- Quarterly Report (10-Q)

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2009

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

For the Transition Period From ________ to ________ .

Commission file number 0-10593

ICONIX BRAND GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		11-2481903
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1450 Broadway, New York, NY		10018
(Address of principal executive offices)		(Zip Code)

(212) 730-0030

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports requ ir ed 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 requ ir ed to file such reports), and (2) has been subject to such filing requ ir ements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer x	Accelerated filer o
	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No x

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

Common Stock, $.001 Par Value – 59,871,570 shares as of May 6, 2009.

INDEX

FORM 10-Q

Iconix Brand Group, Inc. and Subsidiaries

		Page No.
Part I.	Financial Information	3

Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets – March 31, 2009 (unaudited) and December 31, 2008	3
	Unaudited Condensed Consolidated Income Statements - Three Months Ended March 31, 2009 and 2008	4
	Unaudited Condensed Consolidated Statement of Stockholders' Equity - Three Months Ended March 31, 2009	5
	Unaudited Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2009 and 2008	6
	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	28

Part II.	Other Information	28

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6.	Exhibits	32

Signatures		33

Part I. Financial Information

Item 1. Financial Statements

Iconix Brand Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except par value)

	March 31,			December 31,
	2009			2008 (1)
	(unaudited)
Assets
Current Assets:
Cash (including restricted cash of $5,103 in 2009 and $875 in 2008)	$	43,195		$	67,279
Accounts receivable		47,189			47,054
Deferred income tax assets		2,329			1,655
Prepaid advertising and other		12,720			14,375
Total Current Assets		105,433			130,363
Property and equipment:
Furniture, fixtures and equipment		9,198			9,187
Less: Accumulated depreciation		(2,804	)		(2,468	)
		6,394			6,719
Other Assets:
Restricted cash		15,866			15,866
Marketable securities		7,456			7,522
Goodwill		151,532			144,725
Trademarks and other intangibles, net		1,058,731			1,060,460
Deferred financing costs, net		6,091			6,524
Non-current deferred income tax assets		23,608			25,463
Investment in joint venture		3,989			4,097
Other assets – non-current		18,988			18,520
		1,286,261			1,283,177
Total Assets	$	1,398,088		$	1,420,259

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	23,109		$	22,392
Accounts payable, subject to litigation		1,878			1,878
Deferred revenue		577			5,570
Current portion of long-term debt		46,521			73,363
Total current liabilities		72,085			103,203

Non-current deferred income taxes		122,911			118,469
Long-term debt, less current maturities		531,503			545,226
Long term deferred revenue		9,439			9,272
Total Liabilities		735,938			776,170

Commitments and contingencies

Stockholders' Equity
Common stock, $.001 par value shares authorized 150,000; shares issued 58,077 and 59,077 respectively		58			58
Additional paid-in capital		535,244			533,235
Retained earnings		136,007			120,358
Accumulated other comprehensive loss		(3,912	)		(3,880	)
Less: Treasury stock – 1,125 and 921 shares at cost, respectively		(7,167	)		(5,682	)
Total Iconix Stockholders’ Equity		660,230			644,089
Non-controlling interest		1,920			-
Total Stockholders’ Equity		662,150			644,089
Total Liabilities and Stockholders' Equity	$	1,398,088		$	1,420,259

(1) As adjusted due to implementation of FSP APB 14-1. See Notes 2 and 6.

See Notes to Unaudited Condensed Consolidated Financial Statements.

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Income Statements

(in thousands, except earnings per share data)

	Three Months Ended March 31,
	2009			2008 (1)
Licensing and other revenue	$	50,501			55,667

Selling, general and administrative expenses		16,270			18,711
Expenses related to specific litigation		54			191

Operating income		34,177			36,765

Other expenses:
Interest expense		10,438			12,946
Interest income		(603	)		(1,566	)
Equity loss on joint venture and other		(37	)		-
Other expenses - net		9,798			11,380

Income before income taxes		24,379			25,385

Provision for income taxes		8,730			8,864

Net income	$	15,649		$	16,521

Earnings per share:
Basic	$	0.27		$	0.29

Diluted	$	0.26		$	0.27

Weighted average number of common shares outstanding:
Basic		58,044			57,422

Diluted		60,892			61,350

(1) As adjusted due to implementation of FSP APB 14-1. See Notes 2 and 6.

See Notes to Unaudited Condensed Consolidated Financial Statements.

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statement of Stockholders' Equity

Three Months Ended March 31, 2009

(in thousands)

										Accumulated
						Additional				Other						Non-
	Common Stock					Paid-in		Retained		Comprehensive			Treasury			Controlling
	Shares			Amount		Capital		Earnings		Loss			Stock			Interest		Total
Balance at January 1, 2009 - as adjusted (1)		58,156		$	58	$	533,235	$	120,358	$	(3,880	)	$	(5,682	)	$	-	$	644,089
Shares issued on exercise of stock options		40			-		136		-		-			-			-		136
Shares issued on vesting of restricted stock		85			-		-		-		-			-			-		-
Shares repurchased on the open market		(200	)		-		-		-		-			(1,455	)		-		(1,455	)
Shares repurchased on vesting of restricted stock and exercise of stock options		(4	)		-		-		-		-			(30	)		-		(30	)
Tax benefit of stock option exercises		-			-		261		-		-			-			-		261
Amortization expense in connection with restricted stock		-			-		1,612		-		-			-			-		1,612
Comprehensive income:
Net income		-			-		-		15,649		-			-			-		15,649
Change in fa ir value of cash flow hedge		-			-		-		-		34			-			-		34
Change in fa ir value of securities		-			-		-		-		(66	)		-			-		(66	)
Total comprehensive income		-			-		-		-		-			-			-		15,617
Increase in non-controlling interest		-			-		-		-		-			-			1,920		1,920
Balance at March 31, 2009		58,077		$	58	$	535,244	$	136,007	$	(3,912	)	$	(7,167	)	$	1,920	$	662,150

(1) As adjusted due to implementation of FSP APB 14-1. See Notes 2 and 6.

See Notes to Unaudited Condensed Consolidated Financial Statements.

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended March 31,
	2009			2008 (1)
Cash flows from operating activities:
Net income	$	15,649			16,521
Depreciation of property and equipment		336			71
Amortization of trademarks and other intangibles		1,787			1,917
Amortization of deferred financing costs		605			440
Amortization of convertible note discount		3,340			3,149
Stock-based compensation expense		1,612			2,106
Change in non-controlling interest		(146	)		-
Change in allowance for bad debts		416			173
Accrued interest on long-term debt		1,644			1,344
Equity investment in joint venture		108			-
Deferred income taxes		5,623			4,606
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(551	)		(7,052
Prepaid advertising and other		1,655			(1,217
Other assets		(468	)		363
Deferred revenue		(4,826	)		(4,157
Accounts payable and accrued expenses		(1,067	)		862
Net cash provided by operating activities		25,717			19,126
Cash flows used in investing activities:
Purchases of property and equipment		(11	)		(438
Additions to trademarks		(58	)		(106
Collection on promissory note		-			500
Earn-out payment on acquisition		(6,667	)		-
Net cash used in investing activities		(6,736	)		(44
Cash flows used in financing activities:
Proceeds from exercise of stock options and warrants		136			1,206
Shares repurchased on vesting of restricted stock and exercise of stock options		(30	)		-
Exp ir ation of cash flow hedge		34
Shares repurchased on the open market		(1,455	)		-
Payment of long-term debt		(44,077	)		(20,546
Non-controlling interest contribution		2,066			-
Excess tax benefit from share-based payment arrangements		261			4,001
Restricted cash - current		(4,228	)		1,366
Restricted cash - non-current		-			(679
Net cash used in financing activities		(47,293	)		(14,652
Net (decrease) increase in cash and cash equivalents		(28,312	)		4,430
Cash, beginning of period		66,404			48,067
Cash, end of period	$	38,092			52,497
Balance of restricted cash - current		5,103			3,839
Total cash including current restricted cash, end of period	$	43,195			56,336

(1) As adjusted due to implementation of FSP APB 14-1. See Notes 2 and 6.

Supplemental disclosure of cash flow information:

	Three Months Ended March 31,
	2009		2008

Cash paid during the period:
Income taxes	$	302	$	343
Interest	$	4,874	$	7,823

See Notes to Unaudited Condensed Consolidated Financial Statements.

Iconix Brand Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2009

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes requ ir ed by generally accepted accounting principles for complete financial statements. In the opinion of management of Iconix Brand Group, Inc. (the "Company", “we”, “us”, or “our”), all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fa ir presentation have been included. Operating results for the three months ended March 31, 2009 (“Current Quarter”) are not necessarily indicative of the results that may be expected for a full fiscal year.

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 (“fiscal 2008”).

2. Changes in Accounting

In the f ir st quarter of 2009, the Company adopted the provisions of Financial Accounting Standards Board Staff Position APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion” (“FSP APB 14-1”), which changed the accounting for convertible debt instruments with cash settlement features. FSP APB 14-1 applies to the Company’s previously issued convertible senior subordinated notes (“Convertible Notes”). In accordance with FSP APB 14-1, the Company recognized both the liability and equity components of its Convertible Notes at fa ir value. The liability component is recognized as the fa ir value of a similar instrument that does not have a conversion feature at issuance. The equity component, which is the value of the conversion feature at issuance, is recognized as the difference between the proceeds from the issuance of the Convertible Notes and the fa ir value of the liability component, after adjusting for the deferred tax impact. The Convertible Notes were issued at a coupon rate of 1.875%, which was below that of a similar instrument that does not have a conversion feature. The Company recognizes an effective interest rate of 7.85 % on the carrying amount of the Convertible Notes. The effective rate is based on the rate for a similar instrument that does not have a conversion feature. As such, the valuation of the debt component, using the income approach, resulted in a debt discount of $73.4 million at inception. The debt discount is amortized over the expected life of the debt, which is also the stated life of the debt. See Note 6 for further discussion.

As a result of applying FSP APB 14-1 retrospectively to all periods presented, the Company recognized the following incremental effects on individual line items on the consolidated balance sheet as of December 31, 2008:

(000’s omitted)	Before FSP APB 14-1		Adjustment			After FSP APB 14-1
Non-current deferred income tax liabilities	$	99,604	$	18,865		$	118,469
Long-term debt, less current maturities		594,664		(49,438	)		545,226
Additional paid-in-capital		491,936		41,299			533,235
Retained earnings		131,094		(10,736	)		120,358

The impact of implementing FSP APB 14-1 for the three months ended March 31, 2008 (“Prior Year Quarter”) has increased interest expense by $2.8 million and decreased the provision for income taxes by $1.1 million, the net result of which decreased net income by $1.7 million and decreased diluted earnings per share by $0.03.

