UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 September 30, 2009
For the Quarterly Period Ended March 31, 2010
Or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-27707

NEXCEN BRANDS, INC.

(Exact name of registrant as specified in its charter)

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

1330 Avenue of the Americas, 34th Floor, New York, NY		10019-5400
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code): (212) 277-1100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No x¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer xo Smaller reporting company ox

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

As of ~~October~~April 3130, ~~2009~~2010, 56,951,730 shares of the registrant’s common stock, $.01 par value per share, were outstanding.

NEXCEN BRANDS, INC.

QUARTERLY REPORT ON FORM 10-Q

THE QUARTER ENDED ~~SEPTEMBER~~MARCH 3031, ~~2009~~2010

INDEX

PART I:	FINANCIAL INFORMATION		1
		PART I - FINANCIAL INFORMATION
ITEM 1:	FINANCIAL STATEMENTS		1
Item 1.		Financial Statements
		Condensed consolidated balance sheets as of September 30, 2009 (unaudited) and December 31, 2008	1
		Condensed Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009		3
		Condensed consolidated statements of operations for the three and nine months ended September 30, 2009 and 2008 (unaudited)	2
		Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 (unaudited)		4
		Condensed consolidated statements of stockholders’ equity/(deficit) for the nine months ended September 30, 2009 and 2008 (unaudited)	3
		Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2010 and 2009 (unaudited)		5
		Condensed consolidated statements of cash flows for the nine months ended September 30, 2009 and 2008 (unaudited)	4
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited)		6
		Notes to Unaudited Condensed Consolidated Financial Statements	5	7
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		21
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		31
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		29
ITEM 4(T):	CONTROLS AND PROCEDURES		31
Item 4(T).		Controls and Procedures		30
PART II:	OTHER INFORMATION		32
		PART II - OTHER INFORMATION
ITEM 1:	LEGAL PROCEEDINGS		32
Item 1.		Legal Proceedings		30
ITEM 1A.	RISK FACTORS		32
Item 1A.		Risk Factors		30
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		32
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		32
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES		32
Item 3.		Defaults Upon Senior Securities		32
ITEM 4:	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		32
Item 4.		(Removed and Reserved)		32
ITEM 5:	OTHER INFORMATION		32
Item 5.		Other Information		32
ITEM 6:	EXHIBITS
Item 6.		Exhibits		33

PART I - FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

NEXCEN BRANDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

	September 30,
	March 31, 2010 (Unaudited)			December 31, 2009
	2009 (Unaudited)			December 31, 2008
ASSETS
Cash and cash equivalents	$	87,~~290~~707		$	87,~~293~~810
Trade receivables, net of allowances of $1,403 and $1,367, respectively		3,567			5,617
Short-term restricted cash		—			1,436
Other receivables		971			834
Trade receivables, net of allowances of $1,386 and $1,472, respectively		3,477			4,061
Inventory		1,298			1,232
Other receivables		841			946
Prepaid expenses and other current assets		1,617			2,439
Inventory		1,289			1,123
Total current assets		15,743			18,415
Prepaid expenses and other current assets		1,239			1,379
Property and equipment, net		2,859			4,395
Total current assets		14,553			16,755
Investment in joint venture		407			87
Property and equipment, net		3,906			3,262
Trademarks and other non-amortizable intangible assets		72,522			78,422
Investment in joint venture		399			335
Other amortizable intangible assets, net of amortization		5,214			6,158
Trademarks and other non-amortizable intangible assets		72,522			72,522
Deferred financing costs and other assets		4,328			5,486
Other amortizable intangible assets, net of amortization		4,827			5,020
Long-term restricted cash		1,954			940
Deferred financing costs and other assets		3,371			3,770
Total assets	$	103,027		$	113,903
Long-term restricted cash		439			980
LIABILITIES AND STOCKHOLDERS' DEFICIT
Total assets	$	100,017		$	102,644
Accounts payable and accrued expenses	$	6,163		$	9,220
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Restructuring accruals		229			153
Accounts payable and accrued expenses	$	6,661		$	6,596
Deferred revenue		3,198			4,044
Restructuring accruals		45			312
Current portion of long-term debt, net of debt discount of $501 and $541, respectively		2,339			611
Deferred revenue		3,197			3,151
Acquisition related liabilities		1,330			4,689
Current portion of debt, net of debt discount of $728 and $853, respectively		135,795			137,330
Total current liabilities		13,259			18,717
Acquisition related liabilities		620			820
Long-term debt, net of debt discount of $482 and $852, respectively		134,586			140,262
Total current liabilities		146,318			148,209
Acquisition related liabilities		~~289~~209			~~480~~196
Other long-term liabilities		3,~~402~~128			3,~~937~~231
Total liabilities		~~151~~149,~~536~~655			~~163~~151,~~396~~636
Commitments and Contingencies
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively		—			—
Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively		—			—
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 56,951,730 and 56,670,643 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively		571			569
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 57,146,302 shares issued and 56,951,730 outstanding at March 31, 2010 and December 31, 2009		571			571
Additional paid-in capital		2,~~684~~685,~~876~~001			2,~~681~~684,~~600~~936
Treasury stock		(1,757	)		(1,757	)
Treasury stock, at cost; 194,572 shares at March 31, 2010 and December 31, 2009		(1,757	)		(1,757	)
Accumulated deficit		(2,~~732~~733,~~199~~453	)		(2,~~729~~732,~~905~~742	)
Total stockholders’ deficit		(4849,~~509~~638	)		(4948,~~493~~992	)
Total liabilities and stockholders’ deficit	$	~~103~~100,~~027~~017		$	~~113~~102,~~903~~644

See accompanying notes to unaudited condensed consolidated financial statements.

