                Obligations
            
            
            5,627
            
            
            5,627
            
            
            -
            
            
            -
            
            
            -Other
                Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under
                GAAP
            
            
            3,815
            
            
            1,562
            
            
            869
            
            
            49
            
            
            1,335Total
            
            $
            135,371
            
            $
            15,377
            
            $
            34,586
            
            $
            69,636
            
            $
            15,772




Long-Term
      Debt relates to the outstanding borrowings under the BTMU Credit Facility
      ( *see
      Note 8* to
      our *Consolidated Financial Statements* ).
      Operating lease obligations includes primarily our real estate leases for our
      corporate headquarters, our Bill Blass and Waverly showrooms located in New
      York
      City and our Norcross, Georgia franchise management facility. We also remain
      obligated under certain leases for facilities we no longer use in Houston,
      Texas
      and Marlborough, Massachusetts (both of which we sub-lease). Purchase
      obligations represents consideration payable related to the acquisition of
      Marble Slab, which amount will be paid from restricted cash on hand and
      consideration payable pursuant to an earn-out provision with respect to the
      acquisition of MaggieMoo’s in the
      amount of
      $526,581. Other long-term liabilities include: (a) the expected net present
      value of guaranteed lease obligations we assumed in connection with our
      acquisition of MaggieMoo’s, related to the leases of franchisees that we
      guarantee, and (b) the net present value of a long- term compensation
      arrangement with a former franchisee of TAF. We have not included contracts
      for
      maintenance support on hardware or software that we own because we generally
      pay
      in advance for these services and have the option of choosing whether or not
      to
      renew these services each year.





*Off
      Balance Sheet Arrangements*





Athletes
      Foot Marketing Support Fund, LLC (“MSF”), is an entity which is funded by the
      domestic franchisees of The Athletes Foot to provide domestic marketing,
      advertising and promotional services on behalf of the franchisees. On an as
      needed basis, the Company advances funds to MSF under a loan agreement. The
      terms of the loan agreement include a borrowing rate of prime plus 2%, and
      repayment by MSF with no penalty, at any time. As of December 31, 2007 and
      2006,
      the Company had receivable balances of $1.3 million and $350,000 from MSF,
      respectively. The company does not consolidate this fund under FASB
      interpretation No. 46(R) –*“Variable
      Interest
      Entities**”*.




33




**ITEM
              7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





The
      Company is exposed to certain market risks, which exist as part of our ongoing
      business operations. The following discussion about our market risk disclosures
      involves forward-looking statements. Actual results could differ materially
      from
      those projected in these forward-looking statements.





*Interest
      Rate Risk*





The
      Company is exposed to changes in interest rates primarily as a result of its
      borrowing and investing activities used to maintain liquidity and fund business
      operations. The nature and amount of the Company's long-term and short-term
      debt
      can be expected to vary as a result of future business requirements, market
      conditions and other factors. As of December 31, 2007, the Company had
      outstanding borrowings of $110 million under its BTMU Credit Facility, secured
      by the assets of The Athlete’s Foot, Bill Blass, MaggieMoo’s, Marble Slab,
      Waverly, Pretzel Time and Pretzelmaker brands. The interest rate on these
      borrowings is based on three month LIBOR rates plus a margin, which can increase
      or decrease depending on our debt service coverage ratio. The Company is subject
      to interest rate risk from fluctuations in the LIBOR rate. Although LIBOR rates
      fluctuate on a daily basis, our debt resets every 90 days. As of December 31,
      2006, we had no outstanding borrowings or other debt. If our bank requests
      it,
      we will be obligated to hedge the interest rate exposure on our outstanding
      loans.





Because
      our BTMU Credit Facility is a variable rate debt, interest rate changes
      generally do not affect the market value of such debt but do impact the amount
      of our interest payments and, therefore, our future earnings and cash flows,
      assuming other factors are held constant. Holding other variables constant,
      including levels of indebtedness and our debt service coverage ratio, a one
      percentage point increase in interest rates on our variable debt would have
      had
      an estimated impact on pre-tax earnings and cash flows for the next year of
      approximately $1.1 million. **




We
      invest
      our cash and cash equivalents in investment funds which normally conform to
      the
      following investment strategies: investing at least 80% of assets in U.S.
      Government securities and repurchase agreements for those securities, investing
      in U.S. Government securities issued by entities that are chartered or sponsored
      by Congress but whose securities are neither issued nor guaranteed by the U.S.
      Treasury, maintaining a dollar-weighted average maturity at sixty days or less.
      These investments are generally subject to the risks of changes in market
      interest rates and the impact of any declines in the credit quality of an issuer
      or a provider of credit support. A 10% change in interest rates would not
      materially impact the returns on our excess cash balances. In general, the
      Company accepts a slightly lower rate of interest on its investments in exchange
      for a higher credit rating from the issuer or the guarantor of the securities
      in
      which the Company invests. Our primary objective in investing cash balances
      is
      to preserve principal and maintain liquidity, rather than to seek enhanced
      investment returns.





*Foreign
      Exchange Rate Risk*





The
      Company is exposed to fluctuations in foreign currency due to its international
      franchisees. Several of the brands we own have franchisees or licensees located
      in countries that transact business in currencies other than the U.S. dollar.
      The foreign currency is translated into U.S dollars to determine the amount
      of
      royalties due to the Company. Although we have franchisees and licensees
      throughout the world for our various brands, our primary foreign currency
      exchange exposure involves the Australian dollar, as approximately one-third
      of
      our international stores for The Athlete’s Foot as of December 31, 2007, are
      located in Australia. However, because more than two-thirds of The Athlete’s
      Foot revenue is generated from domestic franchisees, and because most of the
      Company’s other franchisees and licensees are concentrated in the United States,
      the overall exposure to foreign exchange gains and losses is not expected to
      have a material impact on the consolidated results of operations.




34


**ITEM
              **8.****
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**





TABLE
      OF
      CONTENTS





The
      following financial statements required by this item are included in the Report
      beginning on page 35.





Report
                of Independent Registered Public Accounting Firm
            
            36Consolidated
                Balance Sheets as of December 31, 2007 and 2006
            
            37Consolidated
                Statements of Operations for the years ended December 31, 2007, 2006,
                and 2005
            
            38Consolidated
                Statements of Stockholders’ Equity for the years ended December 31,
                2007, 2006 and 2005
            
            39Consolidated
                Statements of Cash Flows for the years ended December 31, 2007, 2006
                and 2005
            
            40Notes
                to Consolidated Financial Statements
            
            41




35









**Report
      of Independent Registered Public Accounting Firm**





The
      Board
      of Directors and Stockholders


NexCen
      Brands, Inc.:




We
      have
      audited the accompanying consolidated balance sheets of NexCen Brands, Inc.
      and
      subsidiaries (the Company) as of December 31, 2007 and 2006, and the related
      consolidated statements of operations, stockholders’ equity, and cash flows for
      each of the years in the three-year period ended December 31, 2007. These
      consolidated financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of NexCen Brands, Inc. and
      subsidiaries as of December 31, 2007 and 2006, and the results of their
      operations and their cash flows for each of the years in the three-year period
      ended December 31, 2007, in conformity with U.S. generally accepted accounting
      principles.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the Company’s internal control over financial
      reporting as of December 31, 2007, based on criteria established in *Internal Control - Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
      and
      our report dated March 20, 2008 expressed an adverse opinion on the
      effectiveness of the Company’s internal control over financial reporting.











New
      York,
      New York


March
      20,
      2008










36





**NEXCEN
      BRANDS, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


(IN
      THOUSANDS, EXCEPT SHARE DATA)




**DECEMBER
                  31,****2007**
              
              **2006**ASSETSCash
                  and cash equivalents
              
              $
              46,345
              
              $
              83,536Trade
                  receivables, net of allowances of $1,173 and $530
              
              
              7,098
              
              
              2,042Other
                  receivables
              
              
              2,685
              
              
              511Restricted
                  cash
              
              
              5,274
              
              
              —Prepaid
                  expenses and other current assets
              
              
              3,871
              
              
              2,210Total
                  current assets
              
              
              65,273
              
              
              88,299Property
                  and equipment, net
              
              
              4,200
              
              
              389Goodwill
              
              
              67,224
              
              
              15,607Trademarks
              
              
              210,824
              
              
              49,000Other
                  intangible assets, net of amortization
              
              
              7,546
              
              
              3,792Deferred
                  financing costs, net and other assets
              
              
              2,484
              
              
              —Restricted
                  cash
              
              
              1,656
              
              
              1,298Total
                  Assets
              
              $
              359,207
              
              $
              158,385LIABILITIES
                  AND STOCKHOLDERS’ EQUITYAccounts
                  payable and accrued expenses
              
              $
              7,871
              
              $
              3,235Repurchase
                  agreements and sales tax liabilities - discontinued
                  operations
              
              
              —
              
              
              1,333Restructuring
                  accruals
              
              
              13
              
              
              145Deferred
                  revenue
              
              
              3,976
              
              
              40Current
                  portion of long-term debt
              
              
              6,340
              
              
              —Acquisition
                  related liabilities
              
              
              7,173
              
              
              4,484Total
                  current liabilities
              
              
              25,373
              
              
              9,237Long-term
                  debt
              
              
              103,238
              
              
              —Deferred
                  tax liability
              
              
              27,719
              
              
              218Acquisition
                  related liabilities
              
              
              3,785
              
              
              —Other
                  long-term liabilities
              
              
              3,239
              
              
              2,317Total
                  liabilities
              
              
              163,354
              
              
              11,772Commitments
                  and ContingenciesMinority
                  Interest
              
              
              3,040
              
              
              —Stockholders’
                  equity:Preferred
                  stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued
                  and
                  outstanding as of December 31, 2007 and 2006, respectively
              
              
              —
              
              
              —Common
                  stock, $0.01 par value; 1,000,000,000 shares authorized; 55,517,475
                  and
                  47,966,085 shares issued and outstanding as of December 31, 2007
                  and 2006,
                  respectively
              
              
              557
              
              
              481Additional
                  paid-in capital
              
              
              2,667,920
              
              
              2,615,742Treasury
                  stock
              
              
              (1,757
              )
              
              (352
              )Accumulated
                  deficit
              
              
              (2,473,907
              )
              
              (2,469,258
              )Total
                  stockholders’ equity
              
              
              192,813
              
              
              146,613Total
                  liabilities and stockholders’ equity
              
              $
              359,207
              
              $
              158,385




See
      accompanying notes to consolidated financial statements.




37




**NEXCEN
      BRANDS, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(IN
      THOUSANDS, EXCEPT PER SHARE DATA)




**YEAR
                ENDED DECEMBER 31,****2007**
            
            **2006**
            
            **2005***Revenues:*Royalty
                revenues
            
            $
            15,289
            
            $
            1,175
            
            $
            —Licensing
                revenues
            
            
            15,542
            
            
            —
            
            
            —Franchise
                fee revenues
            
            
            3,464
            
            
            749
            
            
            —Total
                revenues
            
            
            34,295
            
            
            1,924
            
            
            —*Operating
                expenses:*Selling,
                general and administrative expenses:Brands
            
            
            (14,352
            )
            
            (453
            )
            
            —Corporate
            
            
            (12,977
            )
            
            (7,261
            )
            
            (3,645
            )Professional
                fees:Brands
            
            
            (1,605
            )
            
            (115
            )
            
            —Corporate
            
            
            (1,552
            )
            
            (1,034
            )
            
            (1,444
            )Depreciation
                and amortization
            
            
            (1,619
            )
            
            (471
            )
            
            (159
            )Restructuring
                charges
            
            
            —
            
            
            (1,079
            )
            
            7Total
                operating expenses
            
            
            (32,105
            )
            
            (10,413
            )
            
            (5,241
            )Operating
                income (loss)
            
            
            2,190
            
            
            (8,489
            )
            
            (5,241
            )*Non-operating
                income (expense):*Interest
                income
            
            
            2,100
            
            
            2,637
            
            
            1,478Interest
                expense
            
            
            (5,099
            )
            
            —
            
            
            —Other
                income , net
            
            
            318
            
            
            700
            
            
            231Minority
                interest
            
            
            (269
            )
            
            —
            
            
            —Investment
                loss, net
            
            
            —
            
            
            —
            
            
            (19
            )Total
                non-operating income (expense)
            
            
            (2,950
            )
            
            3,337
            
            
            1,690Loss
                from continuing operations before income taxes
            
            
            (760
            )
            
            (5,152
            )
            
            (3,551
            )Income
                taxes:Current
            
            
            (236
            )
            
            (81
            )
            
            —Deferred
            
            
            (3,067
            )
            
            —
            
            
            —Loss
                from continuing operations
            
            
            (4,063
            )
            
            (5,233
            )
            
            (3,551
            )Discontinued
                operations:Income
                (loss) from discontinued operations, net of tax expense of $64 for
                2006
            
            
            (586
            )
            
            2,358
            
            
            225Gain
                (loss) on sale of discontinued operations
            
            
            —
            
            
            755
            
            
            (1,194
            )Net
                loss
            
            $
            (4,649
            )
            $
            (2,120
            )
            $
            (4,520
            )Loss
                per share (basic and diluted) from continuing operations
            
            $
            (0.08
            )
            $
            (0.11
            )
            $
            (0.08
            )Income
                (loss) per share (basic and diluted) from discontinued
                operations
            
            
            (0.01
            )
            
            0.07
            
            
            (0.02
            )Net
                loss per share - basic and diluted
            
            $
            (0.09
            )
            $
            (0.04
            )
            $
            (0.10
            )Weighted
                average shares outstanding - basic and diluted
            
            
            51,889
            
            
            45,636
            
            
            44,006





See
      accompanying notes to consolidated financial statements.




38


**NEXCEN
      BRANDS, INC.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


(IN
      THOUSANDS)





**UNREALIZED****ADDITIONAL**
            
            
            
            
            
            **GAIN****PREFERRED**
            
            **COMMON**
            
            **PAID-IN**
            
            **ACCUMULATED**
            
            **TREASURY**
            
            **(LOSS)
                ON****STOCK**
            
            **STOCK**
            
            **CAPITAL**
            
            **DEFICIT**
            
            **STOCK**
            
            **INVESTMENT**
            
            **TOTAL**Balance
                as of December 31, 2004
            
            $
            -
            
            $
            440
            
            $
            2,592,977
            
            $
            (2,462,611
            )
            $
            -
            
            $
            (216
            )
            $
            130,590Exercise
                of options and warrants
            
            
            -
            
            
            -
            
            
            32
            
            
            (7
            )
            
            -
            
            
            -
            
            
            25Stock
                based compensation
            
            
            -
            
            
            -
            
            
            76
            
            
            -
            
            
            -
            
            
            -
            
            
            76Unrealized
                gain on investments available for sale
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            216
            
            
            216Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,520
            )
            
            -
            
            
            -
            
            
            (4,520
            )Balance
                as of December 31, 2005
            
            
            -
            
            
            440
            
            
            2,593,085
            
            
            (2,467,138
            )
            
            -
            
            
            -
            
            
            126,387Exercise
                of options and warrants
            
            
            -
            
            
            -
            
            
            1
            
            
            -
            
            
            -
            
            
            -
            
            
            1Stock
                based compensation
            
            
            -
            
            
            -
            
            
            3,177
            
            
            -
            
            
            -
            
            
            -
            
            
            3,177Common
                stock issued
            
            
            -
            
            
            41
            
            
            19,479
            
            
            -
            
            
            -
            
            
            -
            
            
            19,520Common
                stock repurchased
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (352
            )
            
            -
            
            
            (352
            )Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,120
            )
            
            -
            
            
            -
            
            
            (2,120
            )Balance
                as of December 31, 2006
            
            
            -
            
            
            481
            
            
            2,615,742
            
            
            (2,469,258
            )
            
            (352
            )
            
            -
            
            
            146,613Surrender
                of shares from cashless exercise of warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,405
            )
            
            -
            
            
            (1,405
            )Exercise
                of options and warrants
            
            
            -
            
            
            16
            
            
            4,702
            
            
            -
            
            
            -
            
            
            -
            
            
            4,718Stock
                based compensation
            
            
            -
            
            
            -
            
            
            4,335
            
            
            -
            
            
            -
            
            
            -
            
            
            4,335Common
                stock issued
            
            
            -
            
            
            60
            
            
            43,141
            
            
            -
            
            
            -
            
            
            -
            
            
            43,201Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,649
            )
            
            -
            
            
            -
            
            
            (4,649
            )Balance
                as of December 31, 2007
            
            $
            -
            
            $
            557
            
            $
            2,667,920
            
            $
            (2,473,907
            )
            $
            (1,757
            )
            $
            -
            
            $
            192,813




See
      accompanying notes to consolidated financial statements.




39


**NEXCEN
      BRANDS, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(IN
      THOUSANDS)




**2007**
              
              **2006**
              
              **2005****Revised**Cash
                  flows from operating activities:Net
                  loss from continuing operations
              
              $
              (4,063
              )
              $
              (5,233
              )
              $
              (3,551
              )Adjustments
                  to reconcile net loss from continuing operations to net cash (used
                  in)
                  provided by operating activities:Depreciation
                  and amortization
              
              
              1,619
              
              
              471
              
              
              159Deferred
                  income taxes
              
              
              3,067
              
              
              —
              
              
              —Stock
                  based compensation
              
              
              4,215
              
              
              1,632
              
              
              76Minority
                  interest
              
              
              269
              
              
              —
              
              
              —Amortization
                  of loan fees
              
              
              309
              
              
              —
              
              
              —Realized
                  losses on long term investments
              
              
              —
              
              
              —
              
              
              19Amortization
                  of mortgage premiums
              
              
              —
              
              
              —
              
              
              670Changes
                  in assets and liabilities, net of acquired assets and
                  liabilities:(Increase)
                  in trade receivables, net of allowances
              
              
              (4,719
              )
              
              (791
              )
              
              —(Increase)
                  decrease in prepaid expenses and other assets
              
              
              (1,333
              )
              
              (1,096
              )
              
              3,112(Increase)
                  decrease in interest and other receivables
              
              
              (1,039
              )
              
              663
              
              
              (818
              )Increase
                  (decrease) in accounts payable and accrued expenses
              
              
              219
              
              
              (249
              )
              
              903Increase
                  (decrease) in restructuring accruals and other liabilities
              
              
              —
              
              
              314
              
              
              (1,202
              )(Decrease)
                  in deferred revenue
              
              
              (1,478
              )
              
              —
              
              
              —Cash
                  (used in) provided by discontinued operations for operating
                  activities
              
              
              (1,215
              )
              
              3,399
              
              
              2,760Net
                  cash (used in) provided by operating activities
              
              
              (4,149
              )
              
              (890
              )
              
              2,128Cash
                  flows from investing activities:(Increase)
                  decrease in restricted cash
              
              
              (5,632
              )
              
              7,335
              
              
              199Purchases
                  of property and equipment
              
              
              (3,905
              )
              
              (151
              )
              
              (47
              )Acquisitions,
                  net of cash acquired
              
              
              (136,569
              )
              
              (43,189
              )
              
              —Sales
                  and maturities of investments available for sale
              
              
              —
              
              
              —
              
              
              45Cash
                  provided by (used in) discontinued operations in investing
                  activities
              
              
              —
              
              
              253,614
              
              
              (195,905
              )Net
                  cash (used in) provided by investing activities
              
              
              (146,106
              )
              
              217,609
              
              
              (195,708
              )Cash
                  flows from financing activities:Proceeds
                  from sale of minority interest
              
              
              2,771
              
              
              —
              
              
              —Proceeds
                  from debt borrowings
              
              
              110,801
              
              
              —
              
              
              —Financing
                  costs
              
              
              (2,598
              )
              
              —
              
              
              —Principal
                  payments on debt
              
              
              (1,223
              )
              
              —
              
              
              —Exercise
                  of options and warrants
              
              
              3,313
              
              
              1
              
              
              25Purchase
                  of treasury stock
              
              
              —
              
              
              (352
              )
              
              —Cash
                  (used in) provided by discontinued operations in financing
                  activities
              
              
              —
              
              
              (133,924
              )
              
              133,924Net
                  cash provided by (used in) financing activities
              
              
              113,064
              
              
              (134,275
              )
              
              133,949Net
                  (decrease) increase in cash and cash equivalents
              
              
              (37,191
              )
              
              82,444
              
              
              (59,631
              )Cash
                  and cash equivalents, at beginning of period
              
              
              83,536
              
              
              1,092
              
              
              60,723Cash
                  and cash equivalents, at end of period
              
              $
              46,345
              
              $
              83,536
              
              $
              1,092




See
      accompanying notes to consolidated financial statements




40


**NEXCEN
      BRANDS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**(1)**
              **ORGANIZATION
                  AND DESCRIPTION OF THE
                  BUSINESS**





NexCen
      Brands, Inc. (“NexCen” or the “Company”) is a vertically integrated global brand
      management and franchising company. Our
      business is focused on managing, developing and acquiring intellectual property,
      which we refer to as IP, and IP-centric businesses operating in
      three
      segments: Consumer Branded Products, Retail Franchising and Quick Service
      Restaurant Franchising (which we refer to as “QSR” Franchising). We generate
      revenue from licensing, franchising and other commercial arrangements with
      third
      parties who want to use our brands and associated IP, including trademarks,
      trade names, copyrights, franchise rights, patents, trade secrets, know-how
      and
      other similar, valuable property. These third parties pay us licensing,
      franchising and other contractual fees and royalties for the right to use our
      IP
      on either an exclusive or non-exclusive basis. Our contractual arrangements
      may
      apply to a specific demographic product market, a specific geographic market
      or
      to multiple demographics and/or markets.