The impact of implementing FSP APB 14-1 for the Current Quarter has increased interest expense by $3.0 million and decreased the provision for income taxes by $1.1 million, the net result of which decreased net income by $1.9 million and decreased diluted earnings per share by $0.03.

3. Investments in Joint Ventures

Scion LLC

Scion LLC (“Scion”) is a brand management and licensing company formed by the Company with Shawn “Jay-Z” Carter in March 2007 to buy, create and develop brands across a spectrum of consumer product categories. On November 7, 2007, Scion , through its wholly-owned subsidiary Artful Holdings LLC (“Artful Holdings”), purchased Artful Dodger, an exclusive, high end urban apparel brand for a purchase price of $15.0 million. Concurrent with the acquisition of Artful Dodger, Artful Holdings entered into a license agreement covering all major apparel categories for the United States.

The brand has also been licensed to wholesale partners and distributors in Canada and Europe.

At inception, the Company determined that it would consolidate Scion since , under Financial Accounting Standards Board (“FASB”) Interpretations No. 46 “Consolidation of Variable Interest Entities – revised” (“ FIN 46R ”), the Company effectively holds a 100% equity interest and is the primary beneficiary in the variable interest entity. For the Current Quarter and the Prior Year Quarter, t he impact of consolidating the joint venture into the Company’s unaudited condensed consolidated statement of income decreased net income by $0. 2 million and increased net income by $0.2 million, respectively .

At March 31, 2009, the impact of consolidating the joint venture on the Company’s unaudited condensed consolidated balance sheet has increased current assets by $6.0 million, non-current assets by $15.1 million and current liabilities by $1.4 million. At December 31, 2008, the impact of consolidating the joint venture on the Company’s consolidated balance sheet had increased current assets by $3.5 mill ion, non-current assets by $15.3 million and current liabilities by $2.3 million.

As of March 31, 2009 and December 31, 2008, the Company’s equity at risk in Scion was approximately $ 18.1 million and $16.0 million, respectively . At March 31, 2009 and December 31, 2008, t he carrying value of the consolidated assets that are collateral for the variable interest entity’s obligations total $14.5 million and $14.7 million, respectively, which is comprised of the Artful Dodger trademark. The assets of the Company are not available to the variable interest entity's creditors.

On March 12, 2009, the Company, through its investment in Scion, effectively acquired a 16.5% interest in one of its licensees for $1. The Company has determined that the licensee is a variable interest entity as defined by FIN 46R. However, the Company does not have significant control over the licensee; therefore, this investment is accounted for under the cost method of accounting. As part of the transaction, the Company and its Scion partner each contributed approximately $2.1 million to Scion, which was deposited as cash collateral under the terms of the licensee’s financing agreements. The contributed cash, owned by Scion, is included as short-term restricted cash in the Company’s balance sheet.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”). S FAS 160 requ ir es the recognition of a non-controlling interest (formerly known as a “minority interest”) as equity in the consolidated financial statements and separate from the parent’s equity. For the Current Quarter, the amount of net income attributable to the non-controlling interest is approximately $0.1 million and has been included in equity loss on joint venture and other on the unaudited condensed consolidated income statement.

Iconix China

On September 5, 2008, the Company and Novel Fashions Holdings Limited (“Novel”) formed a 50/50 joint venture (“Iconix China”) to develop, exploit and market the Company's brands in the People’s Republic of China, Hong Kong, Macau and Taiwan (the “China Territory”). Pursuant to the terms of this transaction, the Company contributed to Iconix China substantially all rights to its brands in the China Territory and committed to contribute $5.0 million, and Novel committed to contribute $20 million. Upon closing of the transaction, the Company contributed $2.0 million and Novel contributed $8.0 million. The balance of the parties’ respective contributions are due in September 2009 and September 2010.

At inception, the Company determined, in accordance with FIN 46R, based on the corporate structure, voting rights and contributions of the Company and Novel, that Iconix China is a variable interest entity and not subject to consolidation, as , under FIN46R, the Company is not the primary beneficiary of Iconix China. The Company has recorded its investment under the equity method of accounting.

At March 31, 2009, t he Company’s maximum exposure for this joint venture is $ 6.8 million. At December 31, 2008, the Company’s maximum exposure was $7.1 million.

At March 31, 2009, Iconix China’s balance sheet included approximately $6.6 million in current assets, $23.5 million in total assets, $0.1 million in current liabilities, and $0.1 million in total liabilities. For the Current Quarter, Iconix China’s statement of operations reflects that it ha d less than $0.1 million in revenue and approximately $0.7 million in operating expenses . As a result, for the Current Quarter, the Company recorded a loss of $0.3 million on its equity investment in the Iconix China joint venture.

At December 31, 2008, Iconix China’s balance sheet included approximately $8.3 million in current assets, $25.1 million in total assets, $1.2 million in current liabilities, and $1.2 million in total liabilities.

During the Current Quarter, the Company recorded a loss of $0.3 million on its equity investment in the Iconix China joint venture.

Iconix Latin America

In December 2008, the Company contributed substantially all rights to its brands in Mexico, Central America, South America, and the Caribbean (the “Latin America Territory”) to Iconix Latin America LLC (“Iconix Latin America”), a newly formed wholly-owned subsidiary. On December 29, 2008, New Brands America LLC (“New Brands”), an affiliate of the Falic Group, purchased a 50% interest in Iconix Latin America. Pursuant to the terms of this transaction, the Company has contributed substantially all rights to its brands in the Latin America Territory. In consideration for its 50% interest in Iconix Latin America, New Brands agreed to pay $6 .0 million to the Company. New Brands paid $1.0 million upon closing of this transaction and has committed to pay an additional $5.0 million over the 30 - month period following closing , of which $0.5 million was paid during the Current Quarter . As of March 31, 2009, the balance owed to the Company under this obligation is $4.5 million. T he current portion of $2.0 million is included in the unaudited condensed consolidated balance sheet in prepaid advertising and other and the long term portion of $2.5 million is included in other assets – non-current.

Based on the corporate structure, voting rights and contributions of the Company and New Brands, Iconix Latin America is not considered a variable interest entity under FIN 46R, and, as such, is not subject to consolidation, as the Company is not the primary beneficiary of Iconix Latin America. The Company has recorded its investment under the equity method of accounting.

During the Current Quarter, the Company recorded a gain of $0. 2 million on its equit y investment in the Iconix Latin America joint venture.

4. Fa ir Value Measurements

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

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

Level 2: Other inputs that are observable d ir ectly or ind ir ectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs

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

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

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

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

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

To determine the fa ir value of certain financial instruments, the Company relies on Level 2 inputs generated by market transactions of similar instruments where available, and Level 3 inputs using an income approach when Level 1 and Level 2 inputs are not available. The Company’s assessment of the significance of a particular input to the fa ir value measurement requ ir es judgment and may affect the valuation of financial assets and financial liabilities and the ir placement within the fa ir value hierarchy. The following table summarizes the instruments measured at fa ir value at March 31, 2009:

Carrying Amount as of
March 31, 2009							Valuation
(000's omitted)	Level 1		Level 2		Level 3		Technique
Marketable Securities	$	-	$	-	$	7,456	(B)
Cash Flow Hedge	$	-	$	1	$	-	(A)

Under SFAS No. 159, “The Fa ir Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), entities are permitted to choose to measure many financial instruments and certain other items at fa ir value. The Company did not elect the fa ir value measurement option under SFAS 159 for any of its financial assets or liabilities.

In February 2008 , the FASB issued FASB Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157," which deferred the effective date of adoption of this Staff Position to January 1, 2009 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fa ir value on a recurring basis (that is, at least annually). The Company adopted the deferred provisions of SFAS 157 on January 1, 2009. The adoption of these provisions did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

Marketable Securities

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

As of March 31, 2009, the Company held auction rate securities with a face value of $13.0 million and a fa ir value of $7.5 million. The Company estimated the fa ir value of its auction rate securities using a discounted cash flow model where the Company used the expected rate of interest to be received. Although these auction rate securities continue to pay interest according to the ir stated terms and are backed by insurance, during the Current Quarter the Company has recorded a n unrealized pre-tax loss of $ 0.1 million in other comprehensive loss as a reduction to stockholders’ equity to reflect a temporary decline in the fa ir value of the marketable securities reflecting failed auctions due to sell orders exceeding buy orders. The Company believes the decrease in fa ir value is temporary due to general macroeconomic market conditions, and interest is being paid in full as scheduled. Further, the Company has the ability and intent to hold the securities until an anticipated full redemption, and the Company has no reason to believe that any of the underlying issuers of these auction rate securities or its th ir d-party insurer are presently at risk of default. These funds will not be available to the Company until a successful auction occurs or a buyer is found outside the auction process. As these instruments have failed to auction and may not auction successfully in the near future, the Company has classified its marketable securities as non-current. The following table summarizes the activity for the period:


Auction Rate Securities (000's omitted)	2009			2008
Balance at January 1,	$	7,522		$	10,920
Additions		-			-
Gains (losses) reported in earnings		-			-
Gains (losses) reported in other comprehensive income (loss)		(66	)		(260	)
Balance at March 31,	$	7,456		$	10,660

Cash Flow Hedge

On July 26, 2007, the Company purchased a hedge instrument from Lehman Brothers Special Financing Inc. (“LBSF”) to mitigate the cash flow risk of rising interest rates on the Term Loan Facility (see Note 6 for a description of this credit agreement). This hedge instrument caps the Company’s exposure to rising interest rates at 6.00% for LIBOR for 50% of the forecasted outstanding balance of the Term Loan Facility (“Interest Rate Cap”). Based on management’s assessment, the Interest Rate Cap qualifies for hedge accounting under SFAS 133 “Accounting for Derivative Instruments and Hedging Transactions”. On a quarterly basis, the value of the hedge is adjusted to reflect its current fa ir value, with any adjustment flowing through other comprehensive income. The fa ir value of this instrument is obtained by comparing the characteristics of this cash flow hedge with similarly traded instruments, and is therefore classified as Level 2 in the fa ir value hierarchy. At March 31, 2009, the fa ir value of the Interest Rate Cap was $1,000. On October 3, 2008, LBSF filed a petition for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. The Company currently believes that the LBSF bankruptcy filing and its potential impact on LBSF will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Non-Financial Assets and Liabilities

On January 1, 2009, the Company adopted the provisions of SFAS 157 with respect to its non-financial assets and liabilities requ ir ing non-recurring adjustments to fa ir value. The Company uses level 3 inputs and the income method to measure the fair value of its non-financial assets and liabilities. The Company had no adjustments in the Current Quarter. The Company has goodwill, which is tested for impa ir ment at least annually, as requ ir ed by SFAS 142. Further, in accordance with SFAS 142, the Company’s indefinite-lived trademarks are tested for impa ir ment at least annually, on an individual basis as separate single units of accounting. Similarly, consistent with SFAS 144 “Accounting for the Impa ir ment or Disposal of Long-Lived Assets”, we assess whether or not there is impa ir ment of the Company’s definite-lived trademarks. See Note 5.