NEXCEN BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2009			2008			2009			2008
	2010			2009
Revenues:
Royalty revenues	$	54,~~875~~941		$	65,~~733~~842		$	~~17,861~~		$	~~18,544~~
Factory revenues		4,~~023~~197			4,~~598~~457			~~12,800~~			~~12,334~~
Franchise fee revenues		~~638~~573			~~454~~1,330			~~3,034~~			~~2,434~~
Licensing and other revenues		~~291~~303			~~379~~331			~~873~~			~~1,001~~
Total revenues		10,~~827~~014			1211,~~164~~960			~~34,568~~			~~34,313~~
Operating Expenses:
Operating expenses:
Cost of sales		(2,~~487~~680	)		(32,~~093~~837	)		~~(7,994~~	)		~~(8,389~~	)
Selling, general and administrative expenses:
Franchising		(2,~~997~~916	)		(3,~~459~~091	)		~~(9,558~~	)		~~(12,174~~	)
Corporate		(1,~~646~~416	)		(2,~~987~~084	)		~~(5,642~~	)		~~(10,821~~	)
Professional fees:
Franchising		(~~794~~268	)		(~~498~~410	)		~~(1,764~~	)		~~(1,128~~	)
Corporate		(~~343~~540	)		(71837	)		~~(1,832~~	)		~~(2,079~~	)
Special investigations		(5—	)		(~~1,640~~33	)		~~(90~~	)		~~(3,572~~	)
Impairment of intangible assets		-			(28,148	)		-			(137,881	)
Strategic initiative expenses		(149	)		—
Depreciation and amortization		(~~645~~301	)		(~~902~~862	)		~~(2,370~~	)		~~(2,015~~	)
Restructuring charges		(222	)		(281	)		(222	)		(1,096	)
Total operating expenses		(8,270	)		(10,154	)
Total operating expenses		(9,139	)		(41,079	)		(29,472	)		(179,155	)
Operating income		1,744			1,806
Operating income (loss)		1,688			(28,915	)		5,096			(144,842	)
Non-operating income (expense):
Non-Operating income (expense):
Interest income		47			55
Interest income		50			44			153			378
Interest expense		(2,585	)		(2,834	)
Interest expense		(2,703	)		(2,793	)		(8,286	)		(7,544	)
Financing charges		(3	)		(33	)
Financing charges		(63	)		(791	)		(66	)		(1,717	)
Other income, net		146			348
Other income (expense), net		139			240			858			(436	)
Total non-operating expense		(2,395	)		(2,464	)
Total non-operating expense		(2,577	)		(3,300	)		(7,341	)		(9,319	)
Loss from continuing operations before income taxes		(651	)		(658	)
Loss from continuing operations before income taxes		(889	)		(32,215	)		(2,245	)		(154,161	)
Income taxes:
Income taxes:
Current		(77	)		(74	)
Current		(102	)		(72	)		(256	)		(256	)
Loss from continuing operations		(728	)		(732	)
Deferred		-			-			-			2,936
Income (loss) from discontinued operations, net of tax		17			(133	)
Loss from continuing operations		(991	)		(32,287	)		(2,501	)		(151,481	)
Net loss	$	(711	)	$	(865	)
(Loss) income from discontinued operations, net of taxes of $0, $1,034, $0, $16,116 respectively		(22	)		(6,067	)		207			(88,027	)
Loss per share from continuing operations – basic and diluted	$	(0.01	)	$	(0.02	)
Net loss	$	(1,013	)	$	(38,354	)	$	(2,294	)	$	(239,508	)
Income (loss) per share from discontinued operations – basic and diluted		0.00			(0.00	)
Loss per share (basic and diluted) from continuing operations	$	(0.01	)	$	(0.57	)	$	(0.04	)	$	(2.67	)
Net loss per share – basic and diluted	$	(0.01	)	$	(0.02	)
(Loss) income per share (basic and diluted) from discontinued operations		(0.00	)		(0.11	)		0.00			(1.56	)
Weighted average shares outstanding - basic and diluted		56,952			56,671
Net loss per share - basic and diluted	$	(0.01	)	$	(0.68	)	$	(0.04	)	$	(4.23	)
Weighted average shares outstanding – basic and undiluted		56,952			56,639			56,859			56,509

See accompanying notes to unaudited condensed consolidated financial statements.

NEXCEN BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ ~~EQUITY/(~~DEFICIT)

(IN THOUSANDS)

(UNAUDITED)

	Preferred Stock		Common Stock		Additional Paid-in Capital		Accumulated Deficit			Treasury Stock			Total
					Additional
Balance at December 31, 2007	$	-	$	557	$	2,668,289	$	(2,474,126	)	$	(1,757	)	$	192,963
	Preferred		Common		Paid-in		Treasury			Accumulated
Net loss		-		-		-		(239,508	)		-			(239,508	)
	Stock		Stock		Capital		Stock			Deficit			Total
Total comprehensive loss								(239,508	)					(239,508	)
Balance as of December 31, 2008	$	-	$	569	$	2,681,600	$	(1,757	)	$	(2,729,905	)	$	(49,493	)
Exercise of options and warrants		-		1		4		-			-			5
Net loss		-		-		-		-			(865	)		(865	)
Stock-based compensation		-		-		6,372		-			-			6,372
Total comprehensive loss														(865	)
Common stock issued		-		11		4,650		-			-			4,661
Stock-based compensation		-		-		138		-			-			138
Balance at September 30, 2008	$	-	$	569	$	2,679,315	$	(2,713,634	)	$	(1,757	)	$	(35,507)
Balance at December 31, 2008	$	-	$	569	$	2,681,600	$	(2,729,905	)	$	(1,757	)	$	(49,493	)
Net loss		-		-		-		(2,294	)		-			(2,294	)
Total comprehensive loss								(2,294	)					(2,294	)
Stock-based compensation		-		-		324		-			-			324
Common stock issued		-		2		2,952		-			-			2,954
Balance at September 30, 2009	$	-	$	571	$	2,684,876	$	(2,732,199	)	$	(1,757	)	$	(48,509	)
Balance as of March 31, 2009	$	-	$	571	$	2,684,690	$	(1,757	)	$	(2,730,770	)	$	(47,266	)
Balance as of December 31, 2009	$	-	$	571	$	2,684,936	$	(1,757	)	$	(2,732,742	)	$	(48,992	)
Net loss		-		-		-		-			(711	)		(711	)
Total comprehensive loss														(711	)
Stock-based compensation		-		-		65		-			-			65
Balance as of March 31, 2010	$	-	$	571	$	2,685,001	$	(1,757	)	$	(2,733,453	)	$	(49,638	)

See accompanying notes to unaudited condensed consolidated financial statements.