The
      licensing, franchising and other contractual fees paid to us include a mixture
      of upfront payments, required periodic minimum payments (regardless of sales
      volumes), and volume-dependent periodic royalties (based upon the number or
      dollar amount of branded products sold). Accordingly, our revenues reflect
      both
      recurring and non-recurring payment streams.




We
      commenced our current business in June 2006, when we acquired UCC Capital
      Corporation, which we refer to as UCC. Upon the closing of that acquisition,
      Robert W. D’Loren, who was the president and chief executive officer of UCC,
      became our president and chief executive officer and a member of our Board
      of
      Directors.




In
      November 2006, we entered the retail franchising business by acquiring Athlete’s
      Foot Brands, LLC, along with an affiliated company and certain related assets.
      The Athlete’s Foot is one of the largest athletic footwear and apparel
      franchisors with approximately 640 franchised units in over 40
      countries.




In
      February 2007, we entered the consumer branded products business by acquiring
      Bill Blass Holding Co., Inc. and two affiliated businesses. The Bill Blass
      label
      represents timeless, modern American style.




Also
      in
      February 2007, we acquired MaggieMoo’s International, LLC (“MaggieMoo’s”) and
      the assets of Marble Slab Creamery, Inc. (“Marble Slab”), two well known and
      established brands within the hand-mixed, premium ice cream category, having
      a
      combined total of approximately 580 franchised units. With these acquisitions
      NexCen entered the QSR franchising business.




In
      May
      2007, we expanded our consumer branded products business by acquiring all
      of
      the intellectual property and license contracts related to the Waverly brand.  Waverly
      is a premier lifestyle brand with an array of licensed home furnishings
      products, including fabrics, wallpapers, paint, bedding, window treatments,
      and
      decorative accessories.




In
      August
      2007, we acquired substantially all of the assets of Pretzel Time Franchising,
      LLC (“Pretzel Time”) and Pretzelmaker Franchising, LLC (“Pretzelmaker”), adding two
      hand-rolled pretzel chains with approximately 380 franchised units
      worldwide to our
      QSR franchising business.




In
      January 2008, we acquired the t rademarks
      and other intellectual property of The Shoe Box, Inc. (“Shoebox” in partnership
      with the Camuto Group, a premier women's fashion footwear company. Shoebox
      is a
      multi-brand luxury shoe retailer based in New York with nine locations. The
      companies have begun franchising Shoebox's luxury footwear concept domestically
      and internationally under the Shoebox New York brand.




In
      January 2008, we acquired substantially
      all of the assets of Great American Cookie Company Franchising, LLC and Great
      American Manufacturing, LLC (collectively, “Great American Cookies”). This
      transaction added another premium treat brand and 300 franchised units to our
      QSR portfolio.




41





**(2)**
            **BASIS
                OF PRESENTATION AND SIGNIFICANT ACCOUNTING
                POLICIES**





BASIS
      OF PRESENTATION:





(a)
      PRINCIPLES OF CONSOLIDATION





The
      Consolidated Financial Statements include the accounts of the Company and its
      majority-owned subsidiaries. All significant intercompany transactions and
      balances have been eliminated in consolidation. The consolidated financial
      statements do not include the accounts or operations of certain brand and
      marketing funds. (See Note 2 (m)).





(b)
      RECLASSIFICATIONS AND REVISIONS





Certain
      2006 and 2005 amounts have been reclassified to conform to the current year
      presentation. All 2006 and 2005 activity related to our mortgage-backed
      securities (“MBS”) business has been classified as discontinued operations. None
      of these reclassifications had a material effect on the Company’s consolidated
      financial statements.





For
      the
      years ended December 31, 2006 and 2005 the Company has separately disclosed
      the
      operating, investing and financing portions of the cash flows attributed to
      its
      discontinued operations, which in prior periods were reported on a combined
      basis as a single amount. The company also reclassified changes in restricted
      cash as cashflows from investing activities.




(c)
      USE
      OF ESTIMATES





The
      preparation of consolidated financial statements in conformity with U.S.
      generally accepted accounting principles 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 dates of the consolidated
      financial statements and the reported amounts of income and expenses during
      the
      reporting period. Actual results could differ from those estimates. Estimates
      are used in accounting for, among other things, valuation of goodwill and
      intangible assets and estimated useful lives of identifiable intangible assets,
      accrued revenues, guarantees, depreciation, restructuring accruals, valuation
      of
      deferred tax assets and contingencies. Estimates and assumptions are reviewed
      periodically and the effects of revisions are reflected in the consolidated
      financial statements in the period they are determined to be
      necessary.




SIGNIFICANT
      ACCOUNTING POLICIES:





(d)
      CASH
      AND CASH EQUIVALENTS





Cash
      equivalents include all highly liquid investments purchased with original
      maturities of three months or less. Cash and cash equivalents consisted of
      the
      following:





**(in
                thousands)**
            
            **DECEMBER 31,**
              **2007**
            
            **DECEMBER 31,**
              **2006**Cash
            
            $
            12,540
            
            $
            10,694Money
                market accounts
            
            
            33,805
            
            
            72,842Total
            
            $
            46,345
            
            $
            83,536




The
      cash
      balance as of December 31, 2007, includes approximately $7 million of cash
      received from franchisees and licensees that is being held in trust in
      accordance with the terms of our BTMU Credit Facility ( *See*  *Note
      8* *-* *Long-Term Debt* ).
      These
      funds are applied to the quarterly payments of principal and interest on the
      BTMU debt and the excess is released to the Company for general corporate
      purposes.





(e)
      TRADE
      RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS





Trade
      receivables consist of amounts the Company expects to collect from franchisees
      for royalties and franchise fees, and from licensees for license fees, net
      of
      allowance for doubtful accounts of $1,173,000 and $530,000, as of December
      31,
      2007 and 2006, respectively. The Company provides a reserve for uncollectible
      amounts based on its assessment of individual accounts. Cash flows related
      to
      net changes in trade receivable balances are classified as increases or
      decreases in trade receivables in the consolidated statement of cash
      flows.




42





Details
      of activity in the allowance for doubtful accounts for each year ended December
      31, is as follows:


Beginning
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Ending(in
                      thousands)
                  
                  
                  Balance
                  
                  
                  Acquisitions
                  
                  
                  Additions
                  
                  
                  Write-Offs
                  
                  
                  Balance2005
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -2006
                  
                  $
                  -
                  
                  $
                  530
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  5302007
                  
                  $
                  530
                  
                  $
                  158
                  
                  $
                  485
                  
                  $
                  -
                  
                  $
                  1,173


(f)
      FAIR
      VALUE OF FINANCIAL INSTRUMENTS




The
        carrying amounts of the Company’s financial instruments, which included cash
        equivalents, restricted cash, accounts receivable, accounts payable, and
        accrued
        expenses, approximate their fair value due to the relatively short duration
        of
        the instruments. The carrying amount of the company’s long term debt
        approximates its fair value since the interest rate adjusts to market rates
        on a
        quarterly basis.




(g)
      PROPERTY AND EQUIPMENT





Property
      and equipment are stated at cost. Depreciation is calculated using the
      straight-line method over the estimated useful lives of the assets, which range
      from three to ten years. The costs of leasehold improvements are capitalized
      and
      amortized using the straight-line method over the shorter of the lease term
      or
      the estimated useful life of the asset.





In
      accordance with SFAS No. 144 “ *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,”
      long-lived assets, such as property, plant, and equipment are reviewed for
      impairment whenever events or changes in circumstances indicate that the
      carrying amount of an asset may not be recoverable. Recoverability of assets
      to
      be held and used is measured by a comparison of the carrying amount of an asset
      to estimated undiscounted future cash flows expected to be generated by the
      asset. If the carrying amount of an asset exceeds its estimated future cash
      flows, an impairment charge is recognized by the amount by which the carrying
      amount of the asset exceeds the fair value of the asset. Assets to be disposed
      of would be separately presented on the balance sheet and reported at the lower
      of the carrying amount or fair value less costs to sell, and are no longer
      depreciated. The assets and liabilities of a disposed group classified as held
      for sale would be presented separately in the appropriate asset and liability
      sections of the balance sheet.





(h)
      TRADEMARKS, GOODWILL AND OTHER INTANGIBLE ASSETS





Goodwill
      represents the excess of costs over the fair value of assets related to acquired
      businesses, and trademarks represents the value of future royalty income
      associated with the ownership of The Athlete’s Foot, Bill Blass, Marble Slab,
      MaggieMoo’s, Waverly, Pretzel Time and Pretzelmaker trademarks. Other
      identifiable intangible assets include the value of non-compete agreements
      of
      key executives, and franchise agreements and master development agreements
      of
      acquired businesses that are being amortized on a straight-line basis over
      a
      period ranging from one to twenty years. Intangible assets with estimable useful
      lives are amortized over their respective estimated useful lives to their
      estimated residual values, and reviewed for impairment in accordance with SFAS
      No. 144. Goodwill and trademarks acquired in a purchase business
      combination determined to have an indefinite useful life are not amortized,
      but
      instead are tested for impairment at least annually in accordance with the
      provisions of SFAS No. 142, “ *Goodwill
      and Other Intangible Assets* .”
At
      each reporting period, we assess trademarks to determine if facts and
      circumstances have changed, requiring a re-evaluation of the estimated life
      of
      the trademarks.




In
        accordance with the requirements of SFAS 142, goodwill has been assigned
        to
        reporting units for purposes of impairment testing. Our reporting units are
        our
        operating segments: retail franchising, quick service restaurants, consumer
        branded products, and corporate.
  Costs
          incurred in connection with our BTMU Credit Facility ( *See*  *Note
          8 - Long Term Debt)* are
          being
          amortized over the term of the loan using the effective interest method.
          The
          Company assesses the recoverability of other intangible assets subject
          to
          amortization in accordance with SFAS No. 144, “Accounting for the
          Impairment or Disposal of Long-Lived Assets”
(“SFAS 144”).


(i)
      INCOME TAXES





The
      Company recognizes income taxes using the asset and liability method, in
      accordance with SFAS No. 109, “ *Accounting
      for Income Taxes* .”
Under
      the asset and liability method, deferred tax assets and liabilities are
      recognized for the future tax consequences attributable to differences between
      the financial statement carrying amounts of existing assets and liabilities
      and
      their respective tax bases. Deferred tax assets and liabilities are measured
      using enacted tax rates expected to apply to taxable income in the years in
      which those temporary differences are expected to be recovered or settled.
      The
      effect of a tax rate change on deferred tax assets and liabilities is recognized
      as income in the period that includes the enactment date. In assessing the
      likelihood of realization of deferred tax assets, the Company considers whether
      it is more likely than not that some portion or all of the deferred tax assets
      will not be realized. The ultimate realization of deferred tax assets is
      dependent upon the generation of future taxable income during periods in which
      these temporary differences become deductible.




43





(j)
      STOCK
      BASED COMPENSATION




Prior
      to
      January 1, 2006, the Company accounted for equity-based employee compensation
      arrangements in accordance with the provisions of Accounting Principle Board
      Opinion No. 25, “ *Accounting
      for Stock Issued to Employees* ,”
(“APB
      No. 25”) and related interpretations including FIN 44, “ *Accounting
      for Certain Transactions Involving Stock Compensation* .”
Under
      APB No. 25, compensation expense was based upon the difference, if any, on
      the
      date of grant, between the fair value of the Company’s stock and the exercise
      price referred to as the intrinsic-value-based method. Statement of Financial
      Accounting Standards No. 123, “ *Accounting
      for Stock Based Compensation”* (“SFAS
      No. 123”) established accounting and disclosure requirements using a
      fair-value-based method of accounting for stock-based employee compensation
      plans. As was allowed by SFAS No. 123, the Company had elected to apply the
      intrinsic-value-based method of accounting described above, and had adopted
      only
      the disclosure requirements of SFAS No. 123 and Statement of Financial
      Accounting Standards No. 148, “ *Accounting
      for Stock-based Compensation Transition and Disclosure.* ”





As
      of
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), “ *Share-Based
      Payments* ”
(“SFAS
      No. 123R”). SFAS No. 123R requires that new share-based payments, such as grants
      of stock options, restricted shares, warrants, and stock appreciation rights,
      be
      measured at fair value and reported as expense in a company’s financial
      statements over the requisite service period. For existing share-based payment
      awards granted prior to January 1, 2006, the Company has recognized, in current
      earnings, compensation expense over the remaining service period, if any, based
      on the grant date fair value of those awards as calculated for disclosure under
      SFAS No. 123. However, in accordance with SFAS No. 123R, the Company no longer
      recognizes forfeitures as they occur, rather, forfeitures are estimated in
      calculating the fair value of each award. See *Note
      11, Stock Based Compensation* ,
      for the
      assumptions used to calculate the stock compensation expense under the
      fair-value method shown above.





The
      following table illustrates the effect on net loss from continuing operations
      if
      the fair-value method had been applied to all outstanding and unvested awards
      for the year ended December 31, 2005:





**(in
                thousands)**
            
            **2005**Net
                loss from continuing operations, as reported
            
            $
            (3,551
            )Add
                stock-based employee compensation expense included in reported net
                loss
            
            
            76Deduct
                total stock-based employee compensation expense determined under
                fair-value method for all awards
            
            
            (526
            )Pro
                forma net loss from continuing operations
            
            $
            (4,001
            )Pro
                forma net loss per share from continuing operations
            
            $
            (0.09
            )Weighted
                average shares outstanding - basic
            
            
            44,006





See *Note
      11, Stock Based Compensation* ,
      for the
      assumptions used to calculate the stock compensation expense under the
      fair-value method shown above.




(k)
      EARNINGS PER SHARE





The
      Company computes net income (loss) per share in accordance with SFAS No. 128,
      “ *Earnings
      Per Share* .”
Under
      the provisions of SFAS No. 128, basic net income (loss) per share is computed
      by
      dividing net income (loss) for the period by the weighted average number of
      common shares outstanding during the period. Diluted net income (loss) per
      share
      is computed by dividing the net income (loss) for the period by the weighted
      average number of common and dilutive common equivalent shares outstanding
      during the period. As the Company has had a net loss in each of the periods
      presented, basic and diluted net loss per share are the same. Options and
      warrants to purchase 4.2 million, 7.2 million and 1.9 million shares of the
      Company’s common stock during 2007, 2006, and 2005, respectively, have been
      excluded from the calculation of diluted net loss per share because their
      inclusion would be anti-dilutive.




44





(l)
      REVENUE RECOGNITION





Royalties
      from franchise operations are recorded as franchise revenues as the fees are
      earned and become receivable from franchisees. Franchise fee income is
      recognized when all initial required services are performed, which is generally
      considered to be upon the opening of the franchisee’s store. Revenues from
      license agreements are recognized in accordance with the terms of the underlying
      licenses.





(m)
      ADVERTISING





Advertising
      and marketing costs paid by the Company in connection with its consumer
      brands segment are expensed as incurred. Advertising expense was $2.8 million
      for the year ended December 31, 2007, our first full year of brand operations.
      The Company receives advertising contributions from licensees of its consumer
      brands, generally as a percentage of sales, to defray part or all of the
      advertising expense relating to consumer brands. Contributions from licensees
      were $1.1 million, $0 and $0 for the years ended December 31, 2007, 2006 and
      2005.


The
        Company maintains advertising funds in connection with its retail franchising
        and QSR segments. The funds are received from franchisees and are based upon
        a
        percentage of sales as stipulated in the franchise agreements. These funds
        are
        owned by the company, but used exclusively for marketing of the respective
        franchised brands. The company has determined the funds are variable interest
        entities, as defined by *FASB
        Interpretation No. 46(R) - “Variable Interest Entities”.* The
        company is not the primary beneficiary of these variable interest entities
        and
        therefore these funds are excluded from the consolidated financial statements.
        Contributions received by these funds totaled approximately $2.2 million
        for the
        year ended December 31, 2007. As of December 31, 2007 the company has advanced
        approximately $1.3 million to one of the marketing funds, the amount will
        be
        recovered from future contributions by the franchisees of the
        company.




(n)
      RECENT ACCOUNTING PRONOUNCEMENTS




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
      applies to any other accounting pronouncements that require or permit fair
      value
      measurements.  SFAS No. 157 provides a common definition of fair value as
      the price that would be received to sell an asset or paid to transfer a
      liability in a transaction between market participants.  The new standard
      also provides guidance on the methods used to measure fair value and requires
      expanded disclosures related to fair value measurements.  SFAS No. 157 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007.  We are currently assessing the impact that this
      standard will have on our consolidated results of operations, financial
      position, or cash flows. ****





In
      February 2007, the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115.”* SFAS
      No.
      159 permits entities to choose to measure most financial instruments and certain
      items at fair value that are currently required to be measured at historical
      costs. Adoption of SFAS No. 159 is optional. We currently do not expect to
      adopt
      SFAS No. 159.





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), “ *Business
      Combinations.”* Under
      SFAS No. 141(R), acquiring entities will recognize assets acquired and
      liabilities assumed in connection with business combinations at fair market
      value with limited exception. Among its provisions, SFAS No. 141(R) requires
      that: (a) acquisition costs will generally be expensed as incurred and not
      capitalized, (b) contingent consideration will be recognized at estimated fair
      value at the time of acquisition, (c) noncontrolling interests will be valued
      at
      fair value at the acquisition date. SFAS No. 141(R) is effective for annual
      periods beginning on or after December 15, 2008. We are currently assessing
      the
      impact that this standard will have on our consolidated results of operations,
      financial position, or cash flows.