5. Trademarks and Other Intangibles, net

Trademarks and other intangibles, net consist of the following:

			March 31, 2009						December 31, 2008

	Estimated		Gross						Gross
	Lives in		Carrying			Accumulated			Carrying			Accumulated
(000's omitted)	Years		Amount			Amortization			Amount			Amortization

Indefinite life trademarks		indefinite		$	1,035,436		$	9,498		$	1,035,791		$	9,498
Definite life trademarks		10-15			19,565			2,612			19,152			2,252
Non-compete agreements		2-15			10,075			6,476			10,075			6,098
Licensing agreements		1-9			22,193			10,157			22,193			9,136
Domain names		5			570			365			570			337
				$	1,087,839		$	29,108		$	1,087,781		$	27,321

Amortization expense for intangible assets was $1.8 million and $1.9 million for the Current Quarter and the Prior Year Quarter, respectively. The trademarks of Candies, Bongo, Joe Boxer, Rampage, Mudd, London Fog, Mossimo, Ocean Pacific, Danskin, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma, Starter and Waverly have been determined to have an indefinite useful life and accordingly, consistent with SFAS 142, no amortization will be recorded in the Company's consolidated income statements. Instead, each of these intangible assets will be tested for impa ir ment at least annually on an individual basis as separate single units of accounting, with any related impa ir ment charge recorded to the statement of operations at the time of determining such impa ir ment. Similarly, consistent with SFAS 144 “Accounting for the Impa ir ment or Disposal of Long-Lived Assets”, there was no impa ir ment of the definite-lived trademarks.

6. Debt Arrangements

The Company's debt is comprised of the following:

	March 31		December 31,
(000’s omitted)	2009		2008
Convertible Senior Subordinated Notes (Note 2)	$	236,935	$	233,999
Term Loan Facility		217,187		255,307
Asset-Backed Notes		111,716		117,097
Sweet Note (Note 7)		12,186		12,186
Total Debt	$	578,024	$	618,589

Convertible Senior Subordinated Notes

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

The Convertible Notes bear interest at an annual rate of 1.875%, payable semi-annually in arrears on June 30 and December 31 of each year, beginning December 31, 2007. However, the Company recognizes an effective interest rate of 7.85 % on the carrying amount of the Convertible Notes. The effective rate is based on the rate for a similar instrument that does not have a conversion feature. During the Current Quarter and the Prior Year Quarter, the Company capitalized all interest associated with the Convertible Notes. The Convertible Notes will be convertible into cash and, if applicable, shares of the Company's common stock based on a conversion rate of 36.2845 shares of the Company's common stock, subject to customary adjustments, per $1,000 principal amount of the Convertible Notes (which is equal to an initial conversion price of approximately $27.56 per share) only under the following c ir cumstances: (1) during any fiscal quarter beginning after September 30, 2007 (and only during such fiscal quarter), if the closing price of the Company's common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is more than 130% of the conversion price per share, which is $1,000 divided by the then applicable conversion rate; (2) during the five business day period immediately following any five consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Notes for each day of that period was less than 98% of the product of (a) the closing price of the Company's common stock for each day in that period and (b) the conversion rate per $1,000 principal amount of the Convertible Notes; (3) if specified distributions to holders of the Company's common stock are made, as set forth in the indenture governing the Convertible Notes (“Indenture”); (4) if a “change of control” or other “fundamental change,” each as defined in the Indenture, occurs; (5) if the Company chooses to redeem the Convertible Notes upon the occurrence of a “specified accounting change,” as defined in the Indenture; and (6) during the last month prior to maturity of the Convertible Notes. If the holders of the Convertible Notes exercise the conversion provisions under the c ir cumstances set forth, the Company will need to remit the lower of the principal balance of the Convertible Notes or the ir conversion value to the holders in cash. As such, the Company would be requ ir ed to classify the ent ir e amount outstanding of the Convertible Notes as a current liability in the following quarter. The evaluation of the classification of amounts outstanding associated with the Convertible Notes will occur every quarter.

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

Pursuant to Emerging Issues Task Force (“EITF”) 90-19, “Convertible Bonds with Issuer Option to Settle for Cash upon Conversion” (“EITF 90-19”), EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock” (“EITF 00-19”), and EITF 01-6, “The Meaning of Indexed to a Company's Own Stock” (“EITF 01-6”), the Convertible Notes are accounted for as convertible debt in the accompanying u naudited c ondensed c onsolidated b alance s heet and the embedded conversion option in the Convertible Notes has not been accounted for as a separate derivative. For a discussion of the effects of the Convertible Notes and the Convertible Note Hedge and Sold Warrants discussed below on earnings per share, see Note 8.

In June 2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock” ( “ EITF 07-5 ” ). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company has evaluated the impact of EITF 07-5, and has determined it has no impact on the Company’s results of operations and financial position in the Current Quarter, and will have no impact on the Company’s results of operations and financial position in future fiscal periods .

At March 31, 2009 and December 31, 2008 , the amount of the Convertible Notes accounted for as a liability under FSP APB 14-1 was $236.9 million and $234.0 million, and is reflected on the unaudited condensed consolidated balance sheets as follows:

	March 31,			December 31,
	2009			2008
Equity component carrying amount		$	41,309		$	41,309
Unamortized discount			50,565			53,501
Net debt carrying amount			236,935			233,999

For the Current Quarter and the Prior Year Quarter, the Company recorded additional non-cash interest expense of $3.1 million and $2.9 million, respectively, representing the difference between the stated interest rate on the Convertible Notes and the rate for a similar instrument that does not have a conversion feature .

For both the Current Quarter and the Prior Year Quarter, contractual interest expense relating to the Convertible Notes was $1.3 million.

The Convertible Notes do not provide for any financial covenants.

In connection with the sale of the Convertible Notes, the Company entered into hedges for the Convertible Notes (“Convertible Note Hedges”) with respect to its common stock with two entities, one of which was Lehman Brothers OTC Derivatives Inc. (“Lehman OTC” and together with the other counterparty, the “Counterparties”). Pursuant to the agreements governing these Convertible Note Hedges, the Company purchased call options (the “Purchased Call Options”) from the Counterparties covering up to approximately 10.4 million shares of the Company's common stock of which 40% were purchased from Lehman OTC. These Convertible Note Hedges are designed to offset the Company's exposure to potential dilution upon conversion of the Convertible Notes in the event that the market value per share of the Company's common stock at the time of exercise is greater than the strike price of the Purchased Call Options (which strike price corresponds to the initial conversion price of the Convertible Notes and is simultaneously subject to certain customary adjustments). On June 20, 2007, the Company paid an aggregate amount of approximately $76.3 million of the proceeds from the sale of the Convertible Notes for the Purchased Call Options, of which $26.7 million was included in the balance of deferred income tax assets at June 30, 2007 and is being recognized over the term of the Convertible Notes. As of March 31 2009, the balance of deferred income tax assets related to this transaction was $ 17.4 million.

The Company also entered into separate warrant transactions with the Counterparties whereby the Company, pursuant to the agreements governing these warrant transactions, sold to the Counterparties warrants (the “Sold Warrants”) to acqu ir e up to 3.6 million shares of the Company's common stock of which 40% were sold to Lehman OTC, at a strike price of $42.40 per share of the Company's common stock. The Sold Warrants will become exercisable on September 28, 2012 and will exp ir e by the end of 2012. The Company received aggregate proceeds of approximately $37.5 million from the sale of the Sold Warrants on June 20, 2007.

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

The Company has evaluated the impact of adopting EITF 07-5 as it relates to the Sold Warrants, and has determined it has no impact on the Company’s results of operations and financial position in the Current Quarter, and will have no impact on the Company’s results of operations and financial position in future fiscal periods .

As the Convertible Note Hedge transactions and the warrant transactions were separate transactions entered into by the Company with the Counterparties, they are not part of the terms of the Convertible Notes and will not affect the holders' rights under the Convertible Notes. In addition, holders of the Convertible Notes will not have any rights with respect to the Purchased Call Options or the Sold Warrants.

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

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

On September 15, 2008 and October 3, 2008, respectively, Lehman Brothers Holdings Inc. (“Lehman Holdings”) and its subsidiary, Lehman OTC, filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. The Company currently believes that the bankruptcy filings and the ir potential impact on these entities will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company will continue to monitor the bankruptcy filings of Lehman Holdings and Lehman OTC. The terms of the Convertible Notes and the rights of the holders of the Convertible Notes are not affected in any way by the bankruptcy filings of Lehman Holdings or Lehman OTC.

Term Loan Facility

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

On October 3, 2007, in connection with the acquisition of Official-Pillowtex LLC, a Delaware limited liability company (“Official-Pillowtex”), with the proceeds of the Convertible Notes, the Company pledged to LCPI, for the benefit of the Lenders, 100% of the capital stock owned by the Company in Mossimo, Inc., a Delaware corporation (“MI”), and Pillowtex Holdings and Management Corporation, a Delaware corporation (“PHM”), each of which guaranteed the Company’s obligations under the Credit Agreement. Simultaneously with the acquisition of Official-Pillowtex, each of Mossimo Holdings LLC, a Delaware limited liability company (“Mossimo Holdings”), and Official-Pillowtex guaranteed the Company’s obligations under the Credit Agreement. On September 10, 2008, PHM was converted into a Delaware limited liability company, Pillowtex Holdings and Management LLC (“PHMLLC”), and the Company’s membership interest in PHMLLC was pledged to LCPI in place of the capital stock of PHM.

On December 17, 2007, in connection with the acquisition of the Starter brand, the Company borrowed an additional $63.2 million pursuant to the Term Loan Facility (the “Additional Borrowing”). The net proceeds received by the Company from the Additional Borrowing were $60 million.

As of March 31, 2009, the Company may borrow an additional $36.8 million under the terms of the Term Loan Facility.