NEXCEN BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2009			2008
	2010			2009
Cash flow from operating activities:
Cash flows from operating activities:
Net loss	$	(~~2,294~~711	)	$	(~~239,508~~865	)
Add: net (income) loss from discontinued operations		(207	)		88,027
Add: Net (income) loss from discontinued operations		(17	)		133
Net loss from continuing operations		(~~2,501~~728	)		(~~151,481~~732	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Impairment of intangible assets		-			137,881
Provision for doubtful accounts		11			172
Restructuring		-			443
Depreciation and amortization		336			895
Depreciation and amortization		2,474			2,100
Stock based compensation		65			138
Stock based compensation		324			3,005
Unrealized gain on investment in joint venture		(64	)		(267	)
Deferred income taxes		-			(2,936	)
Amortization of debt discount		125			139
Unrealized (gain) loss on investment in joint venture		(278	)		249
Amortization of deferred financing costs		222			241
Realized gain on sale of licensing agreement		(41	)		-
Accrued interest on Deficiency Note		629			540
Amortization of debt discount		410			355
Amortization of deferred financing costs		720			1,260
Accrued interest on Deficiency Note		1,702			-
Changes in assets and liabilities, net of acquired assets and liabilities:
Decrease (increase) in trade receivables, net of allowances		2,050			(236	)
Decrease in trade receivables		573			937
(Increase) decrease in other receivables		(179	)		2,220
Decrease (increase) in other receivables		105			(91	)
(Increase) decrease in inventory		(66166	)		~~543~~13
Decrease (increase) in prepaid expenses and other assets		1,262			(187	)
Decrease in prepaid expenses and other assets		317			450
Decrease in accounts payable and accrued expenses		(~~4,059~~25	)		(~~1,868)~~863	)
Increase in restructuring accruals		76			317
Decrease in restructuring accruals		(267	)		(87	)
(Decrease) increase in deferred revenues		(846	)		113
Increase (decrease) in deferred revenue		46			(995	)
Net cash provided by (used in) operating activities from continuing operations		1,048			(8,222	)
Net cash provided by operating activities from continuing operations		1,179			490
Net cash provided by (used in) operating activities from discontinued operations		~~207~~17			(~~1,143~~133	)
Net cash provided by (used in) operating activities		1,255			(9,365	)
Net cash provided by operating activities		1,196			357
Cash flows from investing activities:
(Increase) decrease in restricted cash		(1,014	)		5,894
Decrease (increase) in restricted cash		1,977			(1,000	)
Purchases of property and equipment		(~~253~~787	)		(~~578~~40	)
Investment in joint venture		-			(725	)
Distributions from joint venture		—			110
Proceeds from sale of licensing agreement		6,200				-
Acquisitions, net of cash acquired		—			(131	)
Purchase of trademarks, including registration costs		-			(46	)
Net cash provided by (used in) investing activities		1,190			(1,061	)
Distributions from joint venture		-			216
Acquisitions, net of cash acquired		(131	)		(95,000	)
Cash used in discontinued operations for investing activities		-			(765	)
Net cash provided by (used in) investing activities		4,802			(91,004	)
Cash flows from financing activities:
Proceeds from debt borrowings		-			70,000
Principal payments on debt		(2,289	)		(296	)
Financing costs		-			(2,549	)
Payments of contingent consideration		(200	)		—
Principal payments on debt		(6,060	)		(3,918	)
Net cash used in financing activities		(2,489	)		(296	)
Proceeds from the exercise of options and warrants		-			5
Net decrease in cash and cash equivalents		(103	)		(1,000	)
Cash used in discontinued operations for financing activities		-			(1,100	)
Cash and cash equivalents, at beginning of period		7,810			8,293
Net cash (used in) provided by financing activities		(6,060	)		62,438
Cash and cash equivalents, at end of period	$	7,707		$	7,293
Net decrease in cash and cash equivalents		(3	)		(37,931	)
Cash paid for interest	$	1,614		$	1,931
Cash and cash equivalents, at beginning of period		8,293			46,569
Cash paid for taxes	$	44		$	129
Cash and cash equivalents, at end of period	$	8,290		$	8,638
Cash paid for interest	$	5,389		$	9,375
Cash paid for taxes	$	270		$	135

See accompanying notes to unaudited condensed consolidated financial statements.

NEXCEN BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) BUSINESS AND BASIS OF PRESENTATION

(a) BUSINESS

NexCen Brands, Inc. (“NexCen”,” “we”,” “us”,” “our” or the “Company”) is a strategic brand management company that owns and manages a portfolio of seven franchised brands, operating in a single business segment: Franchising. Five of our brands (Great American Cookies, Marble Slab Creamery, MaggieMoo’s, Pretzel Time and Pretzelmaker) are in the Quick Service Restaurant (“QSR”) industry. The other two brands (The Athlete’s Foot and Shoebox New York) are in the retail footwear and accessories industry. NexCen Franchise Management, Inc. (“NFM”), a wholly owned subsidiary of NexCen ~~Brands~~, manages all seven franchised brands. Our ~~franchise~~ franchise network, across all of our brands, consists of approximately 1,~~750~~ 700 retail stores in ~~approximately~~38 40 countries. We present the following footnotes based upon our sole operating segment: Franchising.

We earn revenues primarily from ~~the~~ franchising, royalty, licensing and other contractual fees that third parties pay us for the right to use the intellectual property associated with our brands and from the sale of cookie dough and other ancillary products to our Great American Cookies franchisees. We are expanding production capabilities of our manufacturing facility to enable us to produce and sell pretzel mix to our pretzel franchisees beginning in the second quarter of 2010.

(b) BASIS OF PRESENTATION

The Condensed Consolidated Balance Sheet as of ~~September~~March 3031, ~~2009~~2010, and the Condensed Consolidated Statements of Operations ~~for the three and nine month periods ended September 30~~, ~~2009 and 2008, and~~ the Condensed Consolidated Statements of Stockholders’ ~~Equity/(~~Deficit) and the Condensed Consolidated Statements of Cash ~~Flows~~ Flows for the ~~nine~~three ~~month~~months ~~periods~~ ended ~~September~~March 3031, ~~2009~~2010 and ~~2008,~~2009 are unaudited. The unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 270, for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and our majority-owned subsidiaries. In the opinion of management, all adjustments have been made, including normal recurring adjustments, necessary to fairly present the Unaudited Condensed Consolidated Financial Statements. Operating results for the three ~~and nine~~ month ~~periods~~ period ended ~~September~~March 3031, ~~2009~~2010 are not necessarily indicative of the operating results for the full year. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 (the “~~2008~~2009 10-K”). The Company believes that the disclosures provided in this Report are adequate to make the information presented not misleading. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and related notes included in the ~~Company’s 2008~~2009 10-K.