45





In
      December 2007, the FASB issued SFAS No. 160, *“Noncontrolling
      Interests in Consolidated Financial Statements- An Amendment of ARB No.
      51.”* SFAS No.
      160 provides that noncontrolling interests in a subsidiary (minority interests)
      are to be recorded as a component of equity, separate from the parent’s equity.
      SFAS No. 160 also provides for changes in the way minority interest expense
      is
      recorded in the income statement, and will require expanded disclosure regarding
      the interests of the parent and its noncontrolling interest. SFAS No. 160 is
      effective for years and interim periods beginning on or after December 15,
      2008.
      We are currently assessing the impact that this standard will have on our
      consolidated results of operations, financial condition, or cash
      flows.





**(3)
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RELATED TO DISCONTINUED
      OPERATIONS**





The
      following additional accounting principles have been used by management in
      the
      preparation of the Company’s Consolidated Financial Statements and relate
      principally to the Company’s discontinued operations:





(a)
      INVESTMENTS AVAILABLE FOR SALE INCLUDING MORTGAGE-BACKED SECURITIES
      (“MBS”)





Investments
      available-for-sale consisted of highly liquid investments in U.S. Government
      Agency-sponsored mortgaged-backed securities with original maturities greater
      than one year.





The
      Company invested in MBS representing interests in or obligations backed by
      pools
      of mortgage loans. Acquisitions of MBS were recorded on the trade date.
      Purchases of newly issued MBS were recorded when all significant uncertainties
      regarding the characteristics of the securities were removed. Realized gains
      and
      losses on sales of MBS were determined on the specific identification
      basis.





(b)
      REPURCHASE AGREEMENTS





The
      Company financed the acquisition of its MBS through the use of repurchase
      agreements with the MBS serving as collateral. Generally, the Company’s
      borrowings were fixed rate repurchase agreements with original maturities of
      28
      days.





(c)
      FAIR
      VALUE OF FINANCIAL INSTRUMENTS





The
      carrying amounts of the Company’s financial instruments, which included cash
      equivalents, restricted cash, accounts receivable, accounts payable, and accrued
      expenses, approximate their fair value due to the relatively short duration
      of
      the instruments.


(d)
        OTHER
        COMPREHENSIVE INCOME (LOSS)
 
 During
        2005, the Company determined that the impairments on the MBS portfolio were
        “other than temporary” and the losses were recognized in earnings.


**(4)
      SUPPLEMENTAL CASH FLOW INFORMATION**





Interest
      paid for the years ended December 31, 2007, 2006 and 2005 was $2,748, $1,403
      and
      $5,387 (in thousands), respectively.





Taxes
      paid for the years ended December 31, 2007, 2006 and 2005 were $697, $0, and
      $0,
      (in thousands) respectively.





Significant
      non-cash investing and financing activities are as follows:





For
      the
      year ended December 31, 2007, the Company issued 5,923,732 shares of its common
      stock and warrants to acquire 50,000 shares of common stock with an aggregate
      value of $43.2 million in connection with brand acquisitions.





In
      June
      2006 and in connection with the acquisition of a business, the Company issued
      2.5 million shares of common stock, warrants and options to acquire 440,000
      and
      106,236 shares of common stock respectively with an aggregate fair value of
      approximately $11 million. In November 2006 and in connection with the
      acquisition of a business, the Company issued 1.4 million shares of common
      stock, and warrants to purchase 500,000 shares, respectively with an aggregate
      fair value of approximately $9.8 million.




46




**(5)
      PROPERTY AND EQUIPMENT**





Property
      and equipment consists of the following (in thousands):


**ESTIMATED****USEFUL**
              
              
              **DECEMBER
                  31,****LIVES**
              
              
              **2007**
              
              
              **2006**Furniture
                  and fixtures
              
              
              7
                  - 10 Years
              
              $
              792
              
              $
              206Computer
                  and equipment
              
              
              3
                  - 5 Years
              
              
              908
              
              
              126Software
              
              
              3
                  Years
              
              
              486
              
              
              112Leasehold
                  improvements
              
              
              Term
                  of Lease
              
              
              2,939
              
              
              393Total
                  property and equipment
              
              
              
              
              
              5,125
              
              
              837Less
                  accumulated depreciation
              
              
              
              
              
              (925
              )
              
              (448
              )Property
                  and equipment, net of accumulateddepreciation
              
              
              
              
              $
              4,200
              
              $
              389




Depreciation
      expense of property and equipment was $477,000, $272,000 and $159,000 in 2007,
      2006 and 2005, respectively. The Company recognizes rent expense on a
      straight-line basis over the lease period based upon the aggregate lease
      payments. The lease period is determined as the original lease term without
      renewals, unless and until the exercise of lease renewal options is reasonably
      assured, and also includes any period provided by the landlord as a “free rent”
period. Aggregate lease payments include all rental payments specified in the
      contract, including contractual rent increases.




**(6)
      GOODWILL, TRADEMARKS, AND INTANGIBLE ASSETS**





The
      net
      carrying value of goodwill is as follows (in
      thousands):


**DECEMBER
                  31,****2007**
              
              
              **2006**UCC
              
              $
              37,311
              
              $
              10,135The
                  Athlete's Foot
              
              
              2,546
              
              
              5,472Bill
                  Blass
              
              
              19,578
              
              
              -Marble
                  Slab
              
              
              2,121
              
              
              -MaggieMoo's
              
              
              4,666
              
              
              -Pretzel
                  Time
              
              
              401
              
              
              -Pretzelmaker
              
              
              601
              
              
              -Total
              
              $
              67,224
              
              $
              15,607




The
      decrease in the net carrying amount of goodwill for The Athlete’s Foot is
      related to the reversal of an accrual relating to additional consideration
      under
      the TAF purchase agreement which was not paid as discussed in *Note
      17*  *Acquisition
      of The Athlete’s Foot* .
      The
      increase in goodwill for UCC resulted from contingent consideration paid in
      September 2007 in accordance with the terms of the UCC merger agreement
      discussed in *Note
      16 Acquisition of UCC.*




47




Trademarks
      acquired by entity are as follows (in thousands):


**DECEMBER
                    31,****2007**
                
                **2006**The
                    Athlete's Foot
                
                $
                49,000
                
                $
                49,000Bill
                    Blass
                
                
                58,800
                
                
                -Waverly
                
                
                36,907
                
                
                -Marble
                  Slab
                
                
                22,117
                
                
                -MaggieMoo's
                
                
                16,500
                
                
                -Pretzel
                    Time
                
                
                17,000
                
                
                -Pretzelmaker
                
                
                10,500
                
                
                -Total
                
                $
                210,824
                
                $
                49,000


The
      increase in trademarks from December 31, 2006 is a result of the Bill Blass,
      Marble Slab, MaggieMoo’s, Waverly, Pretzel Time and Pretzelmaker acquisitions
      during 2007. Trademarks have an indefinite life and are analyzed for impairment
      on an annual basis or more frequently if events or circumstances indicate that
      the asset may be impaired.





Other
      intangible assets are as follows (in thousands):


**DECEMBER
                  31,****2007**
              
              **2006**UCC
              
              $
              1,370
              
              $
              1,370The
                  Athlete's Foot
              
              
              2,600
              
              
              2,600Bill
                  Blass
              
              
              779
              
              
              -Waverly
              
              
              433
              
              
              -Marble
                  Slab
              
              
              1,229
              
              
              -MaggieMoo's
              
              
              654
              
              
              -Pretzel
                  Time
              
              
              1,012
              
              
              -Pretzelmaker
              
              
              788
              
              
              -Total
                  Other Intangible Assets
              
              
              8,865
              
              
              3,970Less:
                  Accumulated Amortization
              
              
              (1,319
              )
              
              (178
              )Other
                  Intangible Assets, net
              
              $
              7,546
              
              $
              3,792




Other
      intangible assets is comprised of non-compete agreements of key executives
      and
      others, franchise agreements, license agreements and master development
      agreements, and are being amortized generally on a straight-line basis over
      a
      period ranging from one to twenty years. Total amortization expense recorded
      by
      the Company for the years ended December 31, 2007, 2006 and 2005 was $1,141,000,
      $178,000 and $-0-, respectively.




48




Trademarks,
      Goodwill, and Other Intangible Assets by reportable segment is as
      follows:


**Goodwill**
              
              **Trademarks**
              
              **Other
                  Intangibles**
              
              **Total****December
                  31,**
              
              **December
                  31,**
              
              **December
                  31,**
              
              **December
                  31,****2007**
              
              **2006**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**Corporate
              
              $
              37,311
              
              $
              10,135
              
              $
              -
              
              $
              -
              
              $
              1,370
              
              $
              1,370
              
              $
              38,681
              
              $
              11,505Retail
                  franchising
              
              
              2,546
              
              
              5,472
              
              
              49,000
              
              
              49,000
              
              
              2,600
              
              
              2,600
              
              
              54,146
              
              
              57,072Consumer
                  branded products
              
              
              19,578
              
              
              -
              
              
              95,707
              
              
              -
              
              
              1,212
              
              
              -
              
              
              116,497
              
              
              -Quick
                  service restaurants
              
              
              7,789
              
              
              -
              
              
              66,117
              
              
              -
              
              
              3,683
              
              
              -
              
              
              77,589
              
              
              -Total
              
              
              67,224
              
              
              15,607
              
              
              210,824
              
              
              49,000
              
              
              8,865
              
              
              3,970
              
              
              286,913
              
              
              68,577Less
                  accumulated amortization
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,319
              
              
              178
              
              
              1,319
              
              
              178Total
              
              $
              67,224
              
              $
              15,607
              
              $
              210,824
              
              $
              49,000
              
              $
              7,546
              
              $
              3,792
              
              $
              285,594
              
              $
              68,399





The
      following table presents the future amortization expense expected to be
      recognized over the amortization period of the other intangible assets
      outstanding as of December 31, 2007 (in thousands):




**Weighted
                  Average****Amortization
                Period**
            
            **Year
                Ending December 31,****(Years)**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **Thereafter**Corporate:UCC
            
            
            3.0
            
            $
            502
            
            $
            209
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Retail
                Franchising:The
                Athlete's Foot
            
            
            20.0
            
            
            130
            
            
            130
            
            
            130
            
            
            130
            
            
            130
            
            
            1,798Consumer
                branded products:Bill
                Blass
            
            
            4.2
            
            
            237
            
            
            237
            
            
            99
            
            
            -
            
            
            -
            
            
            -Waverly
            
            
            4.6
            
            
            102
            
            
            102
            
            
            102
            
            
            63
            
            
            -
            
            
            -339
            
            
            339
            
            
            201
            
            
            63
            
            
            -
            
            
            -Quick
                service restaurants:Marble
                Slab
            
            
            20.0
            
            
            56
            
            
            56
            
            
            56
            
            
            56
            
            
            56
            
            
            905MaggieMoo’s
            
            
            20.0
            
            
            35
            
            
            35
            
            
            35
            
            
            35
            
            
            35
            
            
            450Pretzel
                Time
            
            
            4.8
            
            
            202
            
            
            202
            
            
            202
            
            
            202
            
            
            112
            
            
            0Pretzelmaker
            
            
            4.8
            
            
            162
            
            
            162
            
            
            162
            
            
            162
            
            
            67
            
            
            0455
            
            
            455
            
            
            455
            
            
            455
            
            
            270
            
            
            1,355Total
                Amortization
            
            
            
            
            $
            1,426
            
            $
            1,133
            
            $
            786
            
            $
            648
            
            $
            400
            
            $
            3,153




49


**(7)
      ACCOUNTS PAYABLE AND ACCRUED EXPENSES**





Accounts
      payable and accrued expenses consist of the following (in thousands):


**DECEMBER
                  31,****2007**
              
              **2006**Accounts
                  payable
              
              $
              1,806
              
              $
              1,418Accrued
                  interest payable
              
              
              1,925
              
              
              -Accrued
                  professional fees
              
              
              860
              
              
              -Deferred
                  rent - current portion
              
              
              85
              
              
              -Accrued
                  compensation and benefits
              
              
              531
              
              
              484Refundable
                  franchise fees and gift cards
              
              
              811
              
              
              -Discontinued
                  operations
              
              
              991
              
              
              1,333Accrued
                  acquisition costs
              
              
              382
              
              
              -All
                  other
              
              
              480
              
              
              -Total
              
              $
              7,871
              
              $
              3,235




After
      the
      acquisition of UCC, the Company relocated its principal corporate office from
      Baltimore, Maryland to New York City. As a result, certain reductions in
      staffing occurred in 2006. Upon termination of employment, the Baltimore
      employees became eligible for separation benefits, including severance payments.
      Restructuring charges in prior years related to separation agreements of
      subsidiaries are classified as discontinued operations.




A
                  rollforward of the restructuring accrual is as follow(in
                  thousands):
              
              **Employee**
                **Separation**
                **Benefits**
              
              **Facility**
                **Closure**
                **Costs
                  and**
                **Other**
              
              **Total****2005
                  Restructuring:**Restructuring
                  liability as of December 31, 2004
              
              $
              68
              
              $
              191
              
              $
              259Adjustments
              
              
              —
              
              
              (7
              )
              
              (7
              )Cash
                  payments
              
              
              (68
              )
              
              (184
              )
              
              (252
              )Restructuring
                  liability as of December 31, 2005
              
              
              —
              
              
              —
              
              
              —**2006
                  Restructuring:**Charges
                  to continuing operations
              
              
              895
              
              
              —
              
              
              895Cash
                  payments and other
              
              
              (750
              )
              
              —
              
              
              (750
              )Restructuring
                  liability as of December 31, 2006
              
              $
              145
              
              $
              —
              
              $
              145**2007
                  Restructuring:**Cash
                  payments and other
              
              
              (132
              )
              
              —
              
              
              (132
              )Restructuring
                  liability as of December 31, 2007
              
              $
              13
              
              
              —
              
              $
              13




50




**(8)**
            **LONG
                TERM DEBT**





***(a)***
            ***BTMU
                Credit Facility***




On
      March
      12, 2007, NexCen Acquisition Corp. (“the Issuer”), a wholly owned subsidiary of
      the Company, entered into a master loan agreement with BTMU Capital Corporation.
      This master loan agreement provides for borrowings pursuant to the issuance
      of a
      single class of notes to the Issuer and its wholly-owned subsidiaries
      (“Co-Issuers”) which are jointly and severally liable for payments required
      under the notes. The assets of the Issuer and Co-Issuers, which consist of
      the
      respective IP assets and the related royalty revenues and trade receivables,
      are
      pledged as collateral security under each note, and secure the obligations
      of
      the Issuer and all Co-Issuers under all of the notes. The notes are
      non-recourse to NexCen Brands, Inc. Each note is repayable in full after five
      years. Substantially all revenues earned by the company are remitted to “lockbox
      accounts” that have been established in connection with the agreement (See Note
      2(d)). The facility has no expiration date and can be terminated by the
      Co-Issuers upon thirty days notice and by BTMU Capital Corporation by electing
      not to fund future advances; however, each note funding maintains its respective
      maturity date. The agreement provides for certain restrictions on the Issuer
      and
      Co-Issuers, including limitations on payment of dividends and expenditures
      on
      fixed assets. The maximum aggregate amount of borrowings that may be outstanding
      at any one time under the agreement is $150 million. In January, 2008, this
      limit was increased to $181 million when we acquired Great American Cookie.
      The
      borrowing rate is LIBOR plus an interest rate margin, which ranges from 1.50%
      to
      3.00%. However, a portion of the notes relating to Great American Cookies for
      $35 million is priced at LIBOR plus 3.50%. The Company may refinance all or
      part
      of the notes with no pre-payment penalties. This allows us to refresh available
      borrowing capacity under the facility, such as by completing securitization
      transactions involving certain of our acquired IP assets and using the proceeds
      from these transactions to repay notes under the master loan agreement. The
      borrowing rate is based on 3-month LIBOR which is a floating rate. The LIBOR
      rate resets every 90 days.




In
      2007,
      we borrowed a total of $110.8 million under the BTMU Credit Facility. The
      borrowings are secured by the assets of The Athlete’s Foot, Bill Blass, Waverly,
      Pretzel Time and Pretzelmaker Brands, and MaggieMoo’s and Marble Slab brands.
      The Company paid borrowing fees of $1.3 million, and incurred aggregate
      transaction costs including borrowing fees and other direct costs of $2.6
      million, which are being amortized over five years.




As
      of
      December 31, 2007, outstanding borrowings under the credit facility totaled
      $109.6 million at initial floating borrowing rates approximating 8.0%. The
      rate
      will reset each quarter based upon a measurement of debt leverage to cash flow
      ratio. Interest expense recorded by the Company for the years ended December
      31,
      2007 and 2006 was approximately $5.0 million and $-0- respectively.




51




The
      aggregate maturities of long-term debt for each of the five years subsequent
      to
      December 31, 2007 are as follows (in thousands):




**(in
                  thousands)**
              
              
              **TAF**
              
              
              **Bill
                  Blass**
              
              
              **Pretzel
                  Time**
              
              
              **Pretzelmaker**
              
              
              **Waverly**
              
              
              **Marble
                  Slab**
              
              
              **MaggieMoo's**
              
              
              **Total**2008
              
              $
              1,972
              
              $
              2,032
              
              $
              350
              
              $
              233
              
              $
              1,235
              
              $
              314
              
              $
              204
              
              $
              6,3402009
              
              
              3,466
              
              
              3,569
              
              
              1,100
              
              
              733
              
              
              2,717
              
              
              1,088
              
              
              710
              
              
              13,3832010
              
              
              4,078
              
              
              4,201
              
              
              1,422
              
              
              948
              
              
              3,337
              
              
              1,604
              
              
              1,046
              
              
              16,6362011
              
              
              4,857
              
              
              5,003
              
              
              1,538
              
              
              1,025
              
              
              3,786
              
              
              1,802
              
              
              1,175
              
              
              19,1862012
              
              
              11,657
              
              
              12,011
              
              
              5,190
              
              
              3,461
              
              
              10,657
              
              
              2,234
              
              
              1,457
              
              
              46,667Thereafter
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,458
              
              
              2,908
              
              
              7,366Total
              
              $
              26,030
              
              $
              26,816
              
              $
              9,600
              
              $
              6,400
              
              $
              21,732
              
              $
              11,500
              
              $
              7,500
              
              $
              109,578




***(b)***
            ***Direct
                and Guaranteed Lease
                Obligations***





The
      Company accounts for certain guarantees in accordance with FASB Interpretation
      No. 45, “ *Guarantor’s
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others, an interpretation of FASB statements
      No.
      5, 57 and 107 and a rescission of FASB Interpretation No. 34* ”
(“FIN
      45”). FIN 45 elaborates on the disclosures to be made by a guarantor in its
      financial statements about its obligations under guarantees issued. FIN 45
      also
      clarifies that a guarantor is required to recognize at inception of a guarantee,
      a liability for the fair value of certain obligations undertaken.





As
      discussed in*Note 19*to*the Consolidated Financial Statements*,
      during 2007, the Company assumed certain guarantees for leases related to
      franchised MaggieMoo’s locations. In general, these lease guarantees are
      contingent guarantees which become direct obligations of the Company if a
      franchisee defaults on its lease agreement.