The guarantees under the Term Loan Facility are secured by a pledge to LCPI, for the benefit of the Lenders, of, among other things, the Ocean Pacific/OP, Danskin, Rocawear, Mossimo, Cannon, Royal Velvet, Fieldcrest, Charisma, Starter and Waverly trademarks and related intellectual property assets, license agreements and proceeds therefrom. Amounts outstanding under the Term Loan Facility bear interest, at the Company’s option, at the Eurodollar rate or the prime rate, plus an applicable margin of 2.25% or 1.25%, as the case may be, per annum. The Credit Agreement provides that the Company is requ ir ed to repay the outstanding term loan in equal quarterly installments in annual aggregate amounts equal to 1.00% of the aggregate principal amount of the loans outstanding, subject to adjustment for prepayments, in addition to an annual payment equal to 50% of the excess cash flow from the subsidiaries subject to the Term Loan Facility, as described in the Credit Agreement, with any remaining unpaid principal balance to be due on April 30, 2013 (the “Loan Maturity Date”). Upon completion of the Convertible Notes offering, the Loan Maturity Date was accelerated to January 2, 2012. The Term Loan Facility can be prepaid, without penalty, at any time. On March 11, 2008, the Company paid to LCPI, for the benefit of the Lenders, $15.6 million, representing 50% of the excess cash flow from the subsidiaries subject to the Term Loan Facility for the year ended December 31, 2007. As a result of such payment, the Company is no longer requ ir ed to pay the quarterly installments described above. The Term Loan Facility requ ir es the Company to repay the principal amount of the term loan outstanding in an amount equal to 50% of the excess cash flow of the subsidiaries subject to the Term Loan Facility for the most recently completed fiscal year. During the Current Quarter, the Company paid to LCPI, for the benefit of the Lenders, $38.7 million, representing 50% of the excess cash flow from the subsidiaries subject to the Term Loan Facility for the year ended December 31, 2008. As of March 31, 2009, $11.6 million has been classified as current portion of long-term debt, which represents 50% of the excess cash flow for the Current Quarter of the subsidiaries subject to the Term Loan Facility. The aggregate amount of 50% of the excess cash flow for all four quarters in 2009 will be paid during the f ir st quarter of 2010. For the Current Quarter, the effective interest rate of the Term Loan Facility was 3.71%. For the 3 months ending June 30, 2009, the effective interest rate of the Term Loan Facility will be 3.47%. At March 31, 2009, the balance of the Term Loan Facility was $217.2 million. As of March 31, 2009, the Company was in compliance with all material covenants set forth in the Credit Agreement. The $272.5 million in proceeds from the Term Loan Facility were used by the Company as follows: $204.0 million was used to pay the cash portion of the initial consideration for the acquisition of the Rocawear brand; $2.1 million was used to pay the costs associated with the Rocawear acquisition; $60 million was used to pay the consideration for the acquisition of the Starter brand; and $3.9 million was used to pay costs associated with the Term Loan Facility. The costs of $3.9 million relating to the Term Loan Facility have been deferred and are being amortized over the life of the loan, using the effective interest method. As of March 31, 2009, the subsidiaries subject to the Term Loan Facility were Studio IP Holdings, SHM, OP Holdings, OPHM, Mossimo Holdings, MI, Official-Pillowtex and PHMLLC (collectively, the “Term Loan Facility Subsidiaries”). As of March 31, 2009, the Term Loan Facility Subsidiaries, d ir ectly or ind ir ectly, owned the following trademarks: Danskin, Rocawear, Starter, Ocean Pacific/OP, Mossimo, Cannon, Royal Velvet, Fieldcrest, Charisma and Waverly.

On July 26, 2007, the Company purchased a hedge instrument to mitigate the cash flow risk of rising interest rates on the Term Loan Facility. See Note 4 for further information.

Asset-Backed Notes

The financing for certain of the Company's acquisitions has been accomplished through private placements by its subsidiary, IP Holdings LLC ("IP Holdings") of asset-backed notes ("Asset-Backed Notes") secured by intellectual property assets (trade names, trademarks, license agreements and payments and proceeds with respect thereto relating to the Candie’s, Bongo, Joe Boxer, Rampage, Mudd and London Fog brands) of IP Holdings. At March 31, 2009, the balance of the Asset-Backed Notes was $111.7 million.

Cash on hand in the bank account of IP Holdings is restricted at any point in time up to the amount of the next debt principal and interest payment requ ir ed under the Asset-Backed Notes. Accordingly, $1.0 million and $0.9 million as of March 31, 2009 and December 31, 2008, respectively, are included as restricted cash within the Company's current assets. Further, in connection with IP Holdings' issuance of Asset-Backed Notes, a reserve account has been established and the funds on deposit in such account will be applied to the final principal payment with respect to the Asset-Backed Notes. Accordingly, as of March 31, 2009 and December 31, 2008, $15.9 million has been disclosed as restricted cash within other assets on the Company's balance sheets.

Interest rates and terms on the outstanding principal amount of the Asset-Backed Notes as of March 31, 2009 are as follows: $38.6 million principal amount bears interest at a fixed interest rate of 8.45% with a six year term, $17.1 million principal amount bears interest at a fixed rate of 8.12% with a six year term, and $56.0 million principal amount bears interest at a fixed rate of 8.99% with a six and a half year term. The Asset-Backed Notes have no financial covenants by which the Company or its subsidiaries need comply. The aggregate principal amount of the Asset-Backed Notes will be fully paid by February 22, 2013.

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

Sweet Note

On April 23, 2002, the Company acqu ir ed the remaining 50% interest in Unzipped (see Note 9) from Sweet Sportswear, LLC (“Sweet”) for a purchase price comprised of 3,000,000 shares of its common stock and $11.0 million in debt, which was evidenced by the Company’s issuance of the 8% Senior Subordinated Note due in 2012 (“Sweet Note”). Prior to August 5, 2004, Unzipped was managed by Sweet pursuant to the Management Agreement (as defined in Note 9), which obligated Sweet to manage the operations of Unzipped in return for, commencing in the fiscal year ended January 31, 2003 (“fiscal 2003”), an annual management fee based upon certain specified percentages of net income achieved by Unzipped during the three- year term of the agreement. In addition, Sweet guaranteed that the net income, as defined in the agreement, of Unzipped would be no less than $1.7 million for each year during the term, commencing with fiscal 2003. In the event that the guarantee was not met for a particular year, Sweet was obligated under the Management Agreement to pay the Company the difference between the actual net income of Unzipped, as defined, for such year and the guaranteed $1.7 million. That payment, referred to as the shortfall payment, could be offset against the amounts due under the Sweet Note at the option of either the Company or Sweet. As a result of such offsets, the balance of the Sweet Note was reduced by the Company to $3.1 million as of December 31, 2006 and $3.0 million as of December 31, 2005 and was reflected in Long- term debt. This note bears interest at the rate of 8% per year and matures in April 2012.

In November 2007, the Company received a signed judgment related to the Sweet Sportswear/Unzipped litigation. See Note 11.

The judgment stated that the Sweet Note (originally $11.0 million when issued by the Company upon the acquisition of Unzipped from Sweet in 2002) should total approximately $12.2 million as of December 31, 2007. The recorded balance of the Sweet Note, prior to any adjustments related to the judgment was approximately $3.2 million. The Company increased the Sweet Note by approximately $6.2 million and recorded the expense as an expense related to specific litigation. The Company further increased the Sweet Note by approximately $2.8 million to record the related interest and included the charge in interest expense. As of March 31, 2009, the Sweet Note is approximately $12.2 million and included in the current portion of long-term debt.

In addition, in November 2007 the Company was awarded a judgment of approximately $12.2 million for claims made by it against Hubert Guez and Apparel Distribution Services, Inc. As a result, the Company recorded a receivable of approximately $12.2 million and recorded the benefit in special charges during the year ended December 31, 2007. This receivable is included in other assets - non-current and bears interest, which was accrued for during the Current Quarter and the Prior Year Quarter, at the rate of 8% per year.

Debt Maturities

As of March 31, 2009, the Company’s debt maturities on a calendar year basis are as follows:

(000’s omitted)	Total		April 1 through December 31, 2009		2010		2011		2012		2013
Convertible Notes 1	$	236,935	$	-	$	-	$	-	$	236,935	$	-
Term Loan Facility		217,187		-		11,623		-		205,564		-
Asset-Backed Notes		111,716		16,850		24,216		26,380		33,468		10,802
Sweet Note		12,186		12,186		-		-		-		-
Total Debt	$	578,024	$	29,036		35,839		26,380		475,967		10,802

1 reflects the net debt carrying amount of the Convertible Notes on the unaudited condensed consolidated balance sheet as of March 31, 2009, in accordance with FSP APB 14-1. The principal amount owed to the holders of the Convertible Notes is $287.5 million.

7. Stockholders’ Equity

Stock Options

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

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

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

The Company has estimated its forfeiture rate at 0%. The options that the Company granted under its plans exp ir e at various times, either five, seven or ten years from the date of grant, depending on the particular grant.

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

Options				Weighted-Average
	Options			Exercise Price

Outstanding January 1, 2009		3,895,138		$	4.29
Granted		-			-
Canceled/Forfeited		-
Exercised		(40,000	)		3.39
Exp ir ed		-			-
Outstanding March 31, 2009		3,855,138		$	4.38
Exercisable at March 31, 2009		3,855,138		$	4.38

Warrants

			Weighted-Average
	Warrants		Exercise Price

Outstanding January 1, 2009		286,900	$	16.99
Granted		-
Canceled/Forfeited		-
Exercised		-
Exp ir ed		286,900		16.99
Outstanding March 31, 2009		286,900	$	16.99
Exercisable at March 31, 2009

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

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

Restricted stock

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

The following tables summarize information about unvested restricted stock transactions (shares in thousands):

			Weighted-Average
	Shares		Grant Date Fa ir Value

Non-vested, January 1, 2009		1,513,983	$	18.96
Granted		24,000		9.56
Vested		800		20.89
Forfeited/Canceled		(35,989)		19.11
Non-vested, March 31, 2009		1,502,794	$	18.81

The Company has awarded restricted shares of common stock to certain employees. The awards have restriction periods tied to employment and vest over a period of 2-5 years. The cost of the restricted stock awards, which is the fa ir market value on the date of grant net of estimated forfeitures, is expensed ratably over the vesting period. During the Current Quarter and Prior Year Quarter, the Company awarded 24,000 and 1,789,430 restricted shares, respectively, with a vesting period of 6 months to 5 years and a fa ir market value of approximately $0.2 million and $27.6 million, respectively. During the Current Quarter and Prior Year Quarter, 800 and 82,835 restricted stock grants respectively, had vested. During the Current Quarter, 35,989 restricted stock grants were forfeited or canceled. There were no forfeitures or cancellations during the Prior Year Quarter.