As of ~~September~~March 3031, ~~2009~~2010, we had ~~a total of approximately~~ $87.37 million of cash on hand, which included approximately $43.47 million of cash payments from franchisees and licensees that were held in special accounts (the “lockbox accounts”) controlled by our ~~lender~~ lender, BTMU Capital Corporation (“BTMUCC”), in accordance with the terms of our ~~credit~~ credit facility (the “BTMUCC Credit Facility”). These funds subsequently were applied to the principal and interest on the debt associated with the BTMUCC Credit Facility, and the remainder of the funds were released to the Company for corporate purposes. See Note 2 – Accounting Policies and Pronouncements - Cash and Cash Equivalents and Note 7 – ~~Long-Term~~ Debt for additional information about ~~our~~the ~~credit~~BTMUCC ~~facility~~Credit ~~with BTMUCC~~Facility.

As of ~~September~~March 3031, ~~2009~~2010, we also ~~held~~had ~~a total of approximately $1.9 million of~~ long-term restricted cash. ~~Long-term~~of ~~restricted cash included~~ $10.24 million. ~~consisting~~Approximately of$0.1 amillion ~~portion~~ of the ~~one~~long-~~time,~~term ~~non-refundable~~restricted ~~licensing~~cash ~~fees~~is ~~that~~used ~~we received from the licenses of The Athlete’s Foot trademarks and trade dress~~ for a ~~the~~security ~~territories~~deposit ofon ~~Australia~~our ~~and~~NFM ~~New~~lease, ~~Zealand (See Note 4 – Trademarks~~ and ~~Other Intangible Assets). We plan to use~~ the remaining $10.23 million ofconsists ~~long-term restricted cash, as permitted under the BTMUCC Credit Facility, over the fourth quarter~~ of ~~2009 and~~ ~~the~~amounts ~~first~~restricted ~~quarter~~to offund ~~2010~~capital improvements to expand ~~production~~the production capabilities of our manufacturing facility to enable us to produce and sell pretzel mix ~~for~~to our pretzel franchisees. ~~Long-term restricted~~We ~~cash~~plan ~~also~~to ~~included~~utilize ofthe remaining $0.7 3 million, ~~used to secure letters~~ of ~~credit issued~~this asrestricted ~~security~~cash ~~deposits~~in on the ~~Company’s~~second ~~leased~~quarter ~~facilities~~of 2010.

~~Our~~As of ~~financial~~March ~~condition~~31, ~~and~~2010, ~~liquidity raise substantial doubt about~~ our ~~ability~~total ~~to continue~~debt asoutstanding ~~a going concern. We are highly leveraged; we have no additional borrowing capacity~~ under ~~our credit facility; and~~ the BTMUCC Credit Facility ~~imposes~~before ~~restrictions~~debt ondiscount ~~our~~was ~~ability~~$136.5 tomillion. ~~freely~~As ~~access~~of ~~the~~March ~~capital~~31, ~~markets. In addition~~2010, the ~~BTMUCC Credit Facility imposes various restrictions on our~~remaining ~~use~~scheduled ofprincipal ~~cash~~payments ~~generated~~during by2010 ~~operations. Certain non-ordinary course expenses and expenses beyond a certain total annual limit (which limit does not apply to cost of goods for our manufacturing facility)~~ are ~~not~~$2.6 ~~permitted to be paid out of cash generated from operations, but instead must be paid out of cash on hand~~million.

Our financial condition and liquidity as of March 31, 2010 raise substantial doubt about our ability to continue as a going concern. We remain highly leveraged; we have no additional borrowing capacity under the BTMUCC Credit Facility; and the BTMUCC Credit Facility imposes restrictions on our ability to freely access the capital markets. The BTMUCC Credit Facility also imposes various restrictions on the cash we generate from operations. We are subject to numerous prevailing economic conditions and to financial, business, and other factors beyond our control. In addition, our scheduled principal payments under the BTMUCC Credit Facility include a final principal payment on our Class B Franchise Note of $34.5 million in July 2011. We do not expect that we will be able to meet this obligation.

Our current projections indicate that, although cash generated from operations will provide us with sufficient liquidity to meet our debt service obligations for at least the next twelve months, we will exceed the total annual expense limit for 2009 in December prior to year end. Once we exceed the limit, we will not be able to use the cash in the lockbox accounts to pay expenses other than cost of goods for our manufacturing facility. Instead, we must use our cash on hand until the expense limit resets in January 2010. We are in discussions with BTMUCC to increase the annual expense limit. However, if our lender declines to do so, we may be required to defer payment of some 2009 expenses until the expense limit resets in January 2010, defer, reduce or eliminate certain expenditures going forward, and/or use some or all of our available cash on hand to cover expenses, any or all of which may negatively impact our operations. In addition, if we ultimately are not able to pay our debt service obligations and our necessary operating expenses, we would seek to restructure or refinance our debt, but there can be no guarantee that BTMUCC would agree to any further restructuring or refinancing plans. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern, and do not contain any adjustments that might result if we were unable to continue as a going concern.7

~~(d)~~To ~~USE~~date, OFwe ~~ESTIMATES~~have received waivers or amendments from BTMUCC, including reduction of interest rates, deferral of scheduled principal payment obligations and certain interest payments, waiver and extension of time related to the obligations to issue dilutive warrants, allowance of certain payments to be excluded from debt service obligations, as well as relief from debt coverage ratio requirements, certain capital and operating expenditure limits, certain loan-to-value ratio requirements, certain free cash flow margin requirements and the requirement to provide financial statements by certain deadlines. We anticipate that, absent further waivers and amendments, we will breach certain covenants under the BTMUCC Credit Facility in 2010. Accordingly, we have classified all of the debt outstanding under the BTMUCC Credit Facility as a current liability as of March 31, 2010 and December 31, 2009.