Each
      lease guarantee was analyzed and the fair value was determined based on the
      facts and circumstances of the lease and franchisee performance. All
      of
      the lease guarantees were treated as assumed liabilities at the time of
      acquisition of Maggie Moo’s and as a result are included in the purchase price
      of the acquisition.


The
        Company has also assumed direct lease obligations with respect to nine
        company-owned and operated MaggieMoo’s stores.


The
      Company has determined the fair value of the liabilities and recorded the
      carrying amounts as of December 31, as follows:





**(in
                thousands)**
            
            **DECEMBER
                31,****2007**
            
            **2006**Assumed
                lease obligations
            
            $
            1,023
            
            $
            -Assumed
                lease guarantees
            
            
            1,354
            
            
            -Total
            
            $
            2,377
            
            $
            -


**DECEMBER
                  31,****2007**
              
              **2006**Current
              
              $
              1,546
              
              $
              -Long
                  Term
              
              
              831
              
              
              -Total
              
              $
              2,377
              
              $
              -


52




The
        guaranteed and direct lease obligations are included in acquisition related
        liabilities in the accompanying balance sheet. At December 31, 2007, the
        maximum
        potential amount of undiscounted future payments the company could be required
        to make is approximately $4.1 million. The company may mitigate its exposure
        to
        these guarantees in cases where the primary lessors of the property have
        also
        personally guaranteed the lease obligations, by finding new franchisees to
        perform on the leases, or by negotiating directly with landlords to settle
        the amounts due.
  The
          guaranteed and direct lease obligations are expected to mature as follows:
          2008 **-** $1,546,
          2009 **-** $817,
          2010 **-** $14, (in
          thousands).
  **(9)
        INCOME TAXES**





The
      components of income tax expense from continuing operations for the calendar
      years ended December 31 are as follows:


(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Federal
              
              $
              2,866
              
              $
              196
              
              $
              -State
                  and Local
              
              
              183
              
              
              (152
              )
              
              -Foreign
              
              
              254
              
              
              37
              
              
              -Total
                  income tax expense
              
              $
              3,303
              
              $
              81
              
              $
              -Current
              
              $
              236
              
              $
              81
              
              $
              -Deferred
              
              
              3,067
              
              
              -
              
              
              -Total
                  Income Tax Expense
              
              $
              3,303
              
              $
              81
              
              $
              -




A
      reconciliation of the difference between the effective income tax rate and
      the
      statutory federal income tax rate for continuing operations is as
      follows:




**2007**
              
              **2006**
              
              **2004**U.S.
                  Statutory Federal Rate
              
              
              (35
              )%
              
              (35
              )%
              
              (35
              )%Increase/(decrease)
                  resulting from:State
                  taxes, net of federal benefit
              
              
              (98
              )%
              
              (3
              )%Changes
                  in valuation allowance
              
              
              548
              %
              
              43
              %
              
              (136
              )%Other
              
              
              20
              %
              
              (4
              )%
              
              171
              %Effective
                  Tax Rate
              
              
              435
              %
              
              1
              %
              
              0
              %
  53


Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts reflected for tax purposes. The following summarizes the significant
      components of the Company’s deferred tax assets and liabilities as of December
      31:




**(in
                  thousands)**
              
              **2007**
              
              **2006**Deferred
                  Tax Assets:Federal
                  Net Operating Loss Carryforwards
              
              
              273,906
              
              
              271,876State
                  Net Operating Loss Carryforwards
              
              
              35,554
              
              
              34,906Investments
              
              
              5,762
              
              
              5,762Capital
                  Loss Carryforwards
              
              
              74,520
              
              
              99,412Tax
                  Credit Carryforwards
              
              
              4,150
              
              
              4,150AMT
                  Tax credit Carryforwards
              
              
              25
              
              
              63Depreciation
                  and Amortization
              
              
              145
              
              
              127Stock-based
                  compensation
              
              
              2,448
              
              
              1,093Other
              
              
              909
              
              
              1,001Gross
                  Deferred Tax Asset
              
              
              397,419
              
              
              418,390Deferred
                  Tax Liabilities:Basis
                  difference of assets acquired
              
              
              (24,441
              )
              
              **-**Amortization
                  of intangibles
              
              
              (3,511
              )
              
              (782
              )Gross
                  Deferred Tax Liability
              
              
              (27,952
              )
              
              (782
              )Valuation
                  Allowance
              
              
              (397,186
              )
              
              (417,826
              )Net
                  Deferred Tax Asset/(Liability)
              
              
              (27,719
              )
              
              (218
              )




In
      accordance with the provisions of Financial Accounting Standards Board Statement
      No. 109, *“Accounting
      for Income Taxes”* and
      related guidance thereto (“SFAS No. 109”), the Company records a non-cash
      deferred tax expense as a result of differences in accounting for certain
      intangible assets for book and tax purposes. These intangible assets, which
      are
      indefinite lived assets for book purposes, are being amortized for tax purposes
      over a fifteen year period. As a result, the basis of these assets for income
      tax purposes will be different from the carrying value for financial reporting
      purposes. For the year ended 2007, the Company was required to record a total
      deferred tax expense of $3.1 million with respect to these differences. The
      Company currently anticipates that it will likely record additional net deferred
      tax liabilities that will result from deferred income tax expense being recorded
      in the Company’s statement of operations in future periods.




SFAS
      No.
      109 also provides that the Company must provide a full valuation allowance
      against its deferred tax assets for financial reporting purposes. The deferred
      tax liability resulting from timing differences discussed above cannot be offset
      against the Company’s deferred tax assets under US GAAP since the deferred tax
      liability relates to indefinite lived assets and is not anticipated to reverse
      in the same period. These assets, which consist principally of $782 million
      of
      federal tax loss carry forwards that expire at various dates through 2026,
      total
      approximately $397 million and are available to reduce or eliminate the
      Company’s taxable income in calculating the amount of income tax actually paid.
      In addition, the Company is not permitted, in its statement of operations,
      to
      record a benefit relating to the deferred tax assets which would offset the
      deferred tax expense. However, the deferred tax assets remain available to
      the
      Company to reduce taxable income for tax purposes, subject to time and other
      limitations contained in the Internal Revenue Code and related regulations.
      Consequently, the Company anticipates it will pay little or no current federal
      income tax, other than alternative minimum taxes, and will be subject to certain
      state and local taxes.





The
      valuation allowance for deferred tax assets decreased by $20.6 million and
      $16.9
      million in 2007 and 2006, respectively. During 2007, the Company’s deferred tax
      assets and related valuation allowance decreased primarily due to expiration
      of
      certain capital loss carry forwards. In assessing the realizability of deferred
      assets, management considers whether it is more likely than not that some
      portion or all of the deferred tax assets will not be realized for financial
      statement purposes. The ultimate realization of deferred tax assets is dependent
      upon the generation of future taxable income during the periods in which those
      temporary differences become deductible. Based upon the Company’s historical
      operating performance and the reported cumulative net losses to date, as well
      as
      amortization expense relating to intangible assets that will be deductible
      in
      computing taxable income in future years, the
      Company presently does not have sufficient objective evidence to support the
      recovery of its deferred tax assets. Accordingly, the Company has provided
      a
      full valuation allowance for its net deferred tax assets.




54





Approximately
      $330 million of the valuation allowance for deferred tax assets as of December
      31, 2007 will be allocated to “Income Tax Benefit” in the consolidated
      statements of operations and comprehensive loss upon realization. The remaining
      portion of the valuation allowance will be allocated to “Additional Paid-In
      Capital.”





To
      the
      extent net operating loss carry forwards relate to stock-based compensation,
      the
      tax benefits will be credited to Additional paid-in capital when realized.
      The
      Company has capital loss carry forwards of approximately $188 million which
      expire at various dates between 2008 and 2011. In addition, the Company has
      federal tax credit carry forwards of approximately $4.2 million which expire
      at
      various dates between 2020 and 2022. In the event of future changes in common
      stock ownership above a certain threshold, the future realization of net
      operating loss carry forwards, capital loss carry forwards and certain other
      tax
      credits would become subject to limitation under the Internal Revenue Code.
      Also, included in the amounts above are federal net operating losses acquired
      with the close of the UCC Capital merger. The utilization of UCC Capital
      acquired assets will be subject to certain annual limitations as required under
      Internal Revenue Code Section 382.





The
      Company adopted the provisions of Financial Standards Accounting Board
      Interpretation No. 48, *“Accounting
      for Income Taxes”* (“FIN
      48”) an interpretation of SFAS No. 109 on January 1, 2007. The Interpretation
      prescribes recognition threshold and measurement parameters for the financial
      statement recognition and measurement of tax positions taken or expected to
      be
      taken in the Company’s tax return. For those benefits to be recognized, a tax
      position must be more-likely-than-not to be sustained upon examination by taxing
      authorities. The amount recognized is measured as the largest amount of benefit
      that has a greater than 50% likelihood of being realized upon ultimate
      settlement. At the adoption date of January 1, 2007 and as of December 31,
      2007,
      the Company had approximately $25 million of unrecognized tax benefits. If
      recognized, the unrecognized tax benefits would be subject to a valuation
      allowance and would not affect our effective tax rate. There are no significant
      increases or decreases to unrecognized tax benefits anticipated within the
      next
      twelve months. As a result of adopting FIN 48, the Company’s net amount of
      assets and liabilities recognized in the condensed consolidated balance sheet
      did not change. Therefore, the Company was not required to record a cumulative
      effect adjustment relating to the adoption.





The
      Company’s practice is to recognize interest and/or penalties related to
      uncertain tax positions in income tax expense. The Company had no accrued
      interest or penalties as of December 31, 2007 and December 31, 2006. The Company
      is subject to U.S. federal income tax, as well as income tax of multiple state
      and local jurisdictions. Tax returns for all years after 2004 are subject to
      future examination by tax authorities.





**(10)
      BENEFIT PLANS**





As
      a
      result of its merger with UCC and its acquisition of Maggie Moo’s, the Company
      currently maintains three defined contribution plans under Section 401(k)
      of the Internal Revenue Code that provide for voluntary employee contributions
      of 1% to 15% of compensation for substantially all employees. The Company may,
      but is not obligated to, make profit sharing contributions under the terms
      of
      the plans. The Company contributed $60,000 each year to the plans for the years
      ended December 31, 2006 and 2005 and $0 for the year ended December 31,
      2007.





**(11)
      STOCK BASED COMPENSATION**





In
      September 1999, the Company adopted the 1999 Equity Incentive Plan, as
      amended on September 2, 2005, (as amended, the “1999 Plan”). Under the 1999
      Plan, the Company had the ability to grant options and restricted stock for
      employees, directors, and service providers equaling up to 20% of the
      outstanding shares of common stock of the Company. Options under the 1999 Plan
      generally expire after ten years and normally vest over a period of up to four
      years. Options were granted at an exercise price equal to the fair value of
      the
      common stock on the grant date.




Effective
      December 15, 2000, the Company adopted the Acquisition Incentive Plan (the
“2000 Plan”) to provide options or direct grants to all employees (other than
      directors and officers of the Company and any eligible affiliates) and other
      service providers of the Company and its related companies, without shareholder
      approval.  Under the 2000 Plan, the Company had the ability to grant 1.9
      million options. Options were granted at an exercise price equal to the fair
      value of the common stock on the grant date.




55




Effective
      October 31, 2006, the Company adopted the 2006 Equity Incentive Plan (the “2006
      Plan”) to replace the 1999 Plan and the 2000 Plan. The Company’s stockholders
      approved the adoption of the 2006 Plan at the 2006 Annual Stockholders’ Meeting
      on October 31, 2006.  The 2006 Plan is now the sole plan for issuing
      stock-based compensation to eligible employees, directors and consultants.
      The
      1999 Plan and the 2000 Plans will remain in existence solely for the purpose
      of
      addressing the rights of holders of existing awards already granted under those
      plans prior to the adoption of the 2006 plan. No new awards will be granted
      under the 1999 Plan and the 2000 Plan. A total of 3.5 million shares of common
      stock are initially reserved for issuance under the 2006 Plan, which represented
      approximately 7.4% of NexCen’s outstanding shares at the time of adoption.
      Options under the 2006 Plan expire after ten years and are granted at an
      exercise price no less than the fair value of the common stock on the grant
      date.




A
      summary
      of stock options and restricted shares granted under the 2006 Plan, 1999 Plan,
      and the 2000 Plan from January 1, 2005 through December 31, 2007, warrants
      issued by the Company outside of such plans from January 1, 2005 through
      December 31, 2007, and changes during each twelve month period is presented
      below:




2005
            
            2006
            
            2007(In
                thousands, except per share amounts)
            
            Number
                of shares
            
            Weighted
                average exercise price (per share)
            
            Number
                of shares
            
            Weighted
                average exercise price (per share)
            
            Number
                of shares
            
            Weighted
                average exercise price (per share)Outstanding
                at beginning of year
            
            
            2,146
            
            $
            3.98
            
            
            1,949
            
            $
            3.52
            
            
            7,174
            
            $
            4.17Granted
            
            
            5
            
            $
            3.30
            
            
            5,366
            
            $
            4.31
            
            
            1,733
            
            $
            7.72Exercised
            
            
            (38
            )
            $
            0.49
            
            
            (120
            )
            $
            (.10
            )
            
            (1,732
            )
            $
            2.72Cancelled
            
            
            (164
            )
            $
            10.29
            
            
            (21
            )
            $
            (.83
            )
            
            (
                181
            )
            $
            5.83Outstanding
                at end of year
            
            
            1,949
            
            $
            3.52
            
            
            7,174
            
            $
            4.17
            
            
            6,994
            
            $
            5.37Exercisable
                at year-end
            
            
            1,771
            
            $
            3.57
            
            
            2,616
            
            $
            3.57
            
            
            2,723
            
            $
            5.13





A
      summary
      of stock option activity under the 2006 Plan, 1999 Plan, the 2000 Plan and
      warrants outstanding as of December 31, 2007 and changes during the year ended
      is presented below:


**2006
                  Plan**
              
              **1999
                  Plan**
              
              **2000
                  Plan**
              
              **Warrants**
              
              **Total****Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Exercise Price**
              
              **Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Exercise Price**
              
              **Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Exercise Price**
              
              **Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Exercise Price**
              
              **Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Exercise Price**Outstanding
                  atJanuary
                  1, 2007
              
              
              426
              
              $
              6.88
              
              
              4,689
              
              $
              4.19
              
              
              123
              
              $
              3.23
              
              
              1,936
              
              $
              3.60
              
              
              7,174
              
              $
              4.17Granted
              
              
              1,550
              
              
              7.47
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              183
              
              
              9.86
              
              
              1,733
              
              
              7.72Exercised
              
              
              -
              
              
              -
              
              
              622
              
              
              3.00
              
              
              8
              
              
              0.99
              
              
              1,102
              
              
              2.58
              
              
              1,732
              
              
              2.72Forfeited
              
              
              3
              
              
              8.57
              
              
              152
              
              
              5.81
              
              
              26
              
              
              5.65
              
              
              -
              
              
              -
              
              
              181
              
              
              5.83Expired
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Outstanding
                  atDecember
                  31, 2007
              
              
              1,973
              
              $
              7.34
              
              
              3,915
              
              $
              4.31
              
              
              89
              
              $
              2.71
              
              
              1,017
              
              $
              5.85
              
              
              6,994
              
              $
              5.37





56




A
      summary
      of the status of the Company’s outstanding grants of options, restricted stock
      and warrants that remain subject to vesting as of December 31, 2007, and changes
      during the year then ended is presented below:


**2006
                  Plan**
              
              **1999
                  Plan**
              
              **2000
                  Plan**
              
              **Warrants**
              
              **Total****Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Grant Date Fair Value**
              
              **Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Grant Date Fair Value**
              
              **Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Grant Date Fair Value**
              
              **Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Grant Date Fair Value**
              
              **Number
                  of Shares (in thousands)**
              
              **Weighted
                  - Average Grant Date Fair Value**Non-Vested
                  atJanuary
                  1, 2007
              
              
              426
              
              $
              2.19
              
              
              3,619
              
              $
              1.32
              
              
              87
              
              $
              2.28
              
              
              125
              
              $
              1.20
              
              
              4,257
              
              $
              1.43Granted
              
              
              1,550
              
              
              3.88
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              183
              
              
              4.17
              
              
              1,733
              
              
              3.91Vested
              
              
              358
              
              
              2.54
              
              
              1,206
              
              
              1.32
              
              
              34
              
              
              2.67
              
              
              92
              
              
              1.75
              
              
              1,690
              
              
              1.63Forfeited
              
              
              3
              
              
              2.87
              
              
              -
              
              
              -
              
              
              26
              
              
              1.78
              
              
              -
              
              
              -
              
              
              29
              
              
              1.87Non-Vested
                  atDecember
                  31, 2007
              
              
              1,615
              
              $
              3.74
              
              
              2,413
              
              $
              1.32
              
              
              27
              
              $
              2.08
              
              
              216
              
              $
              3.48
              
              
              4,271
              
              $
              2.35




The
      following table includes information on fully vested stock options, stock
      options outstanding for each plan, fully vested warrants and warrants
      outstanding as of December 31, 2007:


**2006
                  Plan**
              
              **1999
                  Plan**
              
              **2000
                  Plan**
              
              **Warrants**
              
              **Total****Stock
                  Options Outstanding**
              
              **Stock
                  Options Currently Exercisable and Vested**
              
              **Stock
                  Options Outstanding**
              
              **Stock
                  Options Currently Exercisable and Vested**
              
              **Stock
                  Options Outstanding**
              
              **Stock
                  Options Currently Exercisable and Vested**
              
              **Stock
                  Options Outstanding**
              
              **Stock
                  Options Currently Exercisable and Vested**
              
              **Stock
                  Options Outstanding**
              
              **Stock**
                  **Options
                    Currently Exercisable and Vested**Number
                  (in thousands)
              
              
              1,973
              
              
              359
              
              
              3,915
              
              
              1,503
              
              
              89
              
              
              62
              
              
              1,017
              
              
              799
              
              
              6,994
              
              
              2,723Weighted-average
                      exercise price
              
              $
              7.34
              
              $
              6.24
              
              $
              4.31
              
              $
              4.76
              
              $
              2.71
              
              $
              2.63
              
              $
              5.85
              
              $
              5.52
              
              $
              5.37
              
              $
              5.13Aggregate
                  intrinsicvalue (in thousands)
              
              $
              25
              
              $
              14
              
              $
              3,378
              
              $
              1,282
              
              $
              190
              
              $
              138
              
              $
              723
              
              $
              661
              
              $
              4,316
              
              $
              2,095Weighted-average
                  remaining contractual term
              
              
              9.50
              
              
              9.16
              
              
              7.79
              
              
              6.74
              
              
              7.88
              
              
              7.83
              
              
              3.92
              
              
              2.57
              
              
              7.71
              
              
              5.86




In
      2006,
      the Board of Directors authorized issuance of 250,000 shares of restricted
      stock
      to three of its senior officers. On June 6, 2006, 100,000 of these restricted
      shares vested with a fair value of $410,000. The remaining 150,000 restricted
      shares vest over three years beginning on May 5, 2007. The holders of these
      restricted stock grants surrendered a total of 86,000 shares of common stock
      to
      us in satisfaction of their minimum federal withholding tax obligations arising
      from these grants. We recorded the shares surrendered to us as treasury stock.
      An additional 20,000 of restricted shares were granted to non-officer employees
      in 2006, of which 15,000 vested in the fourth quarter of 2006, and 5,000 vested
      in the first quarter of 2007.