Unearned compensation expense related to restricted stock grants for the Current Quarter and the Prior Year Quarter was approximately $1.6 million and $2.1 million, respectively. An additional amount of $21.1 million is expected to be expensed evenly over a period of approximately 1-4 years. During the Current Quarter and Prior Year Quarter, the Company withheld shares of its common stock valued at less than $0.1 million and $0.3 million, respectively, in connection with net share settlement of restricted stock grants and option exercises.

Stockholder Rights Plan

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

Stock Repurchase Program

On November 3, 2008, the Company announced that its Board of D ir ectors had authorized the repurchase of up to $75 million of the Company's common stock over a period of approximately three years. This authorization replaces any prior plan or authorization. The current plan does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at management's discretion. During the Current Quarter, the Company repurchased 200,000 shares for approximately $1.5 million. No shares were repurchased by the Company during the Prior Year Quarter.

Securities Available for Issuance

As of March 31, 2009, 87,954 common shares were available for issuance of additional awards under the 2006 Stock Option Plan.

8. Earnings Per Share

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

For the Current Quarter, of the total potentially dilutive shares related to restricted stock-based awards, stock options and warrants, 2.7 million were anti-dilutive, compared to 1.5 million for the Prior Year Quarter.

As of March 31, 2009, of the performance related restricted stock-based awards issued in connection with the Company’s new employment agreement with its cha ir man, chief executive officer and president, 1.2 million of such awards (which is included in the total 2.7 million anti-dilutive stock-based awards described above) were anti-dilutive and therefore not included in this calculation.

Warrants issued in connection with the Company’s Convertible Notes financing were anti-dilutive and therefore not included in this calculation. Portions of the Convertible Notes that would be subject to conversion to common stock were anti-dilutive as of March 31, 2009 and therefore not included in this calculation.

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

	For the Year Ended
(000's omitted)	For the Three Months ended March 31,
	2009		2008
Basic		58,044		57,422
Effect of exercise of stock options		2,023		3,757
Effect of contingent common stock issuance		589		144
Effect of assumed vesting of restricted stock		236		27
		60,892		61,350

9. Unzipped Apparel, LLC ( “Unzipped” )

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

On April 23, 2002, the Company acqu ir ed the remaining 50% interest in Unzipped from Sweet for a purchase price of three million shares of the Company's common stock and $11 million in debt evidenced by the Sweet Note. See Note 6. In connection with the acquisition of Unzipped, the Company filed a registration statement with the Securities and Exchange Commission ("SEC") for the three million shares of the Company's common stock issued to Sweet, which was declared effective by the SEC on July 29, 2003.

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

On August 5, 2004, Unzipped terminated the Management Agreement with Sweet, the supply agreement with Azteca and the distribution agreement with ADS and commenced a lawsuit against Sweet, Azteca, ADS and Hubert Guez. See Note 10.

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

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

As a result of the judgment, in the year ended December 31, 2007 (“fiscal 2007”) the balance of the $11.0 million principal amount Sweet Note, originally issued by the Company upon the acquisition of Unzipped from Sweet in 2002, including interest, was increased from approximately $3.2 million to approximately $12.2 million as of December 31, 2007. Of this increase, approximately $6.2 million was attributed to the principal of the Sweet Note and the expense was recorded as an expense related to specific litigation. The remaining $2.8 million of the increase was attributed to related interest on the Sweet Note and recorded as interest expense. As of March 31, 2009, the full $12.2 million current balance of the Sweet Note and $1.2 million of accrued interest are included in the current portion of long term debt and accounts payable and accrued expenses, respectively.

In addition, in November 2007 the Company was awarded a judgment of approximately $12.2 million for claims made by it against Hubert Guez and ADS. As a result, the Company recorded a receivable of approximately $12.2 million and recorded the benefit in special charges for fiscal 2007. As of March 31, 2009, this receivable and the associated accrued interest of $1.2 million are included in other assets - non-current.

10. Expenses Related to Specific Litigation

Expenses related to specific litigation consist of legal expenses and costs related to the Unzipped litigation. For the Current Quarter and Prior Year Quarter, the Company recorded expenses related to specific litigation of $0.1 million and $0.2 million, respectively. See Note 9 and Note 11for information relating to Unzipped.

11. Commitments and Contingencies

Sweet Sportswear/Unzipped litigation

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

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

The Court adopted these preliminary rulings as final on November 16, 2007. On the same day, the Court entered judgment against Mr. Guez in the amount of $10,964,730 and ADS in the amount of $1,272,420, and against each of the Guez defendants with regard to each and every claim that they pursued in the litigation including, without limitation, ADS’s and Azteca’s unsuccessful efforts to recover against Unzipped any account balances claimed to be owed, totaling approximately $3.5 million including interest (collectively, the “Judgments”). In entering the Judgments, the Court upheld the jury’s verdict in favor of the Company relating to its write-down of the senior subordinated note due 2012, issued by the Company to Sweet in connection with the Company’s acquisition of Unzipped for Unzipped’s 2004 fiscal year and disallowed the Company’s write-down of the Sweet Note for Unzipped’s 2005 fiscal year . The monetary portion of the Judgments accrues interest at a rate of 10% per annum from the date of the Judgments’ entry. Also on November 16, 2007, the Court issued a Memorandum Order wherein it upheld an aggregate of approximately $6,800,000 of the jury’s verdicts against Sweet and Azteca, but declined to enter judgment against these entities since it had ordered a new trial with regard to certain other damage awards entered against these entities by the jury.

On November 21, 2007, the Guez defendants filed a notice of appeal. They also filed a $49,090,491 undertaking with the Court, consisting primarily of a $43,380,491 personal surety given jointly by Gerard Guez and Jacqueline Rose Guez, bonding the monetary portions of the judgments. By Order dated December 17, 2007 the Court determined that the undertaking was adequate absent changed circumstances. This determination served to prevent the Company and its subsidiaries from pursuing collection of the monetary portions of the Judgments during the pendency of the appeal. On November 17, 2008, plaintiffs filed a motion seeking to reject the undertaking due to changed circumstances, and a hearing with regard to this motion was held on December 11, 2008. By Order dated February 10, 2009, the Court determined the then-pending undertaking to be insufficient, and ordered defendants to post a supplemental undertaking in the amount of $7,041,198 within 10 days to address the insufficiency. On February 20, 2009 a supplemental undertaking in the amount of $7,041,198 was posted, consisting of cash held in a bank account jointly owned by Gerard Guez and Jacqueline Rose Guez. Due to the posting of this supplemental undertaking, the Company and its subsidiaries remain unable to pursue collection of the monetary portions of the Judgments during the pendency of the appeal.

The Company and its subsidiaries filed a notice of appeal on November 26, 2007, appealing, among other things, those parts of the jury’s verdicts vacated by the Court in connection with the Guez defendants’ post-trial motions.

On March 7, 2008, the Court commenced a hearing with regard to plaintiffs’ petition seeking in excess of $15.0 million attorneys’ fees and costs, which hearing was concluded on April 18, 2008. By order dated May 6, 2008, the Court awarded plaintiffs certain statutory costs against the Guez defendants. The Court also determined that plaintiffs were entitled to pursue recovery of their non-statutory costs, comprised primarily of expert witness fees, incurred in connection with this action. The hearing with regard to plaintiffs’ recovery of non-statutory costs was conducted on August 7 and 8, 2008.

By final order dated October 31, 2008, the plaintiffs’ petition for attorneys’ fees was granted with respect to $7,663,456 of fees. The Court did not award any non-statutory costs. On December 1, 2008, the Judgments were amended to include the $647,712.69 in statutory costs awarded by the Court on May 8, 2008, as well as $100,000 of the attorneys’ fees awarded by the Court on October 31, 2008. On December 5, 2008, the Company filed a notice of appeal from the Court’s orders relating to attorneys’ fees, statutory costs and non-statutory costs.

The Company and its subsidiaries intend to vigorously pursue their appeals, and vigorously defend against the Guez parties’ appeal.

Normal Course litigation

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

12 . Related Party Transactions

Kenneth Cole Productions, Inc.

On May 1, 2003, the Company granted Kenneth Cole Productions, Inc. the exclusive worldwide license to design, manufacture, sell, distribute and market footwear under its Bongo brand. The cha ir man of Kenneth Cole Productions is Kenneth Cole, who is the brother of Neil Cole, the Company's Chief Executive Officer and President. During the Current Quarter and Prior Year Quarter , the Company earned $0.2 million and $0 .3 million, respectively, in royalties from Kenneth Cole Productions.

Candie’s Foundation

The Candie's Foundation, a charitable foundation founded by Neil Cole for the purpose of raising national awareness about the consequences of teenage pregnancy, owed the Company $0.5 million at March 31, 2009 . The Candie's Foundation will pay-off the ent ir e borrowing from the Company during 2009, although additional advance will be made as and when necessary.

Travel

The Company recorded expenses of approximately $ 178,000 and $131,000 for Current Quarter and Prior Year Quarter, respectively, for the h ir e and use of a ir craft solely for business purposes owned by a company in which the Company’s cha ir man, chief executive officer and pr esident is the sole owner. Management believes that all transactions were made on terms and conditions no less favorable than those available in the marketplace from unrelated parties.

13. Segment and Geographic Data

The Company has one reportable segment, licensing and commission revenue generated from its brands. The geographic regions consist of the United States and Other (which principally represents Canada, Japan and Europe). Long lived assets are substantially all located in the United States. Revenues attributed to each region are based on the location in which licensees are located.