~~The~~If we ~~preparation~~fail ofto ~~consolidated~~meet ~~financial~~debt ~~statements~~service inobligations ~~conformity~~or ~~with~~otherwise ~~GAAP requires~~fail ~~management~~ to ~~make~~comply ~~estimates~~with ~~and assumptions that affect~~ the ~~reported~~ ~~amounts~~financial ~~of assets~~ and ~~liabilities~~other ~~and~~restrictive ~~disclosure~~covenants, ofwe ~~contingent~~would ~~assets~~default ~~and liabilities~~under atour ~~the dates of the consolidated financial statements and the~~BTMUCC ~~reported~~Credit ~~amounts~~Facility, ofwhich ~~income and expenses during the reporting period. Actual results~~ could ~~differ~~then ~~from those estimates. Estimates are used in accounting for~~trigger, among other things, ~~valuation~~BTMUCC’s ofright ~~intangible assets and estimated useful lives of~~to ~~identifiable~~accelerate ~~intangible~~all ~~assets,~~payment ~~accrued revenues~~obligations, ~~allowance~~foreclose ~~for~~on ~~doubtful accounts,~~virtually ~~guarantees,~~all ~~depreciation,~~of ~~restructuring~~the ~~accruals,~~assets ~~valuation~~ of ~~deferred~~the ~~tax~~Company ~~assets~~ and ~~contingencies.~~take ~~Estimates~~control ~~and~~of ~~assumptions~~all ~~are~~of ~~reviewed periodically and~~ the ~~effects~~Company’s ofcash ~~revisions~~flow ~~are~~from ~~reflected~~operations. (See inNote ~~the~~7 ~~consolidated~~–Debt for ~~financial~~details ~~statements~~regarding in the ~~period~~security ~~they~~structure ~~are~~of ~~determined~~the ~~to be necessary~~debt.)

In November 2009, we retained an investment bank to assist us in identifying and evaluating alternatives to the Company’s current debt and capital structure, including recapitalization of the Company, restructuring of our debt and/or sale of some or substantially all of our assets. On May 13, 2010, NexCen entered into an agreement to sell our franchise business (ewhich includes all of the brands we currently manage) to an affiliate of Levine Leichtman Capital Partners (“LLCP”), ~~RECLASSIFICATIONS~~an independent investment firm, for $112.5 million, subject to certain closing adjustments. In conjunction with the execution of the sale agreement, NexCen and certain of our subsidiaries entered into an agreement with BTMUCC, under which BTMUCC will accept a portion of the sale proceeds, at the closing of the sale transaction, in full satisfaction of the outstanding indebtedness owed to BTMUCC. NexCen and certain of our subsidiaries also entered into an amendment and waiver agreement with BTMUCC, which includes certain limited waivers of covenants and obligations in the BTMUCC Credit Facility to facilitate the completion of, and assist NexCen in remaining in compliance with the BTMUCC Credit Facility pending completion of, the sale transaction. See Note 13 – Subsequent Events for additional information about the agreements with LLCP and BTMUCC.

~~Certain~~We have ~~items~~prepared ~~previously~~the ~~reported~~accompanying ~~have~~Unaudited ~~been~~Condensed ~~reclassified~~Consolidated toFinancial ~~conform~~Statements assuming tothat the ~~current~~Company will continue as a going concern, and have not ~~period’s~~included ~~condensed~~any ~~consolidated~~adjustments ~~financial~~that ~~statement~~might ~~presentation~~result if we are unable to continue as a going concern.

(2) ACCOUNTING POLICIES AND PRONOUNCEMENTS

(a) ~~CASH~~ ~~AND~~PRINCIPLES ~~CASH~~OF ~~EQUIVALENTS~~CONSOLIDATION

The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and our majority-owned subsidiaries. We have eliminated all intercompany transactions and balances in consolidation. The Unaudited Condensed Consolidated Financial Statements do not include the accounts or operations of certain brand and marketing funds. See Note 2 (q) – Advertising.

(b) RECLASSIFICATIONS

We have reclassified certain prior year amounts to conform to the current year presentation.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. We use estimates in accounting for, among other things, valuation of intangible assets, estimated useful lives of identifiable intangible assets, accrued revenues, guarantees, depreciation, restructuring accruals, valuation of deferred tax assets and contingencies. We review our estimates and assumptions periodically and reflect the effects of revisions in the consolidated financial statements in the period we determine them to be necessary.

(d) CASH AND CASH EQUIVALENTS

Cash equivalents include all highly liquid investments purchased with original maturities of ninety days or less. Cash and cash equivalents consisted of the following (in thousands):

	September 30, 2009		December 31, 2008
	March 31, 2010		December 31, 2009
Cash	$	5,~~412~~822	$	63,~~632~~874
Money market account		2,878		1,661
Money market accounts		1,885		3,936
Total	$	87,~~290~~707	$	87,~~293~~810

The cash balances atas ~~September~~of 30March 31, ~~2009~~2010 and December 31, ~~2008~~2009 ~~included~~include approximately $43.47 million and $53.18 million, respectively, of cash received from franchisees and licensees that ~~were~~is being held in “lockbox accounts” established with our commercial bank in connection with the BTMUCC Credit Facility to perfect the lender’s security interest in such cash receipts. ~~Under~~Our ~~the~~lender ~~BTMUCC~~first applies ~~Credit~~the ~~Facility,~~cash ~~payments~~ received ~~from franchisees~~into ~~and~~the ~~licensees~~lockbox ~~are~~accounts ~~applied~~ to pay the principal and interest on the debt associated with our BTMUCC Credit Facility on a monthly basis. ~~The~~and ~~remainder~~then ofreleases the ~~funds~~remaining iscash ~~released~~ from the “lockbox accounts” to ~~the~~us ~~Company~~ for general corporate purposes. Our aslender ~~permitted~~then ~~under~~utilizes any excess cash to prepay the debt in accordance with the BTMUCC Credit Facility. See Note 7 ~~terms~~– Debt. Cash on hand also includes $0.6 million of ~~the~~cash previously restricted to secure a letter of credit ~~facility~~for our New York office lease. On April 29, ~~and~~2010, ~~any~~we ~~excess~~entered ~~funds~~into ~~remaining~~an amendment ~~thereafter~~to the lease for the Company’s New York office which reduced the rent by approximately $50,000 ifper ~~any~~month effective as of January 15, 2010. In connection with the execution of this amendment, we replaced the ~~are~~letter ~~utilized~~of credit to ~~repay~~secure the ~~debt~~lease. See Note 713 – ~~Long-Term~~Subsequent ~~Debt~~Events.