Total
      stock-based compensation expense was approximately $4.2 million, $1.6 million
      and $76,000 for the years ended December 31, 2007, 2006, and 2005, respectively.




The
      total
      unrecognized compensation cost related to non-vested share-based compensation
      agreements granted under all stock option plans as of December 31, 2007 is
      approximately $7.2 million. The cost is expected to be recognized over the
      vesting period of approximately 2 years.




The
      total
      income tax benefit recognized in the income statement for stock-based
      compensation arrangements was $0 for the years ended December 31, 2007,
      2006, and 2005, respectively. There was no capitalized stock-based compensation
      cost incurred during the years ended December 31, 2007, 2006, and 2005.




57





The
      per
      share weighted-average value of options granted by the Company during 2007,
      2006
      and 2005 were $7.47, $4.31 and $3.30, respectively. The fair value of each
      stock
      option award is estimated on the date of grant using the Black-Scholes option
      pricing model. The fair values for each year were calculated using an expected
      option life of five years and volatility rates ranging from 16.8% to 30.2%
      for
      2005, and an expected option life of three to six years and volatility rates
      ranging from 26.9% to 35.2% for 2006, and an expected option life of three
      to
      six years and volatility rates ranging from 23.65% to 56.85% for
      2007 **.** In
      addition, the calculations assumed risk-free interest rates ranging from 3.72%
      to 4.35% in 2005, 4.59% to 5.10% in 2006 and 3.45% to 4.92% in 2007.
      Historically, the Company has never distributed dividends to its stockholders.
      Therefore, no expected dividend assumptions were factored into our fair value
      calculation.





Through
      December 31, 2007, the Company has estimated expected terms of three to six
      years for all options. Due to the significant changes in the Company’s business
      over the past three years, the Company has elected to use the “simplified”
method, as defined in the Securities and Exchange Commission’s Staff Accounting
      Bulletin No.107 (“SAB No. 107”), to estimate expected term for stock options
      granted after December 31, 2005. The simplified method allows companies to
      estimate an expected term by using the vesting term plus the original
      contractual term divided by two. The Company used historical data to estimate
      volatility based on the expected term of the options and for stock option
      forfeitures. The Company used the five-year US Treasury daily yield curve rates
      for the risk-free interest rate.




The
      total
      number of options and warrants issued by the Company since January 1, 2005
      includes the following:




·
            Options
                to acquire approximately 3,375,000 shares of Company common stock
                and
                warrants to acquire 125,000 shares of Company common stock were issued
                to
                UCC employees on June 6, 2006 in connection with the acquisition
                of UCC.




·
            In
                connection with the acquisition of UCC, the Company compensated its
                financial advisor for the transaction, Jefferies & Company, Inc.,
                through the payment of a fee of $77,000 and the issuance of warrants
                exercisable through June 2009 to purchase 440,000 shares of Company
                common
                stock at an exercise price of $3.19 per
                share.




·
            On
                October 31, 2006 the compensation committee approved the issuance
                of
                175,000 non-qualified options to members of its Board of Directors.




·
            On
                November 7, 2006, in connection with the acquisition of The Athlete’s
                Foot, the Company issued warrants exercisable through November 7,
                2009 to
                purchase 500,000 shares of Company common stock at an exercise price
                of
                $6.49.




·
            The
                Company has granted options as part of its long-term incentive plan
                to
                employees hired following the Company’s relocation to New York.




·
            On
                January 24, 2007, as part of bonuses distributed to employees for
                the year
                ended December 31, 2006, the Company issued options to employees
                exercisable through January 24, 2017 to purchase 51,500 shares of
                Company
                common stock at an exercise price of
                $8.95.




·
            On
                February 15, 2007, in connection with the acquisition of Bill Blass,
                the
                Company issued warrants exercisable through February 15, 2017 to
                purchase
                400,000 shares of Company common stock at exercise prices of $8.89.
                The
                vesting of these warrants is contingent upon Blass meeting three
                earnings
                targets on September 30, 2008, December 31, 2009, and December 31,
                2010.
                As of September 30, 2007, the first earnings target is the only one
                that
                has been deemed probable; therefore, the Company has only deemed
                the first
                tranche of 133,333 shares as outstanding. On February 21, 2007, the
                Company issued options exercisable through February 21, 2017 to purchase
                5,000 shares of the Company common stock to an employee of Bill Blass
                at
                an exercise price of $10.90 per share.




·
            On
                May 2, 2007, in connection with the acquisition of Waverly, the Company
                issued warrants exercisable through May 2, 2017 to purchase 50,000
                shares
                of Company common stock at exercise prices of $12.43.These
                warrants were immediately vested upon issuance. The warrant was priced
                at
                the market price on the date of grant and the related compensation
                expense
                has been included in the purchase price allocation.




58




·
            During
                the three months endedJune****30,
                2007, in connection with their employment with the Company, the Company
                issued 107,500 options to employees exercisable through June 21,
                2017 at
                exercise prices ranging from $11.61 to $12.87 per share. Additionally,
                the
                Company granted approximately 29,000 options to a member of the Board
                of
                Directors exercisable through May 4, 2017 at an exercise price of
                $12.19
                per share.




·
            During
                the three months ended September 30, 2007, the Company issued options
                to
                purchase 305,000 common shares to employees which are exercisable
                through
                September 24, 2017 at exercise prices ranging from $7.26 to $10.00
                per
                share. Additionally, the Company granted 775,000 options to members
                of the
                Board of Directors exercisable through September 6, 2017 at exercise
                prices of $6.90 per share.




·
              During
                  the three months ended December 31, 2007, the Company issued options
                  to
                  purchase 100,000 common shares to the spokesperson of its Waverly
                  brand which are exercisable through December 6, 2017 at an exercise
                  price of $4.70 per share.


·
            During
                the three months ended December 31, 2007, the Company issued options
                to
                purchase 178,000 common shares to employees which are exercisable
                through
                December 31, 2017 at exercise prices ranging from $4.70 to $4.84
                per
                share.




The
      total
      intrinsic value of stock options exercised during the twelve months ended
      December 31, 2007 and 2006 was $9,503,000 and $529,000, respectively. Cash
      received during 2007 and 2006 from share options and warrants exercised under
      the share-based payment plans was $3,313,000 and $12,000, respectively. 
Total shares exercised were 1,732,336 in 2007, of which 1,102,916 were related
      to warrants.




The
      total
      number of warrants outstanding as of December 31, 2007 is
      1,015,833.




In
      2007,
      1.7 million options were exercised. Net proceeds from exercise of the options
      totaled $3.3 million. The company issues new shares upon share option
      exercise.




**(12)
      RELATED PARTY TRANSACTIONS**





The
      Company receives legal services from Kirkland & Ellis LLP, which
      is considered a related party because a partner at that firm
      is a member of the Company’s Board of Directors.  For the years ended
      December 31, 2007, 2006 and 2005 fees billed by Kirkland & Ellis LLP
      were approximately $1.3 million, $1.7 million, and $640,000, respectively.
      For
      the years ended December 31, 2007 and 2006, the Company had outstanding
      payables due to Kirkland & Ellis LLP of approximately $121,000 and $492,000,
      respectively.





The
      Company has an active agreement with Marvin Traub Associates, Inc., an entity
      owned by Mr. Traub (a member of the Board of Directors), to help the Company
      identify, approach, and negotiate a deal with a premier U.S. based big box
      retail chain so that such retailer might joint venture with, or purchase a
      license from, the Company to open MaggieMoo's ice cream locations within their
      stores. In July 2007, Marvin Traub Associates, Inc. received a one-time retainer
      fee of $25,000 upon the agreement's execution. If the Company is successful
      in
      consummating a relationship with a third party, Marvin Traub Associates, Inc.
      will receive an additional $100,000 success fee.





FTI
      Consulting, Inc. (FTI) provided due diligence services totaling approximately
      $15,000 in connection with the acquisition of UCC. Two members of NexCen’s Board
      of Directors serve as Directors of FTI, with one also serving as President
      and
      Chief Executive Officer for FTI Consulting, Inc. For
      the
      year ended December 31, 2006, the Company had no outstanding payables due to
      FTI
      Consulting, Inc.





Designer
      License Holdings Co., LLC (“DLHC”) is a licensee of the Bill Blass
      brand. The owner of DLHC is also an owner of Design Equity Holding
      Company, LLC (“DEHC”) which owns 10% of Bill Blass Jeans, LLC at December
      31, 2007. As a licensee of Bill Blass, DLHC’s contract provides for payment
      of a minimum annual royalty of $5 million to the Company.




Athletes
      Foot Marketing Support Fund, LLC (“MSF”), is an entity which is funded by the
      domestic franchisees of The Athletes Foot to provide domestic marketing and
      promotional services on behalf of the franchisees. On an as needed basis, the
      Company advances funds to MSF under a loan agreement. The terms of the loan
      agreement include a borrowing rate of prime plus 2%, and repayment by MSF with
      no penalty, at any time. As of December 31, 2007 and 2006, the Company had
      receivable balances of $1.3 million and $350,000 from MSF, respectively. The
      company recorded interest income earned from the fund in the amount of
      $85,000.




59





**(13)
      COMMITMENTS AND CONTINGENCIES**





(a)
      LEGAL
      PROCEEDINGS





IPO
      Litigation .
      NexCen
      is among the hundreds of defendants named in a series of  class
      action lawsuits seeking damages due to alleged violations of securities
      law.  The case is being heard in the United States District Court for the
      Southern District of New York.  The court has consolidated the actions by
      all of the named defendants that actually issued the securities in
      question.  There are approximately 310 consolidated cases before Judge
      Scheindlin, including this action, under the caption *In
      Re
      Initial Public Offerings Litigation* ,
      Master
      File 21 MC 92 (SAS).




As
      to
      NexCen, these actions were filed on behalf of persons and entities that acquired
      the Company’s stock after its initial public offering in October 20,
      1999.  Among other things, the complaints claim that prospectuses, dated
      October 20, 1999 and September 27, 2000 and issued by NexCen in
      connection with the public offerings of common stock, allegedly contained untrue
      statements of material fact or omissions of material fact in violation of
      securities laws.  The complaint alleges that the prospectuses allegedly
      failed to disclose that the offerings’ underwriters had solicited and received
      additional and excessive fees, commissions and benefits beyond those listed
      in
      the arrangements with certain of their customers, which were designed to
      maintain, distort and/or inflate the market price of the Company’s common stock
      in the aftermarket.  The actions seek unspecified monetary damages and
      rescission.  NexCen believes the claims are without merit and is vigorously
      contesting these actions.




After
      initial procedural motions and the start of discovery in 2002 and 2003, the
      plaintiffs voluntarily dismissed without prejudice the officer and director
      defendants of each of the 310 named issuers, including NexCen.  Then
      in June 2003, the Plaintiff’s Executive Committee announced a proposed
      settlement with the issuer-defendants, including NexCen, and the officer and
      director defendants of the issuers (the “Issuer Settlement”).  A settlement
      agreement was signed in 2004 and presented to the District Court for approval.
      The proposed Issuer Settlement did not include the
      underwriter-defendants, and they continued to defend the actions
      and objected to the proposed settlement.  (One of the
      defendant-underwriters signed a memorandum of understanding in April 2006
      agreeing to a $425 million settlement of claims against it.)  Under
      terms of the proposed Issuer Settlement, NexCen had a reserve of
      $465,000 for its estimated exposure.




The
      District Court granted preliminary approval of the proposed Issuer Settlement
      in
      2005 and held a fairness hearing on the matter in April 2006.  In December
      2006, before final action by the District Court on the proposed Issuer
      Settlement, the U.S. Court of Appeals for the Second Circuit issued a ruling
      vacating class certification for certain plaintiffs in the actions against
      the
      underwriter-defendants (the “Miles Decision”).  Plaintiffs filed a petition
      in early 2007 seeking rehearing of this decision and/or a rehearing en
      banc.  On April 6, 2007, the Second Circuit denied the petition for
      rehearing in an opinion.  After careful consideration by the parties of the
      effect of the Miles Decision on the proposed settlement (i.e., whether in light
      of the Miles Decision no class may be certified in these actions, even a
      settlement class), plaintiffs and the issuer-defendants executed a stipulation
      and proposed order terminating the proposed Issuers’ Settlement on June 22,
      2007.  The district court “so ordered” the stipulation and proposed order,
      terminating the proposed Issuers’ Settlement shortly thereafter.





Discovery
      in the actions has resumed, and plaintiffs filed amended complaints in the
      focus cases shortly thereafter.  Defendants have moved to dismiss the
      amended complaints.  Plaintiffs have also filed motions for class
      certification in the focus cases.  Defendants have filed papers
      opposing class certification.  Neither the motion to dismiss nor the
      motion for class certification has been ruled upon by the
      Court.





Transportation
      Business Sale. On March
      13, 2006, a complaint, captioned *Geologic
      Solutions, Inc., v. Aether Holdings, Inc.,* was
      filed against the Company in the Supreme Court for the State of New York, New
      York County. The complaint alleged that plaintiff Geologic was damaged as a
      result of certain alleged breaches of contract and fraudulent inducement arising
      out of NexCen’s alleged misrepresentations and failure to disclose certain
      information in connection with the asset purchase agreement dated as of July
      20,
      2004 for the purchase and sale of our Transportation business. In July 2007,
      the
      Company settled all claims with the plaintiff for a payment of $600,000. The
      case has been dismissed with prejudice. The Company’s costs in connection with
      the defense of this case have been recorded against discontinued operations,
      further increasing the loss on the sale of the Transportation segment, and
      decreasing the amount of cash we have available for acquisitions and operations.
      The settlement amount has also been recorded against discontinued
      operations.




60





Legacy
      UCC Litigation .
      UCC and
      Mr. D’Loren in his capacity as president of UCC are parties along with unrelated
      parties to litigation resulting from a default on a loan to The Songwriter
      Collective, LLC (“TSC”), which UCC had referred to a third party. A shareholder
      of TSC filed a lawsuit in the U.S. District Court for the Middle District of
      Tennessee, captioned *Tim
      Johnson v. Fortress Credit Opportunities I, L.P., et al.,* in which
      the plaintiff alleged that certain misrepresentations by TSC and its agents
      (including UCC and D’Loren) induced the shareholder to contribute certain rights
      to musical compositions to TSC. UCC and Mr. D’Loren filed cross-claims claiming
      indemnity against TSC and certain TSC officers. TSC filed various cross and
      third-party claims against UCC, Mr. D’Loren and another TSC shareholder, Annie
      Roboff. Roboff filed a separate action in the Chancery Court in Davidson County,
      Tennessee, captioned *Roboff
      v. Mason, et al.* ,
      as well
      as claims in the federal court lawsuit, against UCC, Mr. D’Loren, TSC and the
      other parties. The parties reached a global settlement on December 19, 2007,
      with UCC contributing a total of $125,000 to the settlement amount, which amount
      has been included in discontinued operations. The case has been dismissed with
      prejudice.





Other . The
      Company and its subsidiaries are subject to other litigation in the ordinary
      course of business, including contract, franchisee, trademark and
      employment-related litigation. In the course of operating its franchise systems
      and enforcing its rights under existing and former franchisee agreements, we
      are
      also subject to complaints, letters threatening litigation and law suits,
      particularly in cases involving defaults and terminations of
      franchises





(b)
      OPERATING LEASES





The
      Company is obligated under noncancelable operating leases for office space
      that
      expire at various dates through 2017. Future minimum lease payments under
      noncancelable operating leases and related sublease rent commitments as of
      December 31, 2007 are as follows:




**Operating
                Leases (in 000's)**
            
            **For
                the Year Ending December 31,****2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **Thereafter**Gross
                lease commitments
            
            $
            2,715
            
            $
            1,856
            
            $
            1,823
            
            $
            1,839
            
            $
            1,892
            
            $
            7,072less:
                sub-leases
            
            
            894
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Lease
                commitments, net
            
            $
            1,821
            
            $
            1,856
            
            $
            1,823
            
            $
            1,839
            
            $
            1,892
            
            $
            7,072




Rent
      expense from continuing operations under operating leases was approximately
      $1,670,000, $398,000, and $158,000 for the years ended December 31, 2007,
      2006 and 2005, respectively.





The
      subleased payments shown above are related to the Mobile Government headquarters
      lease in Massachusetts, which the Company has subleased to the buyer of that
      business, BIO-Key International, Inc., and to Northlight Financial LLC who
      rents
      space in the Company’s New York headquarters.





The
      company has recorded aggregate rent credits totaling $1.1 million which amount
      represents the value of rent concessions and tenant improvements provided by
      the
      lessors. These amounts will be amortized to rent expense on a straight-line
      basis over the lives of the respective leases.





(c)
      OTHER




Bill
      Blass Holding Co., Inc. and subsidiaries have been selected for audit by the
      Internal Revenue Service for the years ended December 31, 2005 and February
      15,
      2007.





The
      Company has received a preliminary assessment of $653,000 for unpaid
      communications services tax by the State of Florida relating to the
      discontinued mobile and wireless communications business of Aether
      Systems, Inc. The Company has filed an informal protest against this assessment,
      claiming errors in the calculation of the assessment. The Company has
      accrued current liabilities of approximately $425,000 for legacy tax
      assessments. The Company anticipates a negotiated settlement to this assessment.


61




(d)
        RESTRICTED CASH
 
 Restricted
        cash of $5.3 million as of December 31, 2007 includes funds held in escrow
        related to the Marble Slab acquisition. $3.5 million of this amount was paid
        on
        February 28, 2008 and $1.5 million was held back to secure indemnity claims
        made
        by the company. Long term restricted cash of $1.8 million includes security
        deposits relating to letters of credit which secure the facility leases of
        Bill
        Blass, our facility lease in Norcross, Georgia and the Company’s headquarters in
        New York City, as well as a security deposit held by the Company for a sub-lease
        with the buyer of a former business owned by the Company.
  As
        of
        December 31, 2006, the Company had restricted cash of $1.3 million relating
        to
        funds held in money market accounts as security for outstanding letters of
        credit established for the facility leases of a facility in Massachusetts
        formerly used by one of the businesses we sold in 2004 (which the Company
        sub
        leases), and the Company’s headquarters in New York City.




**(14)
      DISCONTINUED OPERATIONS**





From
      our
      formation in 1996 until 2004, we owned, acquired and operated a number of mobile
      and wireless communications businesses. These businesses never became
      profitable, and during 2004 we sold these businesses and started a
      mortgage-backed securities, or MBS, business. During 2005, we assembled a
      leveraged portfolio of investments in MBS. However, market conditions for the
      MBS business changed significantly during this period, and the profitability
      of
      our leveraged MBS portfolio declined. We sold our entire MBS investments
      portfolio in November 2006, and since that time, we have focused entirely on
      our
      IP business.




During
      2007, we settled various legal and other claims relating to our discontinued
      businesses resulting in a net loss from discontinued operations of $586,000.





During
      2006, the Company discontinued and sold its MBS segment, generating a gain
      of
      $755,000 on the sale. Income from discontinued operations in 2006 of $2.4
      million was primarily generated by the MBS segment.





During
      2005, we recognized additional losses related to the sales of our businesses
      which were sold in 2004. Income from discontinued operations in 2005 reflects
      $225,000 of income from our MBS business.