The net revenues by type of license and information by geographic region are as follows:

	For the Three Months Ended
(000's omitted)	March 31,
	2009		2008
Revenues by category:
D ir ect-to-retail license	$	23,036	$	15,926
Wholesale license		27,005		37,896
Other		460		1,845
	$	50,501	$	55,667

Revenues by geographic region:
United States	$	48,233	$	52,621
Other		2,268		3,046
	$	50,501	$	55,667

14. Subsequent Events

Agreement with the Former Owners of the Danskin Brand

As part of the Danskin acquisition, completed on March 9, 2007, the purchase and sale agreement contained a provision for the payment of additional consideration of up to $15 million based on certain criteria relating to the achievement of revenue and performance targets through 2011. On April 8, 2009, the Company entered into an agreement with Triumph Apparel Corporation (“Triumph”) relating to the earn-out consideration (the “Adjusted Earn-Out Agreement”). Pursuant to the terms of the Adjusted Earn-Out Agreement, the earn-out consideration was discounted due to early payment from $15 million to $12 million. The $12 million adjusted earn-out consideration was reduced by $3.5 million, representing one year of minimum royalties due from Triumph for 2009 under the Company’s current license with Triumph (which was recorded as deferred revenue) and the remaining $8.5 million was paid through the issuance of 707,547 shares of the Company’s common stock (the “Earn-Out Shares”). Further, the Company has guaranteed a cash payment to the recipients of the Earn-Out Shares if the proceeds from the sale of the Earn-Out Shares is less than $8.5 million. This guarantee will expire on or before November 8, 2009.

Accounts Payable Subject to Litigation

On April 1, 2009, the Company paid $1.9 million pursuant to a settlement agreement entered into in connection with the Redwood Shoe Company litigation. This amount was previously included in accounts payable subject to litigation.

Acquisition of 50% of Hardy Life

On May 4, 2009, the Company acquired a 50% interest in Hardy Way LLC (“Hardy Way”) the owner of the Ed Hardy brands and trademarks, for $17.0 million, comprised of $9.0 million in cash and $8.0 million in shares of the Company’s common stock. In addition, the seller of the 50% interest could be entitled to receive an additional $1.0 million in shares of the Company’s common stock pursuant to an earn-out based on royalties received by Hardy Way for the year ending December 31, 2009.

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

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 . The statements that are not historical facts contained in this report are forward looking statements that involve a number of known and unknown risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond the control of the Company, which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. These risks are detailed in the Company’s Form 10-K for the fiscal year ended December 31, 2008 and other SEC filings. The words “believe”, “anticipate,” “expect”, “confident”, “project”, provide “guidance” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date the statement was made.

Executive Summary. We are a brand management company engaged in licensing, marketing and providing trend d ir ection for a diversified and growing consumer brand portfolio. Our brands are sold across every major segment of retail distribution, from luxury to mass. As of March 31, 2009, the Company owned 17 iconic consumer brands: Candie’s, Bongo, Badgley Mischka, Joe Boxer, Rampage, Mudd, London Fog, Mossimo, Ocean Pacific/OP, Danskin, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma, Starter, and Waverly. In addition, Scion LLC, a joint venture in which we have a 50% investment, owns the Artful Dodger brand. On May 4, 2009, the Company acquired a 50% interest in Hardy Way LLC (“Hardy Way”) the owner of the Ed Hardy trademark. We license our brands worldwide through approximately 190 d ir ect-to-retail and wholesale licenses for use across a wide range of product categories, including footwear, fashion accessories, sportswear, home products and décor, and beauty and fragrance. Our business model allows us to focus on our core competencies of marketing and managing brands without many of the risks and investment requ ir ements associated with a more traditional operating company. Our licensing agreements with leading retail and wholesale partners throughout the world provide us with a predictable stream of guaranteed minimum royalties.

Our growth strategy is focused on increasing licensing revenue from our existing portfolio of brands through adding new product categories, expanding the retail penetration of its existing brands and optimizing the sales of its licensees. We will also seek to continue the international expansion of its brands by partnering with leading licensees and/or joint venture partners throughout the world. Finally, we believe we will continue to acqu ir e iconic consumer brands with applicability to a wide range of merchandise categories and an ability to further diversify its brand portfolio.

We have and continue to focus on cost-saving measures. These measures include a reduction of the total number of total full-time employees in the Current Quarter, as well as a continued review of all operating expenses.

Results of Operations

For the three months ended March 31, 2009

Revenue. Revenue for the Current Quarter decreased to $50.5 million from $55. 7 million for the Prior Year Quarter. The primary driver of this decrease was attributable to our Mudd brand, which is being transitioned to a d ir ect-to-retail license with Kohl’s Corporation and will only f ir st be launched in Kohl’s stores in the second half of 2009 .

Operating Expenses. Consolidated selling, general and administrative, herein referred to as SG&A, expenses totaled $16.3 million in the Current Quarter compared to $18.7 million in the Prior Year Quarter. The decrease of $2.4 million was driven by a variety of cost saving initiatives, including : (i) a decrease of approximately $0.6 million in payroll costs related to a reduction in employee headcount, which was partially offset by the cost of severance for terminated employees; (ii) a decrease of approximately $0.6 million in advertising and marketing related expenses ; (iii) a decrease of $0.5 million in professional fees; and (iv) a decrease of $0.3 million in employee travel related expenses

For the Current Quarter and the Prior Year Quarter, our expenses related to specific litigation included an expense for professional fees of approximately $0.1 million and $0.2 million, respectively, relating to litigation involving Unzipped. See Notes 9 and 10 of Notes to Consolidated Financial Statements.

Operating Income. Operating income for the Current Quarter decreased to $34.2 million, or approximately 68% of total revenue, compared to $36.8 million or approximately 66% of total revenue in the Prior Year Quarter. The increase in our operating margin percentage is primarily the result of the decrease in SG&A, offset by the decrease in revenue, for the reason s detailed above.

Other Expenses - Net – Other expenses - net decreased by $1.6 million in the Current Quarter to $9.8 million, compared to other expenses - net of $11.4 million for the Prior Year Quarter. This decrease was primarily due to interest expense related to our variable rate debt decreased as a result of both a lower average debt balance as well as a decrease in our effective interest rate to 3.71% in the Current Quarter from 7.08% in the Prior Year Quarter . This was offset by a decrease in interest income related to a decrease in interest rates on money invested by us during the Current Quarter.

Provision for Income Taxes. The effective income tax rate for the Current Quarter is approximately 35.8% resulting in the $8.7 million income tax expense, as compared to an effective income tax rate of 34.9% in the Prior Year Quarter which resulted in the $8.9 million income tax expense.

Net Income . The Company’s net income was $15.6 million in the Current Quarter, compared to net income of $16.5 million in the Prior Year Quarter, as a result of the factors discussed above.

Liquidity and Capital Resources

Liquidity

Our principal capital requ ir ements have been to fund acquisitions, working capital needs, and to a lesser extent, capital expenditures. We have historically relied on internally generated funds to finance our operations and our primary source of capital needs for acquisition has been the issuance of debt and equity securities. At March 31, 2009 and December 31, 2008, our cash totaled $43.2 million and $67.3 million, respectively, including short-term restricted cash of $5.1 million and $0.9 million, respectively. Of the $5.1 million of short-term restricted cash at March 31, 2009, $4.1 is in a cash collateral account in our name (see Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements).

The T erm L oan F acility requ ir es us to repay the principal amount of the term loan outstanding in an amount equal to 50% of the excess cash flow of the subsidiaries subject to the term loan facility for the most recently completed fiscal year. During the Current Quarter, we paid $38. 7 million of the principal balance of the T erm L oan F acility, which represents 50% of the excess cash flow of the subsidiaries subject to the T erm L oan F acility for the year ended December 31, 2008.

On May 4, 2009, the Company acquired a 50% interest in Hardy Way, the owner of the Ed Hardy trademark, for $17.0 million, including $9.0 million in cash, which was funded entirely from cash on hand.

We believe that cash from future operations as well as currently available cash will be sufficient to satisfy our anticipated working capital requ ir ements for the foreseeable future. We intend to continue financing future brand acquisitions through a combination of cash from operations, bank financing and the issuance of additional equity and/or debt securities. See Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements for a description of certain prior financings consummated by us.

As of March 31, 2009, our marketable securities consist of auction rate securities. Beginning in the th ir d quarter of 2007, $13.0 million of our auction rate securities had failed auctions due to sell orders exceeding buy orders. These funds will not be available to us until a successful auction occurs or a buyer is found outside the auction process. As a result, $13.0 million of auction rate securities have been written down to $7.5 million, using Level 3 inputs with present value techniques as described by the fa ir value hierarchy and the income approach outlined in SFAS 157, as an cumulative unrealized pre-tax loss of $5. 6 million to reflect a temporary decrease in fa ir value. As the write-down of $5. 6 million has been identified as a temporary decrease in fa ir value, the write-down has not impacted our earnings and is reflected as an other comprehensive loss in the stockholders’ equity section of our consolidated balance sheet. We estimated the fa ir value of our auction rate securities using a discounted cash flow model where we used the expected rate of interest to be received. We believe this decrease in fa ir value is temporary due to general macroeconomic market conditions, and interest is being paid in full as scheduled. Further, we have the ability and intent to hold the securities until an anticipated full redemption, and we have no reason to believe that any of the underlying issuers of these auction rate securities or its th ir d-party insurers are presently at risk of default. We believe our cash flow from future operations and its existing cash on hand will be sufficient to satisfy its anticipated working capital requ ir ements for the foreseeable future, regardless of the timeliness of the auction process.

Changes in Working Capital

At March 31, 2009 and December 31, 2008 the working capital ratio (current assets to current liabilities) was 1.4 6 to 1 and 1.26 to 1, respectively. This increase in our working capital ratio was driven by the factors set forth below:

Operating Activities

Net cash provided by operating activities increased $6. 6 million to $25. 7 million in the Current Quarter from $19.1 million of net cash provided by operating activities in the Prior Year Quarter. This increase is primarily due to an increase of $1.0 million in our non-cash deferred income taxes to $5.6 million in the Current Quarter as compared to $4.6 million in the Prior Year Quarter; a decrease of $1.7 million in prepaid advertising and other, as compared to an increase of $1.2 million in the Prior Year Quarter, and an increase in accounts receivable of $0.6 million in the Current Quarter as compared to an increase of $7.1 million in the Prior Year Quarter. The increases in accounts receivable and prepaid advertising and other in the Prior Year Quarter were primarily related to acquisitions made during the three months ended December 31, 2007. There was no such impact in the Current Quarter as there were no new acquisitions in the Current Quarter, and the acquisition of Waverly during the three months ended December 31, 2008 only accounted for approximately $1.4 million of our $47.1 million balance of accounts receivable at December 31, 2008. The aggregate of these increases to our cash provided by operating activities was offset by a decrease of $0.5 million in stock option expense to $1.6 million in the Current Quarter from $2.1 million in the Prior Year Quarter, a decrease of $1.0 million in accounts payable and accrued expenses in the Current Quarter as compared to an increase of $0.9 million in accounts payable and accrued expenses in the Prior Year Quarter, and an increase of $0.5 million in other assets in the Current Quarter as compared to a decrease of $0.4 million in other assets in the Prior Year Quarter.