(be) ~~TRADE~~ ~~RECEIVABLES,~~SHORT-TERM ~~NET~~RESTRICTED ~~OF ALLOWANCE FOR DOUBTFUL ACCOUNTS~~CASH

~~Trade~~As of ~~receivables~~March ~~consist~~31, of2010, ~~amounts~~we ~~the~~had ~~Company~~no ~~expects~~short-term torestricted ~~collect~~cash. As ~~from~~of ~~franchisees~~December ~~for~~31, ~~royalties~~2009, ~~franchise~~we ~~fees~~had ~~and~~short-term ~~cookie~~restricted ~~dough~~cash ~~sales,~~of ~~and~~$1.4 ~~from~~million ~~licensees~~representing ~~for~~the ~~license~~cash ~~fees,~~held ~~net~~in oflockbox ~~allowance~~accounts ~~for~~that ~~doubtful~~we ~~accounts~~expected ofwould ~~approximately~~not ~~$1.4~~be released to the ~~million~~Company asbut instead would be applied to pay down principal of ~~September~~our 30debt. Under the BTMUCC Credit Facility, ~~2009~~we ~~and~~are asnot reimbursed out of ~~December~~the ~~31,~~cash ~~2008.~~in ~~The~~the ~~Company~~lockbox ~~provides~~accounts afor ~~reserve~~any ~~for~~expenses ~~uncollectible~~paid ~~amounts~~in ~~based~~excess onof our ~~assessment~~annual ~~of individual~~expense ~~accounts~~limit. ~~The~~Instead those ~~Company~~amounts ~~classifies~~are ~~cash~~released ~~flows~~to ~~related~~BTMUCC to ~~net~~pay ~~changes~~down principal in excess of ~~trade~~scheduled ~~receivable~~principal ~~balances~~payments. asWe ~~increases~~exceeded orthe ~~decreases~~expense inlimit ~~trade~~for ~~receivables~~2009. Accordingly, in ~~the~~February 2010, this short-term restricted cash was released to ~~Unaudited~~BTMUCC ~~Condensed~~to ~~Consolidated~~pay ~~Statements~~down $1.4 million of ~~Cash~~our ~~Flows~~debt.

6(f) LONG-TERM RESTRICTED CASH

~~(c)~~As of ~~INVENTORY~~March 31, 2010 and December 31, 2009, we had long-term restricted cash of $0.4 and $1.0 million, respectively. Approximately $0.1 million of long-term restricted cash is used as collateral for a letter of credit on our NFM lease, and the remainder consists of amounts to be used to fund the capital improvements to expand the production capabilities of our manufacturing facility to enable us to produce and sell pretzel mix to our pretzel franchisees. We utilized approximately $0.5 million of this restricted cash in the first quarter of 2010 and plan to utilize the remaining $0.3 million during the second quarter of 2010 to fund the balance of the capital improvements.

~~We value our inventories related to cookie dough manufacturing at the lower of cost~~ (~~computed~~g) ~~on the first-in~~TRADE RECEIVABLES, ~~first-out~~NET ~~method)~~OF orALLOWANCE ~~net~~FOR ~~realizable value.~~DOUBTFUL ACCOUNTS

~~Inventories~~Trade ~~consisted~~receivables consist of ~~the~~amounts ~~following~~we atexpect (to collect from franchisees for royalties, franchise fees and cookie dough sales, and from licensees for license fees, net of allowance for doubtful accounts of approximately $1.4 million and $1.5 million as of March 31, 2010 and December 31, 2009, respectively. We provide a reserve for uncollectible amounts based on our assessment of individual accounts. We classify cash flows related to net changes in ~~thousands):~~trade receivable balances as increases or decreases in net cash provided by operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

	September 30, 2009		December 31, 2008
Raw materials	$	811	$	728
Finished goods		487		504
Total	$	1,298	$	1,232

Details of activity in the allowance for doubtful accounts are as follows (in thousands):

(d) FAIR VALUE OF FINANCIAL INSTRUMENTS

	March 31, 2010		March 31, 2009
Beginning balance	$	1,472	$	1,367
Additions		11		172
Write-offs		(97)		(210)
Ending balance	$	1,386	$	1,329

Effective January 1, 2008, the Company adopted the fair value measurement and disclosure requirements of FASB ASC 820, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), for which the Company adopted the requirements on January 1, 2009. The January 1, 2009 adoption did not have an impact on the Unaudited Condensed Consolidated Financial Statements.9

The determination of the applicable level within the hierarchy of a particular asset or liability depends on the inputs used in valuation as of the measurement date, notably the extent to which the inputs are market-based (~~observable~~h) ~~or internally derived~~ (unobservable). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:INVENTORY

Inventories consist of finished goods and raw materials, and we record them at the lower of cost (first-in, first-out method) or market value. In assessing our ability to realize inventories, we make judgments as to future demand requirements and product expiration dates. The inventory requirements change based on projected customer demand, which changes due to fluctuations in market conditions and product life cycles. We classify cash flows related to changes in inventory as increases or decreases in net cash provided by operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows. Inventories consisted of the following (in thousands):

	March 31, 2010		December 31, 2009
Finished goods	$	774	$	590
Raw materials		515		533
Total	$	1,289	$	1,123

(i) FAIR VALUE OF FINANCIAL INSTRUMENTS

We determine the fair value of our nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in our financial statements, on a recurring basis (at least annually). The determination of the applicable level within the hierarchy of a particular asset or liability depends on the inputs used in valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally derived (unobservable). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

•

Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level 2 — inputs to the valuation methodology based on quoted prices for similar assets and liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable.

•

Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement.

The carrying amounts of cash and cash equivalents and restricted cash approximate their fair values (Level 1). The carrying amounts of debt are based on the actual amounts due under the BTMUCC Credit Facility. The fair value of debt, as discussed ~~included~~ in Note 7 – ~~Long-Term~~ Debt , is based on the fair value of similar instruments as well as model-derived valuations whose inputs are not observable (Level 23). These inputs include estimates of the Company’s credit rating and the returns required for similar instruments by market participants. Management used these inputs to determine discount factors ranging from 1012.16% to 40.0% and applied these factors to the forecasted payment streams to determine the fair value of debt as of ~~September~~March 3031, ~~2009~~2010. A 1% increase in the discount factors would result in a decrease in the fair value of approximately $32.17 million.