62


**(15)
      QUARTERLY FINANCIAL INFORMATION (UNAUDITED)**


**Quarter**
              
              **Quarter**
              
              **Quarter**
              
              **Quarter****Ended**
              
              **Ended**
              
              **Ended**
              
              **Ended****March
                  31,**
              
              **June
                  30,**
              
              **September
                  30,**
              
              **December
                  31,****(in
                  thousands, except per share amounts)**
              
              **2007**
              
              **2007**
              
              **2007**
              
              **2007**Revenues
              
              $
              3,885
              
              $
              8,852
              
              $
              11,329
              
              $
              10,229Operating
                  expenses
              
              
              (5,161
              )
              
              (7,865
              )
              
              (8,725
              )
              
              (10,354
              )Operating
                  income (loss)
              
              
              (1,276
              )
              
              987
              
              
              2,604
              
              
              (125
              )Non
                  operating income (expense)
              
              
              631
              
              
              (560
              )
              
              (1,264
              )
              
              (1,757
              )Income
                  (loss) from continuingoperations
                  before income taxes
              
              
              (645
              )
              
              427
              
              
              1,340
              
              
              (1,882
              )Income
                  taxes
              
              
              -
              
              
              (217
              )
              
              (1,253
              )
              
              (1,833
              )Income
                  (loss) from continuing operations
              
              
              (645
              )
              
              210
              
              
              87
              
              
              (3,715
              )Income
                  (loss) from discontinued operations
              
              
              447
              
              
              (895
              )
              
              (6
              )
              
              (132
              )Net
                  (loss) income
              
              $
              (198
              )
              $
              (685
              )
              $
              81
              
              $
              (3,847
              )Loss
                  from continuing operations percommon
                  share - basic and diluted
              
              $
              (0.01
              )
              $
              -
              
              $
              -
              
              $
              (0.07
              )Income (loss)
                  from discontinued operations percommon
                  share - basic and diluted
              
              $
              0.01
              
              $
              (0.01
              )
              $
              -
              
              $
              -Net
                  (loss) income per common share -basic
                  and diluted
              
              $
              (0.00
              )
              $
              (0.01
              )
              $
              -
              
              $
              (0.07
              )Weighted
                  average shares outstanding - basic
              
              
              49,159
              
              
              50,824
              
              
              52,384
              
              
              55,116Weighted
                  average shares outstanding - diluted
              
              
              49,159
              
              
              54,465
              
              
              54,250
              
              
              55,116


**Quarter**
              
              **Quarter**
              
              **Quarter**
              
              **Quarter****Ended**
              
              **Ended**
              
              **Ended**
              
              **Ended****March
                  31,**
              
              **June
                  30,**
              
              **September
                  30,**
              
              **December
                  31,****(in
                  thousands, except per share amounts)**
              
              **2006**
              
              **2006**
              
              **2006**
              
              **2006**Revenues
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              1,924Operating
                  expenses
              
              
              (872
              )
              
              (2,831
              )
              
              (2,568
              )
              
              (4,142
              )Operating
                  loss
              
              
              (872
              )
              
              (2,831
              )
              
              (2,568
              )
              
              (2,218
              )Non
                  operating income
              
              
              320
              
              
              671
              
              
              1,202
              
              
              1,144Loss from
                  continuingoperations
                  before income taxes
              
              
              (552
              )
              
              (2,160
              )
              
              (1,366
              )
              
              (1,074
              )Income
                  taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              (81
              )Loss from
                  continuing operations
              
              
              (552
              )
              
              (2,160
              )
              
              (1,366
              )
              
              (1,155
              )Income
                  from discontinued operations
              
              
              419
              
              
              640
              
              
              544
              
              
              1,510Net
                  (loss) income
              
              $
              (133
              )
              $
              (1,520
              )
              $
              (822
              )
              $
              355Loss
                  from continuing operations percommon
                  share - basic and diluted
              
              $
              (0.01
              )
              $
              (0.05
              )
              $
              (0.03
              )
              $
              (0.02
              )Income from
                  discontinued operations percommon
                  share - basic and diluted
              
              $
              0.01
              
              $
              0.02
              
              $
              0.01
              
              $
              0.03Net
                  (loss) income per common share -basic
                  and diluted
              
              $
              (0.00
              )
              $
              (0.03
              )
              $
              (0.02
              )
              $
              0.01Weighted
                  average shares outstanding - basic
              
              
              44,019
              
              
              44,721
              
              
              46,534
              
              
              47,234Weighted
                  average shares outstanding - diluted
              
              
              44,019
              
              
              44,721
              
              
              46,534
              
              
              49,079





63




**(16)
      ACQUISITION OF UCC**





On
      June
      6, 2006, NexCen acquired UCC for 2.5 million shares of common stock, plus the
      right to contingent consideration (in the form of an earn-out) of up to an
      additional 2.5 million shares of common stock and up to $10 million in cash
      if
      future performance targets were met following the closing.





On
      September 5, 2007, the Board of Directors determined that based on the Company’s
      stock performance and an adjusted annualized earnings calculation (based on
      the
      financial statements included in the Quarterly Report on Form 10-Q for the
      period ended June 30, 2007), all performance targets had been satisfied. As
      a
      result, the former UCC securityholders received the contingent consideration
      of
      2.5 million shares of common stock (900,000 of which had been held in an escrow
      account) and $10 million in cash in September 2007.





The
      Company allocated the initial purchase price of the assets acquired and
      liabilities assumed at the estimated fair values at the acquisition date. The
      contingent consideration was recorded as additional goodwill at the fair value
      of the consideration on the date approved by the Board of Directors. The
      contingent consideration included a cash payment of $10 million and the issuance
      of 2.5 million shares of common stock valued at $6.87 per share (which is the
      average share price for the 5 day period beginning two days prior to the
      approval date and ending two days after) totaling approximately $27.2 million.
      The recorded goodwill will not be deductible for tax purposes.





**(17)
      ACQUISITION OF THE ATHLETE’S FOOT**





On
      November 7, 2006, the Company, through its subsidiary NexCen Acquisition Corp.,
      acquired Athlete’s Foot Brands, LLC, along with an affiliated advertising and
      marketing fund, and certain nominal fixed assets owned by an affiliated company.
      This business operates in our retail franchising segment. The purchase price
      for
      this acquisition, excluding contingent consideration, was $53.1 million,
      consisting of approximately $42.1 million in cash and $9.2 million in our common
      stock (approximately 1.4 million shares which were valued at $6.55 per share),
      and $1.8 million in other deal related costs. At the closing on November 7,
      2006, we also issued to one of the sellers a three-year warrant to purchase
      an
      additional 500,000 shares of our common stock at a per share price of $6.49.
      On
      March 12, 2007, we borrowed $26.5 million under the BTMU Credit Facility secured
      by the assets of The Athlete’s Foot. The purchase agreement required a
      stand-alone audit of the 2006 financial results of Athlete’s Foot Brands, LLC to
      determine the amount of contingent consideration to be paid to the sellers.
      Based on the 2006 financial results of TAF, no contingent consideration was
      earned and therefore none was paid.




Prior
      to
      this acquisition, there were executory contracts between UCC and TAF. UCC
      provided financial advisory services to TAF. UCC earned advisory and loan
      servicing revenues during the course of the arrangement, which terminated with
      the acquisition. The estimated fair value of these agreements was recorded
      when
      we acquired UCC and the amounts were included in intangible assets. The
      settlement of these agreements was recorded in purchase accounting at fair
      value
      without recognition of any amounts in our statement of operations.





The
      Company allocated the initial purchase price of the assets and liabilities
      assumed at the estimated fair values resulting in goodwill of approximately
      $5.5
      million, trademarks of $49 million, and franchise and master development
      agreements valued at approximately $2.6 million. At December 31, 2007, goodwill
      had decreased to approximately $2.5 million. The reduction in initial goodwill
      is principally attributable to the reversal of the contingent consideration
      that
      will not be paid. The recorded goodwill and trademarks are deductible for tax
      purposes.





**(18)
      ACQUISITION OF BILL BLASS**




On
      February 15, 2007 the Company, through its subsidiary Blass Acquisition Corp.,
      completed the purchase of all of the outstanding equity interests of Bill Blass
      Holding Co., Inc. and two affiliated businesses (collectively, “Bill Blass”).
      This business operates in our consumer brands segment. The purchase price for
      the Bill Blass acquisition included initial
      consideration of $54.6 million, consisting of $39.1 million in cash and $15.5
      million in our common stock (approximately 2.2 million shares which were valued
      at $7.09 per share). For financial reporting purposes, and in accordance with
      SFAS 141 and related guidance thereto, the value of shares issued as
      consideration in connection with the stock purchase agreement is determined
      by
      multiplying the number of shares issued by the average closing quoted market
      price of the shares for the five day period beginning two days prior to the
      effective date (the date that principal terms of the acquisition were agreed
      to
      and announced) of the stock purchase agreement and ending two days after the
      effective date, or $7.11. Under the terms of the stock purchase agreement,
      the
      former stockholders may be entitled to additional consideration of up to $16.2
      million provided certain financial goals relating to the business of Blass
      are
      achieved. The contingent consideration is payable in cash or stock at the option
      of the Company.




64





Immediately
      following the acquisition, the Company formed the subsidiary Bill Blass Jeans,
      LLC (“Jeans”) and contributed its ownership of Bill Blass International, LLC to
      Jeans. The Company then sold a 10% minority interest in Jeans to Designer Equity
      Holding Company LLC (“DEHC”), an affiliate of Designer License Holding, LLC, for
      initial cash consideration of $2.7 million and a subscribed interest of $2.7
      million which together represent approximately 10% of the aggregate purchase
      price of Bill Blass (the “Minority Sale”). In addition, the Company issued a
      warrant to DEHC to purchase up to 400,000 shares of the Company’s stock at a per
      share exercise price of $8.89, provided certain financial goals are
      achieved.





The
      Company allocated the purchase price of the assets acquired and liabilities
      assumed at the estimated fair values at the acquisition date. The goodwill
      and
      trademarks are not deductible for tax purposes.





(in
                thousands)**Purchase
                price:**Cash
                payments
            
            $
            39,060Stock
                consideration
            
            
            15,593Direct
                acquisition costs
            
            
            1,253Total
                purchase price
            
            $
            55,906**Allocation
                of purchase price:**Trademarks
            
            $
            58,800Goodwill
            
            
            19,578License
                agreements
            
            
            779Assets
                acquired
            
            
            2,302Total
                assets acquired
            
            
            81,459Total
                liabilities assumed
            
            
            (25,553
            )Net
                assets acquired
            
            $
            55,906




The
      preliminary allocation of purchase price was revised to reflect deferred tax
      liabilities assumed in connection with the acquisition in the amount of
      approximately $24 million, which amount was recorded as additional
      goodwill.




The
      preliminary allocation of the purchase price was also revised to reflect final
      valuations of the Bill Blass trademarks, which resulted in an increase to
      identified intangibles of approximately $13 million, which amount was credited
      togoodwill.




Prior
      to
      this acquisition, there were executory contracts between UCC and Bill Blass.
      UCC
      provided financial advisory services to Bill Blass. UCC earned advisory and
      loan
      servicing revenues during the course of the arrangement, which terminated with
      the acquisition. The estimated fair value of these agreements was recorded
      when
      we acquired UCC and the amounts were included in intangible assets. The
      settlement of these agreements was recorded in purchase accounting at fair
      value
      without recognition of any amounts in our statement of operations.





Blass’
      results of operations are included in the Condensed Consolidated Statements
      of
      Operations beginning from February 15, 2007 (the date of
      acquisition).





**(19)
      ACQUISITIONS OF MARBLE SLAB AND MAGGIEMOO’S**




*Marble
      Slab.* ** On
      February 28, 2007, the Company completed the purchase of substantially all
      of
      the assets of Marble Slab used or intended for use in connection with the
      operation of the Marble Slab franchising system. This business operates in
      our
      QSR segment. The initial consideration of $21 million consisted of cash of
      $16
      million, a promissory note in the principal amount of $3.5 million, and a second
      promissory note in the principal amount of $1.5 million. The notes accrue
      interest at the annual rate of 6% per annum until maturity, which is twelve
      months from the date of issuance. The Company paid the first promissory note
      in
      the amount of $3.5 million plus accrued interest in cash on February 29, 2008.
      The Company claimed certain amounts related to indemnification claims against
      the second promissory note in the principal amount of $1.5 million. The entire
      amount of the $1.5 million note plus interest is being held in an escrow account
      pending resolution of the indemnification claims.





The
      Company allocated the purchase price of the Marble Slab assets acquired and
      liabilities assumed at the estimated fair values at the acquisition date. The
      recorded goodwill and trademarks are deductible for tax purposes.




65






(in
                thousands)**Purchase
                price:**Cash
                payments and promissory notes
            
            $
            21,000Direct
                acquisition costs
            
            
            933Total
                purchase price
            
            $
            21,933**Allocation
                of purchase price:**Trademarks
            
            $
            22,117Goodwill
            
            
            2,121Franchise
                agreements
            
            
            1,229Assets
                acquired
            
            
            384Total
                assets acquired
            
            
            25,851Total
                liabilities assumed
            
            
            (3,918
            )Net
                assets acquired
            
            $
            21,933




The
      preliminary allocation of purchase price has been revised to reflect the final
      valuations of identified  intangibles, whih increased by approximately $1
      million, which amount was recorded as additonal goodwill.





Marble
      Slab results of operations are included in the Condensed Consolidated Statements
      of Operations beginning from February 28, 2007, the date of acquisition.




*MaggieMoo’s.* ** On
        February 28, 2007, MM Acquisition Sub, LLC, a Delaware limited liability
        company
        and wholly owned subsidiary of the Company was merged with and into MaggieMoo's,
        and MaggieMoo's became a wholly owned subsidiary of the Company (the “Merger”).
        This business operates in our QSR segment. The sellers received initial
        consideration of approximately $15.9 million, after purchase adjustments
        of
        $216,000, consisting of cash of approximately $10.5 million and 234,242 shares
        of common stock of the Company, with an aggregate value of approximately
        $2.4
        million (based on the
        average closing quoted market price of the shares for the 15 consecutive
        trading
        days ending on (and including )
        the
        trading day prior to the date of the merger agreement, or $10.21). For
        financial reporting purposes, and in accordance with SFAS No. 141 and related
        guidance thereto, the value of shares issued as consideration in connection
        with
        the merger agreement is determined by multiplying the number of shares issued
        by
        the average closing quoted market price of the shares for the 5 day period
        beginning two days prior to the date of the closing of the Merger and ending
        two
        days after the date of the closing of the Merger, or $10.51. Included in
        the
        initial consideration is
        approximately $3 million of stock and cash, in the same proportion as the
        ratio
        of stock and cash included in the initial consideration, which is being
        held back by the Company for two years to satisfy potential post-closing
        purchase price adjustments and indemnity claims. The sellers will receive
        additional consideration in the form of an earn-out, if certain revenue
        threshholds are met for 2007, which is payable on March 31, 2008.


66


The
      Company allocated the purchase price of the MaggieMoo’s assets acquired and
      liabilities assumed at the estimated fair values at the acquisition date. The
      recorded goodwill and trademarks are deductible for tax purposes.




(in
                thousands)**Purchase
                price:**Cash
                payments
            
            $
            10,492Stock
                consideration
            
            
            2,462Initial
                consideration payable
            
            
            2,954Direct
                acquisition costs
            
            
            587Total
                purchase price
            
            $
            16,495**Allocation
                of purchase price:**Trademarks
            
            $
            16,500Goodwill
            
            
            4,666Franchise
                agreements
            
            
            654Assets
                acquired
            
            
            1,294Total
                assets acquired
            
            
            23,114Total
                liabilities assumed
            
            
            (6,619
            )Net
                assets acquired
            
            $
            16,495




The
      original allocation of purchase price has been adjusted to reflect a net
      increase of approximately $4.0 million which primarily relates to lease
      guarantees of $2 million, deferred revenues of $622,000 and other
      liabilities assumed in connection with the acquisition and, consequently,
      goodwill has been adjusted to reflect this increase.





MaggieMoo’s
      results of operations are included in the Condensed Consolidated Statements
      of
      Operations beginning from February 28, 2007 (the date of acquisition).





**(20)
      ACQUISITION OF WAVERLY**




On
      May 2,
      2007, the Company through its wholly owned subsidiary WV IP Holdings, LLC,
      completed the acquisition of intellectual property assets including primarily
      trademarks, copyrights, and license agreements relating to the Waverly, Gramercy
      and Village brands pursuant to an asset purchase agreement with F.
      Schumacher & Co. (“Schumacher”)
      for cash consideration of approximately $34 million. At the closing, the Company
      also acquired all of the rights, title and interests of Ellery Homestyles,
      LLC
      (“Ellery”), a licensee of the Waverly brand used in connection with the
      manufacture and sale of home products, under a Right of First Refusal Agreement
      (“ROFR”) between Waverly Brand Acquisition LLC (an affiliate of Ellery) and
      Schumacher dated January 3, 2006 for cash consideration of $2.75 million and
      a
      warrant to purchase 50,000 shares of the Company’s common stock. The exercise
      price of the warrant is equal to $12.43, which was the closing price of the
      Company’s common stock on the day prior to the issuance of the warrant. As of
      December 31, 2007 a determination and allocation of the final purchase price
      has
      not yet been made, since legal and related costs of transferring trademarks
      has
      not been finalized.




67




The
      Company allocated the purchase price of the assets acquired at the estimated
      fair values at the acquisition date. The goodwill and trademarks are deductible
      for tax purposes. The Company did not assume any liabilities in connection
      with
      the acquired assets.





**(in
                thousands)****Purchase
                price:**Cash
                payments
            
            $
            36,775Warrants
            
            
            110Direct
                acquisition costs
            
            
            454Total
                purchase price
            
            $
            37,339**Allocation
                of purchase price:**Trademarks
            
            $
            36,906License
                agreements
            
            
            433Assets
                acquired
            
            $
            37,339




The
      original purchase price has been increased by $239,000 to include additional
      acquisition costs. Consequently, the original amount allocated to goodwill
      has
      been increased.





Waverly
      results of operations are included in the Condensed Consolidated Statements
      of
      Operations beginning from May 2, 2007 (the date of acquisition).




68


**(21)
      ACQUISITION OF PRETZEL TIME AND PRETZELMAKER**





On
      August
      7, 2007, the Company purchased the trademarks, franchise agreements and related
      intellectual property, of Pretzel Time Franchising, LLC (“Pretzel Time”) and
      Pretzelmaker Franchising, LLC (“Pretzelmaker”, and together with Pretzel Time
      the “Pretzel Time and Pretzelmaker Brands”), from Mrs. Fields Famous Brands,
      LLC, for $30.3 million. Pretzel Time and Pretzelmaker are franchise concepts
      that offer freshly made soft baked hot pretzels, pretzel bites, pretzel wrapped
      hot dogs and similar products and assorted beverages and are mainly located
      in
      shopping malls and shopping centers throughout the United States.





The
      purchase price consists of cash of approximately $22.0 million and the issuance
      of approximately 1 million shares of common stock with an approximate value
      of
      $7.3 million based on the Company’s closing stock price immediately prior to the
      acquisition. In accordance with SFAS No. 141, “ *Business
      Combinations,”* the
      Company recorded the value of stock issued based on the five day average of
      the
      Company’s closing stock price beginning two days before the acquisition and
      ending two days after, or $7.99. No other assets were acquired, and no
      liabilities were assumed, in connection with the acquisition. The Company
      allocated the purchase price of the assets acquired at the estimated fair values
      at the acquisition date based on independent valuations. The goodwill and
      trademarks will be amortized for tax purposes.