Investing Activities

Net cash used in investing activities increased approximately $6. 7 million to $6. 7 million in the Current Quarter from less than $0.1 million of net cash used in investing activities in the Prior Year Quarter. This increase is primarily due to earn-out payments totaling $6. 7 million made during the Current Quarter relating to the Official-Pillowtex acquisition.

Financing Activities

Net cash used in financing activities increased $32. 6 million to $47. 3 million in the Current Quarter from $14.7 million of net cash used in financing activities in the Prior Year Quarter. This increase is primarily due to payment of long term debt. Specifically, our payment in the Prior Year Quarter of 50% of our excess cash flow from the subsidiaries subject to the term loan facility for fiscal 2007 was $15.6 million, as compared to our payment in the Current Quarter of $38.7 million, which represented 50% of our excess cash flow from the subsidiaries subject to the term loan facility for fiscal 2008. Additionally, short-term restricted cash increased $4.2 million primarily as a result of an investment through our joint venture Scion (see Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements), which was offset by a non-controlling interest contribution of $2.1 million. Further, in the Current Quarter the tax benefit from share-based payment arrangements was $0.3 million, as compared to a $4.0 million tax benefit in the Prior Year Quarter. Lastly, during the Current Quarter, we repurchased shares of our common stock for $1.5 million related to a stock repurchase plan authorized by our Board of D ir ectors in November 2008. There were no such repurchases in the Prior Year Quarter.

Other Matters

New Accounting Standards

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fa ir Value of Financial Instruments” (“FSP 107-1 and APB 28-1”). FSP 107-1 and APB 28-1 requ ir e that disclosures about the fa ir value of a company’s financial instruments be made whenever summarized financial information for interim reporting periods is made. The provisions of FSP 107-1 are effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Early adoption of FSP 107-1 and APB 28-1 may be made only if FSP FAS 157-4, “Determining Fa ir Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” and FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impa ir ments” are also adopted early. We are currently evaluating the impact that FSP 107-1 and APB 28-1 will have on our consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fa ir Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). FSP 157-4 does not change the definition of fa ir value as detailed in FAS 157, but provides additional guidance for estimating fa ir value in accordance with FAS 157 when the volume and level of activity for the asset or liability have significantly decreased. The provisions of FSP 157-4 are effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. If early adoption is elected for either FAS 115-2 or FAS 107-1 and APB 28-1, FSP 157-4 must also be adopted early. We are currently evaluating the impact that FSP 157-4 will have on our consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impa ir ments” (“FSP 115-2 and FAS 124-2”). FSP 115-2 and FAS 124-2 amends the other-than-temporary impa ir ment guidance in U.S. GAAP for debt securities and provides additional disclosure requ ir ements for other-than-temporary impa ir ments for debt and equity securities. FSP 115-2 and FAS 124-2 address the determination as to when an investment is considered impa ir ed, whether that impa ir ment is other than temporary, and the measurement of an impa ir ment loss. The provisions of FSP 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. If early adoption is elected for either FAS 157-4 or FAS 107-1 and APB 28-1, FSP 115-2 and FAS 124-2 must also be adopted early. We are currently evaluating the impact that FSP 115-2 and FAS 124-2 will have on our consolidated financial statements.

Summary of Critical Accounting Policies.

Several of the our accounting policies involve management judgments and estimates that could be significant. The policies with the greatest potential effect on our consolidated results of operations and financial position include the estimate of reserves to provide for collectability of accounts receivable. We estimate the collectability considering historical, current and anticipated trends of our licensees related to deductions taken by customers and markdowns provided to retail customers to effectively flow goods through the retail channels, and the possibility of non-collection due to the financial position of its licensees' and the ir retail customers. Due to our licensing model, we do not have any inventory risk and reduced its operating risks, and can reasonably forecast revenues and plan expenditures based upon guaranteed royalty minimums and sales projections provided by its retail licensees.

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

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

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,", herein referred to as SFAS 142, which changed the accounting for goodwill from an amortization method to an impa ir ment-only approach. Upon our adoption of SFAS 142 on February 1, 2002, we ceased amortizing goodwill. As prescribed under SFAS 142, we had goodwill tested for impa ir ment during the years ended December 31, 2008, 2007 and 2006, and no write-downs from impa ir ments were necessary. Our tests for impa ir ment utilize discounted cash flow models to estimate the fa ir values of the individual assets. Assumptions critical to our fa ir value estimates are as follow: (i) discount rates used to derive the present value factors used in determining the fa ir value of the reporting units and trademarks; (ii) royalty rates used in our trade mark valuations; (iii) projected average revenue growth rates used in the reporting unit and trademark models; and (iv) projected long-term growth rates used in the derivation of terminal year values. These tests factor in economic conditions and expectations of management and may change in the future based on period-specific facts and c ir cumstances.

Impa ir ment losses are recognized for long-lived assets, including certain intangibles, used in operations when indicators of impa ir ment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets carrying amount. Impa ir ment losses are measured by comparing the fa ir value of the assets to the ir carrying amount. For the years ended December 31, 2008, 2007, and 2006 there was no impa ir ment present for these long-lived assets.

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), “Accounting for Share-Based Payment”, herein referred to as SFAS 123(R), which requ ir es companies to measure and recognize compensation expense for all stock-based payments at fa ir value. Under SFAS 123(R), using the modified prospective method, compensation expense is recognized for all share-based payments granted prior to, but not yet vested as of, January 1, 2006. Prior to the adoption of SFAS 123(R), we accounted for our stock-based compensation plans under the recognition and measurement principles of accounting principles board, or APB, Opinion No. 25, “Accounting for stock issued to employees,” and related interpretations. Accordingly, the compensation cost for stock options had been measured as the excess, if any, of the quoted market price of our common stock at the date of the grant over the amount the employee must pay to acqu ir e the stock.

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

We adopted FASB Interepretation 48, herein referred to as FIN 48, beginning January 1, 2007. The implementation of FIN 48 did not have a significant impact on our financial position or results of operations. The total unrecognized tax benefit was $1.1 million at the date of adoption. At December 31, 2008, the total unrecognized tax benefit was $1.1 million. However, the liability is not recognized for accounting purposes because the related deferred tax asset has been fully reserved in prior years. We are continuing our practice of recognizing interest and penalties related to income tax matters in income tax expense. There was no accrual for interest and penalties related to uncertain tax positions for the year ended December 31, 2008. We file federal and state tax returns and is generally no longer subject to tax examinations for fiscal years prior to 2004.

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

Seasonal a nd Quarterly Fluctuations .

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

Other Factors

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company limits exposure to foreign currency fluctuations by requ ir ing substantially all of its licenses to be denominated in U.S. dollars.

The Company is exposed to potential loss due to changes in interest rates. Investments with interest rate risk include marketable securities. Debt with interest rate risk includes the fixed and variable rate debt. As of March 31, 2009, the Company had approximately $217.2 million in variable interest debt under its Term Loan Facility. See Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for further explanation. To mitigate interest rate risks, the Company is utilizing derivative financial instruments such as interest rate hedges to convert certain portions of the Company’s variable rate debt to fixed interest rates. If there were an adverse change of 10% in interest rates, the expected effect on net income would be immaterial.

The Company invested in certain auction rate securities. During the Current Quarter, the Company’s balance of auction rate securities failed to auction due to sell orders exceeding buy orders. These funds will not be available to us until a successful auction occurs or a buyer is found outside the auction process. The Company estimated the fa ir value of its auction rate securities to be $7.5 million, using a discounted cash flow model where the Company used the expected rate of interest to be received. The Company believes this decrease in fa ir value is temporary due to general macroeconomic market conditions, and interest is being paid in full as scheduled. Further, the Company has the ability and intent to hold the securities until an anticipated full redemption, and the Company has no reason to believe that any of the underlying issuers of these auction rate securities or its th ir d-party insurers are presently at risk of default. The cumulative effect of the failure to auction since the th ir d quarter of fiscal 2007 has resulted in an accumulated other comprehensive loss of $5.5 million which is reflected in the stockholders’ equity section of the condensed unaudited consolidated balance sheet.

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

On September 15, 2008 and October 3, 2008, respectively, Lehman Holdings and Lehman OTC, filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. The Company currently believes that the bankruptcy filings and the ir potential impact will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company will continue to monitor the bankruptcy filings of Lehman Holdings and Lehman OTC. The terms of the convertible notes and the rights of the holders of the Convertible Notes are not affected in any way by the bankruptcy filings of Lehman Holdings or Lehman OTC.

Item 4. Controls and Procedures

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

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

The principal executive officer and principal financial officer also conducted an evaluation of internal control over financial reporting, herein referred to as internal control, to determine whether any changes in internal control occurred during the quarter ended March 31, 2009 that may have materially affected or which are reasonably likely to materially affect internal control. Based on that evaluation, there has been no change in the Company’s internal control during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to affect, the Company’s internal control.

PART II. Other Information

Item 1. Legal Proceedings

See Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements.

Item 1A. Risk Factors.

In addition to the risk factors disclosed in Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2008, set forth below are certain factors that have affected, and in the future could affect, our operations or financial condition. We operate in a changing env ir onment that involves numerous known and unknown risks and uncertainties that could impact our operations. The risks described below and in our Annual Report on Form 10-K for the year ended December 31, 2008 are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our financial condition and/or operating results.

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

As of March 31, 2009, our balance sheet reflects consolidated debt of approximately $578 million, including secured debt of $328.9 million ($217.2 million under our Term Loan Facility and $111.7 million under Asset-Backed Notes issued by our subsidiary, IP Holdings), primarily all of which was incurred in connection with our acquisition activities. In accordance with FSP APB 14-1, our Convertible Notes are included in our $578 million of consolidated debt at a net debt carrying value of $236.9 million; the principal amount owed to the holders of the Convertible Notes is $287.5 million. We may also assume or incur additional debt, including secured debt, in the future in connection with, or to fund, future acquisitions. Our debt obligations:

could impair our liquidity;

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

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

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

impose restrictions on us with respect to the use of our available cash, including in connection with future acquisitions;

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

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

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

If we are unable to identify and successfully acquire additional trademarks, our growth may be limited, and, even if additional trademarks are acquired, we may not realize anticipated benefits due to integration or licensing difficulties.