(ej) PROPERTY AND EQUIPMENT, NET

We record property and equipment at cost, net of accumulated depreciation. We calculate depreciation using the straight-line method over the estimated useful lives of the assets, which range from three to twenty-five years. We capitalize the costs of leasehold improvements and amortize them using the straight-line method over the shorter of the lease term or the estimated useful life of the asset.

7We review long-lived assets such as property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We measure recoverability of assets to be held and used by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, we recognize an impairment charge in the amount by which the carrying amount of the asset exceeds the fair value of the asset. We would present separately on the balance sheet assets to be disposed of and would report them at the lower of the carrying amount or fair value less costs to sell, and would no longer depreciate them. We would present the assets and liabilities of a disposed group classified as held for sale separately in the appropriate asset and liability sections of the balance sheet.

~~(f) TRADEMARKS AND OTHER INTANGIBLE ASSETS~~10

Trademarks represent the value of expected future royalty income associated with the ownership of the Company’s brands, namely, the Great American Cookies, MaggieMoo’s, Marble Slab Creamery, Pretzel Time, Pretzelmaker and The Athlete’s Foot (~~“TAF”~~k) ~~trademarks. Other intangible assets consist primarily of the~~ ~~customer/supplier~~TRADEMARKS ~~relationship~~AND ~~with~~OTHER ~~Great~~INTANGIBLE American Cookies franchisees, which are non-amortizable, as well as franchise agreements, which we amortize on a straight-line basis over a period ranging from one to twenty years. We amortize intangible assets with estimable useful lives over their respective estimated useful lives to their estimated residual values, and review them for impairment. We do not amortize trademarks and the customer/supplier relationship acquired in a purchase business combination, which are determined to have an indefinite useful life, but instead test them for impairment at least annually. At each reporting period, we assess trademarks and other non-amortizable intangible assets to determine if any changes in facts or circumstances require a re-evaluation of the estimated value. We capitalize material costs associated with registering and maintaining trademarks.ASSETS

We classify intangible assets as follows: (g1) intangible assets with indefinite ~~INCOME~~lives ~~TAXES~~not subject to amortization and (2) intangible assets with definite lives subject to amortization. We do not amortize indefinite-lived intangible assets. We evaluate the remaining useful life of an intangible asset that we are not amortizing at each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If we subsequently determine that an intangible asset that we are not amortizing has a finite useful life, we amortize the intangible asset prospectively over its estimated remaining useful life. We generally amortize the amortizable intangible assets on a straight-line basis.

~~The~~Trademarks ~~Company~~represent ~~recognizes~~the ~~income~~value ~~taxes~~of ~~using~~expected ~~the~~future ~~asset~~royalty ~~and~~income ~~liability~~associated ~~method.~~with ~~Under this~~the ~~method,~~ownership weof ~~recognize~~the ~~deferred~~Company’s ~~tax~~brands, ~~assets~~namely, ~~and~~the ~~liabilities~~Great ~~for~~American ~~the~~Cookies, MaggieMoo’s, ~~future~~Marble ~~tax consequences~~Slab ~~attributable~~Creamery, toPretzelmaker ~~differences~~and ~~between~~The ~~the~~Athlete’s ~~financial~~Foot ~~statement~~(“TAF”) ~~carrying~~trademarks. ~~amounts~~Other ofnon-amortizable ~~existing~~intangible assets ~~and~~consist ~~liabilities~~primarily ~~and~~of ~~their respective tax~~the ~~bases.~~customer/supplier Werelationship ~~measure~~with ~~deferred~~the ~~tax~~Great ~~assets~~American ~~and~~Cookies ~~liabilities~~franchisees. ~~using enacted tax rates~~We ~~expected~~do tonot ~~apply~~amortize totrademarks ~~taxable~~and ~~income~~the incustomer/supplier ~~the~~relationship ~~years~~acquired in ~~which we expect to recover~~a orpurchase ~~settle~~business ~~those temporary differences~~combination. WeInstead ~~recognize~~we ~~the~~test ~~effect~~them offor aimpairment ~~tax~~at ~~rate~~least ~~change~~annually onunless ~~deferred~~we ~~tax~~subsequently ~~assets~~determine ~~and~~that ~~liabilities~~the asintangible ~~income~~asset inhas ~~the~~a ~~period that~~finite ~~includes~~useful ~~the~~life. ~~enactment~~At ~~date.~~each Inreporting ~~assessing~~period, ~~the~~we ~~likelihood~~assess oftrademarks ~~realization~~and ofother ~~deferred~~non-amortizable ~~tax~~intangible assets, ~~the~~to ~~Company~~determine ~~considers~~if ~~whether~~any itchanges isin ~~more~~facts ~~likely than not~~or ~~that~~circumstances ~~some~~require ~~portion~~a orre-evaluation ~~all~~ of the ~~deferred~~estimated ~~tax assets will not be realized~~value. ~~The ultimate~~We ~~realization of deferred tax assets is dependent upon the generation of~~capitalize ~~future~~material ~~taxable~~costs ~~income~~associated ~~during~~with ~~periods~~registering inand ~~which these temporary differences become~~maintaining ~~deductible~~trademarks.

~~(h)~~We ~~REVENUE~~amortize ~~RECOGNITION~~other intangible assets over their respective estimated useful lives to their estimated residual values, and review them for impairment. Amortizable intangible assets consist primarily of franchise agreements which we are amortizing on a straight-line basis over a period ranging from one to twenty years.

Royalties represent periodic fees received from franchisees, which we determine as a percentage of franchisee net sales and recognize as revenues when we earn them on an accrual basis. We recognize franchise fee revenue, which represents initial fees paid by franchisees for franchising rights, when we have performed substantially all initial services required by the franchise agreements, which generally we consider to be upon the opening of the franchisee’s store (~~or the first franchised store under an area development agreement~~l)~~. The opening of~~ aDEFERRED ~~franchisee’s~~FINANCING store is dependent on, among other factors, real estate availability, construction build-out, and financing, which can cause variability of the revenues associated with franchise fees. Licensing revenues represent amounts earned from the use of the Company’s trademarks and we recognize these revenues when we earn them on an accrual basis. We recognize revenues from the sale of cookie dough that we produce and sell to certain franchisees at the time of shipment and classify them in factory revenues. COSTS

~~(i)~~We ~~ADVERTISING~~capitalize costs incurred in connection with borrowings or establishment of credit facilities. We amortize these costs as an adjustment to interest expense over the life of the borrowing or life of the BTMUCC Credit Facility using the effective interest method. The balance of deferred financing costs at March 31, 2010 and December 31, 2009 was $2.0 million and $2.2 million, respectively. The amount of amortization of deferred financing costs included in interest expense was $0.2 million for both of the three months ended March 31, 2010 and 2009.