(in
                thousands)**Purchase
                price:**Cash
                payments
            
            $
            21,999Stock
                consideration
            
            
            7,972Direct
                acquisition costs
            
            
            331Total
                purchase price
            
            $
            30,302**Allocation
                of purchase price:**Trademarks
            
            $
            27,500Franchise
                agreements
            
            
            740Non-compete
                agreement
            
            
            1,060Goodwill
            
            
            1,002Assets
                acquired
            
            $
            30,302





As
      of
      December 31, 2007 a determination and allocation of the purchase price has
      not
      yet been finalized.





The
      results of operations of the Pretzel Time and Pretzelmaker Brands are included
      in the Condensed Consolidated Statements of Operations beginning from August
      7,
      2007(the date of acquisition).





**(22)
      PRO FORMA INFORMATION RELATED TO THE ACQUISITIONS
      (Unaudited)**




As
        the
        purchases of Bill Blass, MaggieMoo’s, Marble Slab, Waverly and the Pretzel Time
        and Pretzelmaker Brands were material acquisitions, we are providing the
        pro
        forma financial information set forth below, which presents the consolidated
        results as if the acquisitions had all occurred on January 1, 2006. The
        financial information presented for TAF for the three months and year ended
        2007
        is based on actual results since we owned TAF for all of 2007. The financial
        information for Bill Blass, MaggieMoo’s, Marble Slab, Waverly, and Pretzel Time
        and Pretzelmaker for the three months ended December 31, 2007 is also based
        on
        actual information since those brands were all acquired prior to September
        30,
        2007. All of the other financial information for the three months and year
        ended
        December 31, 2006 and 2007 are based on the results of the brands prior to
        our
        ownership and include pro forma adjustments to interest, depreciation and
        income
        taxes in order to conform to current operations. This pro forma information
        is
        not necessarily indicative of the results that actually would have occurred
        nor
        does it intend to indicate future operating results.




69




**Three
                  Months Ended December 31,**
              
              **Year
                  Ended December 31,**(in
                  thousands except per share amounts)
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**Revenues:TAF
              
              $
              2,523
              
              $
              3,076
              
              $
              8,678
              
              $
              9,410Bill
                  Blass
              
              
              2,526
              
              
              2,090
              
              
              10,215
              
              
              9,523MaggieMoo's
              
              
              385
              
              
              1,137
              
              
              3,243
              
              
              4,583Marble
                  Slab
              
              
              875
              
              
              1,064
              
              
              5,281
              
              
              5,469Waverly
              
              
              1,985
              
              
              1,327
              
              
              8,825
              
              
              6,314Pretzel
                  Time
              
              
              1,199
              
              
              1,194
              
              
              4,527
              
              
              3,761Pretzelmaker
              
              
              736
              
              
              732
              
              
              2,357
              
              
              2,508Total
                  pro forma revenues
              
              $
              10,229
              
              $
              10,620
              
              $
              43,126
              
              $
              41,568Operating
                  income (loss)TAF
              
              $
              328
              
              $
              1,700
              
              $
              2,648
              
              $
              4,550Bill
                  Blass
              
              
              2,085
              
              
              1,625
              
              
              7,604
              
              
              6,329MaggieMoo's
              
              
              (283
              )
              
              (17
              )
              
              387
              
              
              (2,188
              )Marble
                  Slab
              
              
              16
              
              
              (208
              )
              
              1,353
              
              
              1,123Waverly
              
              
              940
              
              
              535
              
              
              4,832
              
              
              2,519Pretzel
                  Time
              
              
              1,091
              
              
              853
              
              
              2,987
              
              
              2,471Pretzelmaker
              
              
              638
              
              
              523
              
              
              1,665
              
              
              1,648Total
                  pro forma operating income
              
              $
              4,815
              
              $
              5,011
              
              $
              21,476
              
              $
              16,452Net
                  income (loss)TAF
              
              $
              (252
              )
              $
              906
              
              $
              736
              
              $
              2,305Bill
                  Blass
              
              
              1,550
              
              
              961
              
              
              5,779
              
              
              4,379MaggieMoo's
              
              
              (368
              )
              
              (102
              )
              
              302
              
              
              (2,273
              )Marble
                  Slab
              
              
              (112
              )
              
              (336
              )
              
              1,227
              
              
              997Waverly
              
              
              510
              
              
              86
              
              
              3,866
              
              
              1,420Pretzel
                  Time
              
              
              884
              
              
              643
              
              
              2,729
              
              
              2,212Pretzelmaker
              
              
              481
              
              
              370
              
              
              1,479
              
              
              1,460Total
              
              $
              2,693
              
              $
              $2,528
              
              $
              16,118
              
              $
              10,500Corporate
                  and other non-allocated expenses
              
              
              (2,647
              )
              
              (1,708
              )
              
              (8,579
              )
              
              (4,702
              )Income
                  taxes
              
              
              (2,241
              )
              
              (370
              )
              
              (3,711
              )
              
              (370
              )Stock
                  based compensation
              
              
              (1,520
              )
              
              (548
              )
              
              (4,215
              )
              
              (1,632
              )Total
                  pro forma net income (loss)
              
              $
              (3,715
              )
              $
              (98
              )
              $
              (387
              )
              $
              3,796Pro
                  forma net income (loss) per share - basic
              
              $
              (0.07
              )
              $
              -
              
              $
              (0.01
              )
              $
              0.08Pro
                  forma net income (loss) per share - diluted
              
              $
              (0.07
              )
              $
              -
              
              $
              (0.01
              )
              $
              0.08Weighted-average
                  shares outstanding-basic
              
              
              55,116
              
              
              47,234
              
              
              51,889
              
              
              45,636Weighted-average
                  shares outstanding-diluted
              
              
              55,116
              
              
              47,234
              
              
              51,889
              
              
              46,371




These
        amounts include the historical results of the businesses we acquired. We
        do not
        intend to assume their historical overhead costs in our corporate structure.
        As
        discussed in *Note
        17* ***,*** *Acquisition
        of The Athlete’s Foot* ,
        TAF was
        acquired in the prior year on November 7, 2006.


70




**(23)
      SEGMENT REPORTING**




NexCen
      Brands is a vertically integrated global brand management and franchising
      company.




The
      Company operates three segments: consumer branded products, retail franchising
      and quick service restaurants. The Company's reportable operating segments
      have
      been determined in accordance with the Company's internal management structure.
      The following tables set forth the Company's financial performance by reportable
      operating segment.




**Year
                Ended December 31,****(in
                thousands)**
            
            **2007**
            
            **2006**
            
            **2005**Revenues:Franchise
                managementRetail
                franchising
            
            $
            8,678
            
            $
            1,924
            
            $
            -Quick
                service restaurants
            
            
            10,493
            
            
            -
            
            
            -Total
            
            
            19,171
            
            
            1,924Brand
                managementConsumer
                branded products
            
            
            15,124
            
            
            -
            
            
            -Total
                revenues
            
            $
            34,295
            
            $
            1,924
            
            $
            -Operating
                income (loss):Franchise
                managementRetail
                franchising
            
            $
            2,670
            
            $
            1,326
            
            $
            -Quick
                service restaurants
            
            
            4,532
            
            
            -
            
            
            -Total
            
            
            7,202
            
            
            1,326
            
            
            -Brand
                managementConsumer
                branded products
            
            
            10,389
            
            
            -
            
            
            -Total
                Brands
            
            
            17,591
            
            
            1,326
            
            
            -Corporate
                and unallocated expenses
            
            
            (15,401
            )
            
            (9,815
            )
            
            (5,241
            )Total
                operating income (loss)
            
            $
            2,190
            
            $
            (8,489
            )
            $
            (5,241
            )Adjusted
                EBITDA:Franchise
                managementRetail
                franchising
            
            $
            2,923
            
            $
            1,356
            
            $
            -Quick
                service restaurants
            
            
            4,819
            
            
            -
            
            
            -Total
            
            
            7,742
            
            
            1,356
            
            
            -Brand
                managementConsumer
                branded products
            
            
            10,692
            
            
            -
            
            
            -Total
                Brands
            
            
            18,434
            
            
            1,356
            
            
            -Corporate
                and unallocated expenses
            
            
            (10,092
            )
            
            (3,326
            )
            
            (3,323
            )Total
                Adjusted EBITDA
            
            
            8,342
            
            
            (1,970
            )
            
            (3,323
            )Adjustments
                to reconcile Adjusted EBITDAto
                operating income:Other
                income
            
            
            (318
            )
            
            (3,337
            )
            
            (1,690
            )Stock
                compensation expense
            
            
            (4,215
            )
            
            (1,632
            )
            
            (76
            )Depreciation
                and amortization
            
            
            (1,619
            )
            
            (471
            )
            
            (159
            )Restructuring
                charges
            
            
            -
            
            
            (1,079
            )
            
            7Total
                operating income (loss)
            
            $
            2,190
            
            $
            (8,489
            )
            $
            (5,241
            )




71





**December
                31,**
            
            **December
                31,****(in
                thousands)**
            
            **2007**
            
            **2006**AssetsFranchise
                management:Retail
                franchising
            
            $
            59,010
            
            $
            59,937Quick
                service restaurants
            
            
            86,900
            
            
            -Total
            
            
            145,910
            
            
            59,937Brand
                managementConsumer
                branded products
            
            
            126,608
            
            
            -Total
                brands
            
            
            272,518
            
            
            59,937Corporate
            
            
            86,689
            
            
            98,448Total
                assets
            
            $
            359,207
            
            $
            158,385Current
                and long-term debt:Franchise
                managementRetail
                franchising
            
            $
            26,030
            
            $
            -Quick
                service restaurants
            
            
            35,000
            
            
            -Total
            
            
            61,030
            
            
            -Brand
                ManagementConsumer
                branded products
            
            
            48,548
            
            
            -Total
                brands
            
            
            109,578
            
            
            -Corporate
            
            
            -
            
            
            -Total
                current and long-term debt
            
            $
            109,578
            
            $
            -





Our
      retail franchising and quick-service restaurant segments earn revenues from
      franchising locations to independent operators who pay franchise fees and
      royalties determined as a percentage of retail sales. Our franchising operators
      are based in our Norcross, GA facility. Our consumer branded products segment
      earns revenue from licensing the Bill Blass and Waverly brands to third party
      wholesalers and retailers who pay royalties determined as the greater of minimum
      guarantees of percentage of net sales as defined. Most of our revenues are
      earned from franchisees and licensees operating in the United States.
      Approximately 11% of our income for 2007 was earned internationally, and 69%
      of
      the total revenue earned from international sources was earned in our retail
      franchising segment.




As
        of
        December 31, 2006, we had only one operating segment - our retail franchising
        segment. All of our royalty and franchise fee revenue was generated by The
        Athlete’s Foot. In 2006 approximately 53% of this revenue was generated in the
        United States.


In
      2005,
      we only had corporate costs; all other activity is included in discontinued
      operations.





**(24)
      SUBSEQUENT EVENTS (unaudited)**





(1)
            In
                January 2008, we acquired the trademarks
                and other intellectual property of The Shoe Box, Inc. (“Shoebox”) in
                partnership with the Camuto Group, a premier women's fashion footwear
                companyfor the total purchase price of $1.30 million.Shoebox is a multi-brand luxury shoe retailer based in New York.
                The
                companies have begun franchising Shoebox's luxury footwear concept
                domestically and internationally under the Shoebox New York
                brand.




(2)
            In
                January 2008, we acquiredsubstantially
                all of the assets of Great American Cookie Company Franchising, LLC
                and
                Great American Manufacturing, LLC (collectively, “Great American Cookies”)
                for the purchase price of approximately $94.4 million, consisting
                of
                $89****million
                in cash and 1,099,290 shares of the Company’s common stock (valued at
                $4.23 per share which was the closing price of one share of the Company’s
                common stock on January 28, 2008. The cash portion of $89 million
                was
                funded with $70 million borrowed on the BTMU Credit Facility (see
                (3)
                below) and cash on hand. This transaction added another premium treat
                brand and 300 franchised units to our QSR portfolio.The
                Company allocated the purchase price of the assets acquired and
                liabilities assumed at the estimated fair values at the acquisition
                date.
                The recorded goodwill and trademarks are deductible for tax purposes.




72





(in
                thousands)**Purchase
                price:**Cash
                payments
            
            $
            89,000Stock
                consideration
            
            
            4,650Direct
                acquisition costs
            
            
            750Total
                purchase price
            
            $
            94,400**Allocation
                of purchase price:**Trademarks
            
            $
            43,500Goodwill
            
            
            47,420Franchise
                agreements
            
            
            590Assets
                acquired
            
            
            2,890Total
                assets acquired
            
            
            94,400Total
                liabilities assumed
            
            
            -Net
                assets acquired
            
            $
            94,400




(3)
            In
                January 2008, the Company amended its existing bank credit facility,
                originally entered into on March 12, 2007 pursuant to a security
                agreement
                and a note funding agreement with BTMU Capital Corporation. The amendment
                to the Original Loan Documentation and related documents increases
                the
                maximum amount of borrowing that may be outstanding thereunder at
                any one
                time from $150 million to $181 million and modifies as a consequence
                of
                the Company’s acquisition of real estate assets, certain defined terms
                used in the Original Loan Documentation and related documents. With
                the
                exception of these changes, the Amendment contains substantially
                the same
                terms as the Original Loan
                Documentation.




Also,
          in
          January 2008, as partial consideration for the amendments to the bank credit
          facility, the Company issued to BTMU a warrant to purchase 200,000 shares
          of the
          Company’s common stock at an exercise price of $0.01 per share. BTMU may
          exercise the warrant in full or in part at any time from the date of issuance
          through January 29, 2018. If the shares underlying the warrant are not
          registered for resale on or before May 1, 2008, the Company may be obligated
          to
          pay BTMU an amount equal to $4.23 (the closing price of one share of the
          Company’s common stock on January 28, 2008) multiplied by 200,000, less the
          aggregate exercise price of the warrant.





(4)
            In
                February, 2008, we repurchased a 5% interest in Bill Blass Jeans,
                LLC from
                Designer License Holding Co., LLC for $1.25 million at
                cost.





73




**ITEM
      9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None.




**ITEM
      9A. CONTROLS AND PROCEDURES**





**(a)
      Evaluation of Disclosure and Procedures**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in reports that we file or submit under
      the
      Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,
      summarized, and reported within the specified time periods and that such
      information is accumulated and communicated to management, including our Chief
      Executive Officer and Chief Financial Officer, as appropriate, to allow timely
      decisions regarding required disclosure. In designing and evaluating our
      disclosure controls and procedures, we recognize that any controls and
      procedures, no matter how well designed and operated, can provide only
      reasonable assurance of achieving the desired control objectives, and management
      is required to apply its judgment in evaluating the cost-benefit relationship
      of
      possible controls and procedures.




As
      required by Rule 13a-15(b) of the Exchange Act, management, with the
      participation of our Chief Executive Officer and Chief Financial Officer,
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures, as of December 31, 2007. Based on their
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that, as of that date, the Company’s disclosure controls and procedures were not
      effective because of the material weaknesses in our internal control over
      financial reporting, which are discussed below. However, we performed additional
      analyses and procedures in order to conclude that, despite the material
      weaknesses, the consolidated financial statements included in the Annual Report
      on Form 10-K fairly present, in all material respects, the Company’s
      consolidated financial position, results of operations and cash flows as of
      the
      dates, and for the periods, presented therein.





**(b)
      Management’s Report on Internal Control over Financial
      Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rule 13a-15(f) under the Exchange
      Act. Our internal control system is designed to provide reasonable assurance
      to
      our management and Board of Directors regarding the preparation and fair
      presentation of published financial statements. Because of its inherent
      limitations, internal control over financial reporting may not prevent or
      detect  misstatements.
      Also, projections of any evaluation of effectiveness to future periods are
      subject to the risk that controls may become  inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies and procedures may deteriorate.




Management
      has assessed the effectiveness of our internal control over financial reporting
      as of December 31, 2007, using the criteria set forth by the Committee of
      Sponsoring Organizations ("COSO") of the Treadway Commission in *Internal
      Control-Integrated Framework* .
      Based
      on this assessment, management has concluded that the Company did not maintain
      effective control over financial reporting as of December 31, 2007 due to the
      material weaknesses discussed below.




A
      material weakness is a control deficiency, or a combination of control
      deficiencies, in internal control over financial reporting such that there is
      a
      reasonable possibility that a material misstatement to the annual or interim
      financial statements could occur and not be prevented or detected on a timely
      basis. Management identified the following material weaknesses in internal control
      over
      financial reporting as of December 31, 2007:




The
      Company did not maintain a sufficient number of accounting and financial
      reporting personnel. As a result, the Company’s monitoring activities were not
      effective at identifying deficiencies in the operation of financial controls
      on
      a timely basis. In addition, the Company did not maintain a sufficient number
      of
      personnel with an appropriate level of technical expertise in U.S. generally
      accepted accounting principles (US GAAP). As a result, the Company’s policies
      and procedures were not effective to ensure the identification of financial
      reporting risks arising from complex and non-routine transactions.  These
      material weaknesses resulted in errors in the Company’s preliminary 2007
      financial statements.




The
      design and implementation of the Company’s controls over the completeness and
      accuracy of accrued liabilities were not effective as of December 31, 2007.
      Specifically, the design of the Company’s policies, procedures and control
      activities were not adequate to ensure that costs incurred at period end, but
      not yet invoiced by third party suppliers and contractors, are appropriately
      recognized in the Company’s financial statements. This material weakness
      resulted in errors in the Company’s preliminary 2007 financial
      statements .




74




Our
      consolidated financial statements as of and for the year ended December 31,
      2007
      have been audited by KPMG LLP, our independent registered public accounting
      firm, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States). KPMG LLP has also audited our internal control
      over financial reporting as of December 31, 2007, as stated in its attestation
      report included in this Item 9A(e)





**(c)
      Remediation of Material Weakness**





The
      identified material weaknesses are a result of the Company’s rapid growth
      through acquisitions, the impact of the integration of accounting and financial
      reporting functions for the Company’s franchise management business, and
      turnover in the Company’s accounting and financial reporting staff. To remediate
      these weaknesses, the Company has commenced efforts to replace certain
      accounting and financial reporting personnel and hire additional personnel
      with
      greater technical expertise in US GAAP and greater experience with public
      company financial reporting. The Company also plans to enhance and strengthen
      its written accounting and reporting policies pertaining to accrued
      liabilities and will
      train employees with respect to the new policies .





**(d)
      Changes in Internal Control over Financial Reporting**





During
      the quarter ended December 31, 2007, no change occurred in the Company’s
      internal control over financial reporting that materially affected, or is likely
      to materially affect, the Company’s internal control over financial reporting,
      except as follows:





We
      completed the centralization of the accounting and financial reporting functions
      of our franchising segment (other than the businesses we acquired in January
      2008). Because the businesses that we acquired were privately held companies,
      we
      implemented additional controls to ensure that the operations and financial
      reporting processes are compliant with the regulatory and accounting
      requirements of a publicly traded company. Such additional controls included
      processes related to the timing of revenue recognition. In the judgment of
      management, the implementation of these controls constitute a change that
      materially affected, or is likely to affect, our internal control over financial
      reporting.





We
      are
      continuing to incorporate the accounting and financial reporting processes
      of
      the businesses we acquired during 2007 with and into our existing system of
      internal control over financial reporting. Our internal control over financial
      reporting likely will be materially affected in the future by implementing
      appropriate internal control to account for these and other
      acquisitions.