A key component of our growth strategy is the acquisition of additional trademarks. Historically, we have been involved in numerous acquisitions of varying sizes. We continue to explore new acquisitions. However, as our competitors continue to pursue our brand management model, acquisitions may become more expensive and suitable acquisition candidates could become more difficult to find. In addition, even if we successfully acquire additional trademarks, we may not be able to achieve or maintain profitability levels that justify our investment in, or realize planned benefits with respect to, those additional brands. Although we seek to temper our acquisition risks by following acquisition guidelines relating to the existing strength of the brand, its diversification benefits to us, its potential licensing scale and the projected rate of return on our investment, acquisitions, whether they be of additional intellectual property assets or of the companies that own them, entail numerous risks, any of which could detrimentally affect our results of operations and/or the value of our equity. These risks include, among others:

unanticipated costs;

negative effects on reported results of operations from acquisition related charges and amortization of acquired intangibles;

diversion of management’s attention from other business concerns;

the challenges of maintaining focus on, and continuing to execute, core strategies and business plans as our brand and license portfolio grows and becomes more diversified;

adverse effects on existing licensing relationships;

potential difficulties associated with the retention of key employees, and the assimilation of any other employees, that may be retained by us in connection with or as a result of our acquisitions; and

risks of entering new domestic and international markets (whether it be with respect to new licensed product categories or new licensed product distribution channels) or markets in which we have limited prior experience.

Acquiring additional trademarks could also have a significant effect on our financial position and could cause substantial fluctuations in our quarterly and yearly operating results. Acquisitions could result in the recording of significant goodwill and intangible assets on our financial statements, the amortization or impairment of which would reduce our reported earnings in subsequent years. No assurance can be given with respect to the timing, likelihood or financial or business effect of any possible transaction. Moreover, as discussed below, our ability to grow through the acquisition of additional trademarks will also depend on the availability of capital to complete the necessary acquisition arrangements. In the event that we are unable to obtain debt financing on acceptable terms for a particular acquisition, we may elect to pursue the acquisition through the issuance by us of shares of our common stock (and in certain cases, convertible securities) as equity consideration which could dilute our common stock because it could reduce our earnings per share, and any such dilution could reduce the market price of our common stock unless and until we were able to achieve revenue growth or cost savings and other business economies sufficient to offset the effect of such an issuance. As a result, there is no guarantee that our stockholders will achieve greater returns as a result of any future acquisitions we complete.

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

Our licensees Target Corporation or Target, Wal-Mart Stores, Inc. or Wal-Mart, Kohl's Corporation. or Kohl’s and Kmart Corporation or Kmart were our four largest direct-to-retail licensees during the Current Quarter, representing approximately 17%, 15%, 7% and 5%, respectively, of our total revenue for such period, while Li & Fung USA was our largest wholesale licensee, representing approximately 11% of our total revenue for such period. Our license agreement with Target for the Mossimo trademark grants it the exclusive U.S. license for substantially all Mossimo-branded products for a term expiring in January 2012; our second license agreement with Target for the Fieldcrest mark grants it the exclusive U.S. license for substantially all Fieldcrest-branded products for an initial term expiring in July 2010; and our third license agreement with Target grants it the exclusive U.S. license for Waverly Home for a broad range of Waverly Home-branded products for a term expiring in January 2011. Our license agreement with Wal-Mart for the Ocean Pacific and OP trademarks grants it the exclusive license in the U.S., China, India and Brazil for substantially all Ocean Pacific/OP-branded products for an term expiring June 30, 2011; our second license agreement with Wal-Mart for the Danskin Now trademark grants it the exclusive license in the U.S. Canada, Argentina, and Central America for substantially all Danskin Now-branded products for an initial term expiring December 2010; and, our third license agreement with Wal-Mart for the Starter trademark grants it the exclusive license in the U.S., Canada and Mexico for substantially all Starter-branded products for an initial term expiring December 2013. Our license agreement with Kohl's for the Candie’s trademark grants it the exclusive U.S. license for a wide variety of Candie’s-branded product categories for a term expiring in January 2011, and our license agreement with Kohl’s for the Mudd trademark grants it the exclusive U.S. license for a wide variety of Mudd-branded product categories for an initial term expiring in January 2011. Our license agreement with Kmart grants it the exclusive U.S. license with respect to the Joe Boxer trademark for a wide variety of product categories for a term expiring in December 2010. Our license agreements with Li & Fung USA grant it the exclusive worldwide license with respect to our Royal Velvet trademarks for a variety of products sold exclusively at Bed Bath & Beyond in the U.S., and the exclusive license (outside of the U.S. and Canada) for the Cannon trademark for a variety of products. The term for each of these licenses with Li & Fung USA expires on December 31, 2013. Because we are dependent on these licensees for a significant portion of our licensing revenue, if any of them were to have financial difficulties affecting its ability to make guaranteed payments, or if any of these licensees decides not to renew or extend its existing agreement with us, our revenue and cash flows could be reduced substantially.

We are dependent upon our chief executive officer and other key executives. If we lose the services of these individuals we may not be able to fully implement our business plan and future growth strategy, which would harm our business and prospects.

Our success as a marketer and licensor of intellectual property is largely due to the efforts of Neil Cole, our president, chief executive officer and chairman. Our continued success is largely dependent upon his continued efforts and those of the other key executives he has assembled. Although we have entered into an employment agreement with Mr. Cole, expiring on December 31, 2012, as well as employment agreements with other of our key executives, there is no guarantee that we will not lose their services. To the extent that any of their services become unavailable to us, we will be required to 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 business plan and future growth strategy, which would harm our business and prospects.

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

As of March 31, 2009, goodwill represented approximately $151.5 million, or approximately 11% of our total assets, and trademarks and other intangible assets represented approximately $1,058.7 million, or approximately 76% of our total assets. Under SFAS 142, goodwill and indefinite life intangible assets, including some of our trademarks, are no longer amortized, but instead are subject to impairment evaluation based on related estimated fair values, with such testing to be done at least annually. While, to date, no impairment write-downs have been necessary, any write-down of goodwill or intangible assets resulting from future periodic evaluations would, as applicable, either decrease our net income or increase our net loss, and those decreases or increases could be material.

Convertible note hedge and warrant transactions that we have entered into may affect the value of our common stock.

In connection with the initial sale of our convertible notes, we entered into convertible note hedges with affiliates of Merrill Lynch and Lehman Brothers, herein referred to as the counterparties, which hedging transactions are expected, but are not guaranteed, to eliminate the potential dilution upon conversion of the convertible notes. At the same time, we entered into sold warrant transactions with the hedge counterparties. In connection with such transactions, the hedge counterparties entered into various over-the-counter derivative transactions with respect to our common stock and purchased our common stock; and they may enter into or unwind various over-the-counter derivatives and/or purchase or sell our common stock in secondary market transactions in the future.

Such activities could have the effect of increasing, or preventing a decline in, the price of our common stock. Such effect is expected to be greater in the event we elect to settle converted notes entirely in cash. The hedge counterparties are likely to modify their hedge positions from time to time prior to conversion or maturity of the convertible notes or termination of the transactions by purchasing and selling shares of our common stock, other of our securities, or other instruments they may wish to use in connection with such hedging. In particular, such hedging modification may occur during any conversion reference period for a conversion of notes. In addition, we intend to exercise options we hold under the convertible note hedge transactions whenever notes are converted and we have elected, with respect to such conversion, to pay a portion of the consideration then due by us to the note holder in shares of our common stock. In order to unwind their hedge positions with respect to those exercised options, the hedge counterparties will likely sell shares of our common stock in secondary market transactions or unwind various over-the-counter derivative transactions with respect to our common stock during the conversion reference period for the converted notes.

The effect, if any, of any of these transactions and activities on the trading price of our common stock will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could adversely affect the value of our common stock. Also, the sold warrant transaction could have a dilutive effect on our earnings per share to the extent that the price of our common stock exceeds the strike price of the warrants.

On September 15, 2008 and October 3, 2008, respectively, Lehman Holdings and Lehman OTC, filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. We currently believe, although there can be no assurance, that the bankruptcy filings and their potential impact on these entities will not have a material adverse effect on our financial position, results of operations or cash flows. We will continue to monitor the bankruptcy filings of Lehman Holdings and Lehman OTC.

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

Marketable securities consist of auction rate securities. From the third quarter of 2007 to the present, our balance of auction rate securities failed to auction due to sell orders exceeding buy orders. These funds will not be available to us until a successful auction occurs or a buyer is found outside the auction process. As a result, $13.0 million of auction rate securities have been written down to approximately $7.5 million, based on our analysis, as an unrealized pre-tax loss to reflect a temporary decrease in fair value, reflected as an accumulated other comprehensive loss of $5.5 million in the stockholders’ equity section of our unaudited condensed consolidated balance sheet. We estimated the fair value of our auction rate securities using a discounted cash flow model where we used the expected rate of interest to be received. We believe this decrease in fair value is temporary due to general macroeconomic market conditions, and interest is being paid in full as scheduled. Further, we have the ability and intent to hold the securities until an anticipated full redemption, and we have no reason to believe that any of the underlying issuers of these auction rate securities or its third-party insurers are presently at risk of default. However, there are no assurances that a successful auction will occur, or that we can find a buyer outside the auction process.

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

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

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

The following table represents information with respect to purchases of common stock made by the Company during the three months ended March 31, 2009:

Month of purchase	Total number of shares purchased (1)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum dollar value of shares that may yet be purchased under the plans or programs
January 1 – January 31		-	$	-	$	-	$	73,177,253
February 1 – February 28		3,080	$	7.96	$	-	$	73,177,253
March 1 – March 31		200,667	$	7.26	$	200,000	$	71,722,003
Total		203,747	$	7.27	$	200,000	$	71,722,003

(1) On November 3, 2008, the Company announced that the Board of D ir ectors authorized the repurchase of up to $75 million of the Company's common stock over a period ending October 30, 2011. This authorization replaced any prior plan or authorization. The current plan does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at management's discretion. Amounts not purchased under the stock repurchase program represent shares surrendered to the Company to pay withholding taxes due upon the vesting of restricted stock

Item 6. Exhibits

EXHIBIT NO.		DESCRIPTION OF EXHIBIT

Exhibit 31.1		Certification of Chief Executive Officer Pursuant To Rule 13a-14 or 15d-14 of The Securities Exchange Act of 1934, As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certification of Chief Financial Officer Pursuant To Rule 13a-14 or 15d-14 of The Securities Exchange Act of 1934, As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certification of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002

Exhibit 32.2		Certification of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002

Signatures

Pursuant to the requ ir ements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Iconix Brand Group, Inc. (Registrant)

Date: May 8, 2009	/s/ Neil Cole
	Neil Cole Cha ir man of the Board, President and Chief Executive Officer (on Behalf of the Registrant)