**(e)** **Report
      of Independent Registered Public Accounting Firm**




The
        Board
        of Directors and Stockholders
 NexCen
        Brands, Inc.:
  We
        have
        audited NexCen Brands, Inc. and subsidiaries’ (the Company) internal control
        over financial reporting as of December 31, 2007, based on criteria established
        in *Internal
        Control - Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
        The Company's management is responsible for maintaining effective internal
        control over financial reporting and for its assessment of the effectiveness
        of
        internal control over financial reporting, included in the accompanying
        Management’s Report on Internal Control Over Financial Reporting (Item 9A(b)).
        Our responsibility is to express an opinion on the Company's internal control
        over financial reporting based on our audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether effective
        internal control over financial reporting was maintained in all material
        respects. Our audit included obtaining an understanding of internal control
        over
        financial reporting, assessing the risk that a material weakness exists,
        and
        testing and evaluating the design and operating effectiveness of internal
        control based on the assessed risk. Our audit also included performing such
        other procedures as we considered necessary in the circumstances. We believe
        that our audit provides a reasonable basis for our opinion.
  A
        company's internal control over financial reporting is a process designed
        to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles. A company's internal control
        over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company's
        assets that could have a material effect on the financial statements.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.


75




A
      material weakness is a deficiency, or a combination of deficiencies, in internal
      control over financial reporting, such that there is a reasonable possibility
      that a material misstatement of the company’s annual or interim financial
      statements will not be prevented or detected on a timely basis. The following
      material weaknesses have been identified and included in management's
      assessment: the Company did not maintain a sufficient number of accounting
      and
      financial reporting personnel; the Company’s personnel did not have an
      appropriate level of technical expertise in U.S. generally accepted accounting
      principles (US GAAP); the design and implementation of the Company’s controls
      over the completeness and accuracy of accrued **** liabilities
      were not effective as of December 31, 2007. ****


The
        Company acquired Bill Blass Holding, Co., Inc., MaggieMoo’s International, LLC,
        Marble Slab Creamery, Inc., the Waverly, Gramercy, and Village Brands, Pretzel
        Time Franchising, LLC and Pretzelmaker Franchising, LLC (“acquired entities”)
        during 2007, and management excluded from its assessment of the effectiveness
        of
        the Company’s internal control over financial reporting as of December 31, 2007,
        the acquired entities’ internal control over financial reporting associated with
        total assets of $203.2 million (of which $193.1 million represents goodwill
        and
        intangible assets included within the scope of the assessment) and total
        revenues of $25.6 million included in the consolidated financial statements
        of
        NexCen Brands, Inc. and subsidiaries as of and for the year ended December
        31,
        2007. Our audit of internal control over financial reporting of the Company
        also
        excluded an evaluation of the internal control over financial reporting of
        the
        acquired entities.
  We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the consolidated balance sheets of NexCen
        Brands, Inc. and subsidiaries as of December 31, 2007 and 2006 and the related
        consolidated statement of operations, stockholders’ equity and cash flows for
        each of the years in the three-year period ended December 31, 2007. The material
        weaknesses were considered in determining the nature, timing, and extent
        of
        audit tests applied in our audit of the 2007 consolidated financial statements,
        and this report does not affect our report dated March 20, 2008, which expressed
        an unqualified opinion on those consolidated financial statements.
  In
        our
        opinion, because of the effect of the aforementioned material weaknesses
        on the
        achievement of the objectives of the control criteria, the Company has not
        maintained effective internal control over financial reporting as of December
        31, 2007, based on criteria established in *Internal
        Control—Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission.
 
 New
          York,
          New York
 March
          20,
          2008


76




**ITEM
      9(B). OTHER INFORMATION**





None.





**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE**





Item
      10
      is omitted by the Company in accordance with General Instruction G to Form
      10-K.
      The Company will disclose the information required under this item either by
      (a)
      incorporating the information by reference from the Company’s definitive proxy
      statement or (b) filing an amendment to this Form 10-K which contains the
      required information no later than 120 days after the end of the Company’s
      fiscal year.





**ITEM
      11. EXECUTIVE COMPENSATION**





Item
      11
      is omitted by the Company in accordance with General Instruction G to Form
      10-K.
      The Company will disclose the information required under this item either by
      (a)
      incorporating the information by reference from the Company’s definitive proxy
      statement or (b) filing an amendment to this Form 10-K which contains the
      required information no later than 120 days after the end of the Company’s
      fiscal year.





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**





Item
      12
      is omitted by the Company in accordance with General Instruction G to Form
      10-K.
      The Company will disclose the information required under this item either by
      (a)
      incorporating the information by reference from the Company’s definitive proxy
      statement or (b) filing an amendment to this Form 10-K which contains the
      required information no later than 120 days after the end of the Company’s
      fiscal year.





**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





Item
      13
      is omitted by the Company in accordance with General Instruction G to Form
      10-K.
      The Company will disclose the information required under this item either by
      (a)
      incorporating the information by reference from the Company’s definitive proxy
      statement or (b) filing an amendment to this Form 10-K which contains the
      required information no later than 120 days after the end of the Company’s
      fiscal year.





**ITEM
      14. PRINCIPAL ACCOUNTING FEES AND SERVICES**





Item
      14
      is omitted by the Company in accordance with General Instruction G to Form
      10-K.
      The Company will disclose the information required under this item either by
      (a)
      incorporating the information by reference from the Company’s definitive proxy
      statement or (b) filing an amendment to this Form 10-K which contains the
      required information no later than 120 days after the end of the Company’s
      fiscal year.


77


**PART
      IV**





**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**





FINANCIAL
      STATEMENTS AND SCHEDULES





The
      following financial statements required by this item are included in the Report
      beginning on page 35.





Report
                of Independent Registered Public Accounting Firm
            
            36Consolidated
                Balance Sheets as of December 31, 2007 and 2006
            
            37Consolidated
                Statements of Operations for the years ended December 31, 2007, 2006,
                and 2005
            
            38Consolidated
                Statements of Stockholders’ Equity for the years ended December 31,
                2007, 2006 and 2005
            
            39Consolidated
                Statements of Cash Flows for the years ended December 31, 2007, 2006
                and 2005
            
            40Notes
                to Consolidated Financial Statements
            
            41





All
      other
      schedules are omitted because they are not applicable or the required
      information is shown in the Audited Consolidated Financial Statements or the
      notes thereto.





EXHIBITS





The
      following exhibits are filed herewith or are incorporated by reference to
      exhibits previously filed with the SEC.





Exhibit
      Index





*2.1
            
            Agreement
                and Plan of Merger dated June 5, 2006, by and among UCC Capital Corp.,
                UCC
                Consulting Corp., UCC Servicing, LLC, Aether Holdings, Inc., AHINV
                Acquisition Corp., the holders of UCC Shares identified therein and
                Robert
                W. D’Loren, as the Security holders’ Representative. (Designated as
                Exhibit 2.1 to the Form 8−K filed on June 7, 2006)*2.2
            
            Equity
                Interest and Asset Purchase Agreement dated August 21, 2006, by and
                among
                Aether Holdings, Inc., NexCen Franchise Brands, Inc., NexCen Franchise
                Management, Inc., Athlete’s Foot Marketing Associates, LLC, Athlete’s Foot
                Brands, LLC, Robert J. Corliss, Donald Camacho, Timothy Brannon and
                Martin
                Amschler. (Designated as Exhibit 2.1 to the Form 8−K filed on August 22,
                2006)*2.3
            
            Stock
                Purchase Agreement dated December 19, 2006, by and among NexCen Brands,
                Inc., Blass Acquisition Corp., Haresh T. Tharani, Mahesh T. Tharani
                and
                Michael Groveman, Bill Blass Holding Co., Inc., Bill Blass International
                LLC and Bill Blass Licensing Co., Inc. (Designated as Exhibit 2.1
                to the
                Form 8−K filed on December 21, 2006)*2.4
            
            Agreement
                and Plan of Merger dated February 14, 2007, by and among NexCen Brands,
                Inc., MM Acquisition Sub, LLC, MaggieMoo’s International, LLC, Stuart
                Olsten, Jonathan Jameson, and the Securityholders’ Representative.
                (Designated as Exhibit 2.1 to the Form 8−K filed on February 21,
                2007)*2.5
            
            Asset
                Purchase Agreement dated February 14, 2007, by and among NexCen Brands,
                Inc., NexCen Acquisition Corp., and Marble Slab Creamery, Inc. (Designated
                as Exhibit 2.2 to the Form 8−K filed on February 21,
                2007)*2.6
            
            Asset
                Purchase Agreement dated March 13, 2007, by and among NexCen Brands,
                Inc.,
                WV IP Holdings, LLC and F. Schumacher & Co. (Designated as Exhibit 2.4
                to the Form 10-K filed on March 16, 2007)*2.7
            
            Asset
                Purchase Agreement dated August 7, 2007, by and among NexCen Asset
                Acquisition, LLC, Pretzel Time Franchising, LLC, Pretzelmaker Franchising,
                LLC and Mrs. Fields Famous Brands, LLC dated August 7, 2007. (Designated
                as Exhibit 2.1 to the Form 8-K filed on August 9, 2007)*3.1
            
            Certificate
                of Incorporation of NexCen Brands, Inc. (Designated as Exhibit 3.1
                to the
                Form 10-Q filed on August 5, 2005)*3.2
            
            Certificate
                of Amendment of Certificate of Incorporation of NexCen Brands, Inc.
                (Designated as Exhibit 3.1 to the Form 8-K filed on November 1,
                2006)*3.3
            
            Amended
                and Restated By-laws of NexCen Brands, Inc. (Designated as Exhibit
                3.1 to
                the Form 8-K filed on March 7, 2008)*4.1
            
            Form
                of Common Stock Certificate. (Designated as Exhibit 4.3 to the Form
                S-8
                filed on December 1, 2006)*4.2
            
            Registration
                Rights Agreement dated as of June 5, 2006, by and among Aether Holdings,
                Inc. and the stockholders listed on Exhibit A thereto. (Designated
                as
                Exhibit 10.6 to the Form 8−K filed on June 7, 2006)*4.3
            
            Registration
                Rights Agreement dated November 7, 2006, by and among NexCen Brands,
                Inc.,
                Robert Corliss and Athlete’s Foot Marketing Associates, LLC. (Designated
                as Exhibit 4.2 to the Form 8−K filed on November 14,
                2006)*4.4
            
            Registration
                Rights Agreement dated February 15, 2007, by and among NexCen Brands,
                Inc., Haresh Tharani, Mahesh Tharani, Michael Groveman and Designer
                Equity
                Holding Company, LLC. (Designated as Exhibit 4.2 to the Form 8-K
                filed on
                February 21, 2007)




78




*4.5
            
            Registration
                Rights Agreement dated February 28, 2007, by and among NexCen Brands,
                Inc.
                and the holders of the outstanding limited liability company interests
                of
                MaggieMoo’s International, LLC. (Designated as Exhibit 4.1 to the Form 8-K
                filed on March 6, 2007)*4.6
            
            Registration
                Rights Agreement dated August 7, 2007, by and among NexCen Brands,
                Inc.,
                Pretzelmaker Franchising, LLC, and Pretzel Time Franchising, LLC.
                (Designated as Exhibit 4.1 to the Form 8−K filed on August 8,
                2007)*+4.7
            
            Stock
                Purchase Warrant dated June 5, 2006, issued to Robert D’Loren. (Designated
                as Exhibit 10.2 to the Form 8−K filed on June 7, 2006)*4.8
            
            Stock
                Purchase Warrant dated June 5, 2006, issued to Jefferies & Company,
                Inc. (Designated as Exhibit 10.3 to the Form 8−K filed on June 7,
                2006)*+4.9
            
            Stock
                Option Grant Agreement by and between Aether Holdings, Inc. and Robert
                W.
                D’Loren. (Designated as Exhibit 10.5 to the Form 8−K filed on June 7,
                2006)*4.10
            
            Common
                Stock Warrant dated November 7, 2006, issued to Robert Corliss.
                (Designated as Exhibit 4.1 to the Form 8−K filed on November 14,
                2006)*4.11
            
            Common
                Stock Warrant dated February 15, 2007, issued to Designer Equity
                Holding
                Company, LLC. (Designated as Exhibit 4.1 to the Form 8-K filed on
                February
                21, 2007)*4.12
            
            Common
                Stock Warrant dated May 2, 2007, issued by NexCen Brands, Inc. to
                Ellery
                Homestyles, LLC. (Designated as Exhibit 4.1 to the Form 8-K filed
                on May
                8, 2007)*4.13
            
            Promissory
                Note in the principal amount of $1,500,000 issued by NexCen Brands,
                Inc.
                to Marble Slab Creamery, Inc. (Designated as Exhibit 4.2 to the Form
                8-K
                filed on March 6, 2007)*4.14
            
            Promissory
                Note in the principal amount of $3,500,000 issued by NexCen Brands,
                Inc.
                to Marble Slab Creamery, Inc. (Designated as Exhibit 4.3 to the Form
                8-K
                filed on March 6, 2007)*9.1
            
            Voting
                Agreement dated November 7, 2006, by and between NexCen Brands, Inc.
                and
                Robert Corliss. (Designated as Exhibit 9.1 to the Form 8−K filed on
                November 14, 2006)*9.2
            
            Voting
                Agreement dated November 7, 2006, by and between NexCen Brands, Inc.
                and
                Athlete’s Foot Marketing Associates, LLC. (Designated as Exhibit 9.2 to
                the Form 8−K filed on November 14, 2006)*9.3
            
            Voting
                Agreement dated February 15, 2007, by and between NexCen Brands,
                Inc. and
                Haresh Tharani, Mahesh Tharani, and Michael Groveman. (Designated
                as
                Exhibit 9.1 to the Form 8-K filed on February 21, 2007)*9.4
            
            Voting
                Agreement dated February 28, 2007, by and among NexCen Brands, Inc.,
                Stuart Olsten and Jonathan Jameson. (Designated as Exhibit 9.1 to
                the Form
                8-K filed on March 6, 2007)*9.5
            
            Voting
                Agreement dated August 7, 2007, by and among NexCen Brands, Inc.,
                Pretzelmaker Franchising, LLC, and Pretzel Time Franchising, LLC.
                (Designated as Exhibit 9.1 to the Form 8−K filed on August 8,
                2007)*+10.1
            
            2006
                Management Bonus Plan. (Designated as Exhibit 10.4 to the Form 8−K filed
                on June 7, 2006)*+10.2
            
            2006
                Long-Term Equity Incentive Plan. (Designated as Exhibit 10.1 to the
                Form
                8−K filed on November 1, 2006)*+10.3
            
            Form
                of 2006 Long-Term Equity Incentive Plan Director Stock Option Award
                Agreement. (Designated as Exhibit 10.15 to the Form 10-K filed
                on March 16, 2007)*+10.4
            
            Form
                of 2006 Long-Term Equity Incentive Plan Employee/Management Stock
                Option
                Award Agreement. (Designated as Exhibit 10.16 to the Form 10-K filed
                on March 16, 2007)*+10.5
            
            Employment
                Agreement dated as of June 5, 2006, by and between Aether Holdings,
                Inc.
                and Robert W. D’Loren. (Designated as Exhibit 10.1 to the Form 8−K filed
                on June 7, 2006)*+10.6
            
            Employment
                Agreement dated as of September 12, 2006, by and between Aether Holdings,
                Inc. and David B. Meister. (Designated as Exhibit 10.1 to the Form
                8−K
                dated September 13, 2006)*+10.7
            
            Employment
                Agreement dated December 11, 2006, by and between NexCen Brands,
                Inc. and
                Charles A. Zona. (Designated as Exhibit 10.1 to the Form 8−K filed on
                December 13, 2006)*+10.8
            
            Employment
                Agreement dated August 29, 2007, by and between NexCen Brands, Inc.
                and
                Sue Nam. (Designated as Exhibit 10.1 to the Form 10-Q filed on November
                9,
                2007)*10.9
            
            Security
                Agreement dated March 12, 2007, by and among NexCen Acquisition Corp.,
                the
                subsidiary borrowers parties thereto and BTMU Capital Corporation.
                (Designated as Exhibit 10.19 to the Form 10-K filed on March 16,
                2007)*10.10
            
            Note
                Funding Agreement dated March 12, 2007, by and among NexCen Acquisition
                Corp., the subsidiary borrowers parties thereto, Victory Receivables
                Corporation and BTMU Capital Corporation. (Designated as Exhibit
                10.20 to
                the Form 10-K filed on March 16, 2007)*10.11
            
            Engagement
                Agreement dated July 2007, by and between NexCen Brands, Inc. and
                Marvin
                Traub Associates, Inc. (Designated as Exhibit 10.1 to the Form 10-Q
                filed
                on August 9, 2007)21.1
            
            Subsidiaries
                of NexCen Brands, Inc.23.1
            
            Consent
                of KPMG LLP31.1
            
            Certification
                pursuant to 17 C.F.R § 240.15d−14 (a), as adopted pursuant to Section 302
                of the Sarbanes−Oxley Act of 2002 for Robert W.
                D’Loren.




79




31.2
            
            Certification
                pursuant to 17 C.F.R § 240.15d−14 (a), as adopted pursuant to Section 302
                of the Sarbanes−Oxley Act of 2002 for David B. Meister.**32.1
            
            Certifications
                pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
                Sarbanes−Oxley Act of 2002 for Robert W. D’Loren and David B.
                Meister.




*
      Incorporated by reference.





**
      These
      certifications are being furnished solely pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 and are not being filed as part of this Annual Report
      on Form 10-K or as a separate disclosure document.





+
      Management contract or compensatory plan or arrangement.




80




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act
      of 1934, the Registrant has duly caused this report on Form 10-K to be signed
      on
      its behalf by the undersigned, thereunto duly authorized on March 21,
      2008.




**NEXCEN
                BRANDS, INC.***By:*
            /s/
                Robert W. D’Loren*ROBERT
                W. D’LOREN**President
                and Chief Executive
                Officer*


81




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed by the following persons in the capacities and on the dates indicated.





**SIGNATURE**
            
            **TITLE**
            
            **DATE**/s/
                David S. Oros
            
            Chairman
                of the Board
            
            March
                21, 2008.DAVID
                S. OROS/s/
                Robert W. D’Loren
            
            Director,
                President, and
            
            March
                21, 2008.ROBERT
                W. D’LOREN
            
            Chief
                Executive Officer/s/
                David B. Meister
            
            Senior
                Vice President and Chief Financial Officer, and
            
            March
                21, 2008.DAVID
                B. MEISTER
            
            Principal
                Financial and Accounting Officer/s/
                Jack Rovner
            
            Director
            
            March
                21, 2008.JACK
                ROVNER/s/
                James T. Brady
            
            Director
            
            March
                21, 2008.JAMES
                T. BRADY/s/
                George P. Stamas
            
            Director
            
            March
                21, 2008.GEORGE
                P. STAMAS/s/
                Jack B. Dunn, IV
            
            Director
            
            March
                21, 2008.JACK
                B. DUNN, IV/s/
                Edward J. Mathias
            
            Director
            
            March
                21, 2008.EDWARD
                J. MATHIAS/s/
                Marvin Traub
            
            Director
            
            March
                21, 2008.MARVIN
                TRAUB/s/
                Paul Caine
            
            Director
            
            March
                21, 2008.PAUL
                CAINE




82