~~The Company maintains advertising funds in connection with our franchise brands~~ (~~“Marketing Funds”~~m)~~. We consider these Marketing Funds to be separate legal~~ ~~entities~~INCOME from the Company. Franchisees fund the Marketing Funds pursuant to franchise agreements that generally require domestic franchisees to remit up to 2% of gross sales to the applicable Marketing Fund. We use these funds exclusively for marketing of the respective franchised brands. The purpose of the Marketing Funds is to centralize the advertising of the respective franchise concept into regional and national campaigns. The Company serves as the administrator of the Marketing Funds, and the Marketing Funds reimburse the Company on a cost-only basis for the amount the Company spends for advertising expenses related to the franchised brands. Additionally, if the Marketing Funds are dissolved, any remaining cash in the fund would either be distributed back to the franchisees or spent on advertising.TAXES

~~Based on~~We ~~the~~recognize ~~foregoing,~~income ~~the~~taxes ~~Company~~using ~~has determined that~~ the ~~Marketing~~asset ~~Funds~~and ~~are~~liability ~~variable interest entities~~method. ~~The~~Under ~~Company~~this ismethod, we ~~not~~recognize ~~the~~deferred ~~primary~~tax ~~beneficiary~~assets ~~of these variable interest entities~~ and ~~therefore~~liabilities ~~the~~for ~~Company excludes these funds from~~ the ~~Unaudited~~ ~~Condensed~~future ~~Consolidated~~tax ~~Financial Statements. Franchisee contributions~~consequences attributable to ~~these~~differences ~~Marketing~~between ~~Funds~~the ~~totaled~~financial ~~approximately~~statement ~~$1.3~~carrying ~~million~~amounts ~~for each~~ of ~~the~~ ~~three~~existing ~~month~~assets ~~periods~~and ~~ended~~liabilities ~~September~~and ~~30,~~their ~~2009~~respective ~~and~~tax ~~2008, respectively~~bases. ~~For~~We ~~the~~measure ~~nine~~deferred ~~month~~tax ~~periods~~assets ~~ended~~and ~~September~~liabilities ~~30,~~using ~~2009~~enacted ~~and~~tax ~~2008,~~rates ~~franchisee~~expected ~~contributions~~ to ~~these~~apply ~~Marketing~~to taxable ~~Funds~~income ~~totaled~~in ~~approximately~~the ~~$3.5~~years ~~million~~in ~~and~~which ~~$3.6~~we ~~million, respectively.~~expect Atto ~~September~~recover ~~30,~~or ~~2009,~~settle ~~our Unaudited Condensed Consolidated~~those ~~Financial~~temporary ~~Statements~~differences. ~~included~~We ~~loans~~recognize ~~and~~the ~~advances~~effect ~~receivable~~ of ~~$1.3~~a ~~million~~tax ~~due from~~rate ~~The~~change ~~Athlete’s~~on ~~Foot Marketing Support Fund, LLC (“TAF MSF”). As of September~~deferred ~~30,~~tax ~~2009~~assets and ~~2008,~~liabilities ~~respectively,~~as ~~the~~income ~~Company~~in ~~did~~the ~~not~~period ~~have~~that ~~any~~includes ~~outstanding~~the ~~loans~~enactment ~~and advances from any other Marketing Fund~~date. In ~~December~~assessing ~~2008,~~ the ~~Company established~~likelihood aof ~~matching~~realization ~~contribution~~of ~~program~~deferred ~~with~~tax ~~the TAF MSF whereby the Company agreed to match certain franchisee contributions~~assets, ~~not to exceed $1.2 million~~we ~~over~~consider 12whether ~~quarters.~~it ~~The~~is ~~Company~~more ~~recorded~~likely inthan ~~December~~not ~~2008~~that ~~$1.1~~we ~~million~~will ofnot ~~expense~~realize some ~~representing~~portion ~~the~~or ~~expected~~all ~~net present value~~ of the ~~Company’s~~deferred ~~anticipated~~tax ~~future contributions under this program~~assets. ~~For~~The ~~the~~ultimate ~~three~~realization ~~month~~of ~~and nine month periods~~deferred ~~ended~~tax ~~September~~assets ~~30,~~is ~~2009,~~dependent upon the ~~Company~~generation ~~contributed~~of ~~approximately~~future ~~$0.1~~taxable ~~million~~income ~~and~~during ~~$0.3~~periods ~~million, respectively,~~ in ~~matching~~which ~~funds~~these totemporary ~~the~~differences ~~TAF~~become ~~MSF~~deductible.

8 (n) STOCK BASED COMPENSATION

~~(j) INVESTMENTS~~We INaccount ~~UNCONSOLIDATED~~for ~~ENTITIES~~share-based payments, such as grants of stock options, restricted shares, warrants, and stock appreciation rights, at fair value as an expense in our financial statements over the requisite service period. See Note 8 – Stock Based Compensation, for the assumptions used to calculate the stock compensation expense under the fair-value method discussed above.

~~The~~We use ~~Company~~the ~~has~~Black-Scholes anoption ~~investment~~pricing inmodel ~~Shoe~~to ~~Box~~value ~~Holdings,~~the ~~LLC~~compensation ~~(See~~expense associated ~~Note~~with 5our –stock ~~Joint~~option ~~Venture~~awards. In ~~Investments~~addition, –we ~~Shoebox~~estimate ~~New~~forfeitures ~~York).~~when ~~Shoe~~recognizing ~~Box~~compensation ~~Holdings,~~expense ~~LLC~~associated iswith anour ~~unconsolidated~~stock options, ~~joint~~and ~~venture,~~adjust ~~the purpose~~our estimate of ~~which~~forfeitures iswhen toappropriate. The key ~~franchise~~input ~~retail~~assumptions ~~stores~~we ~~that~~use ~~sell~~to ~~high-quality~~estimate ~~and high-fashion~~the ~~shoes.~~fair Wevalue ~~use~~of stock options include the ~~equity~~market ~~method~~value of ~~accounting~~the ~~for~~underlying ~~unconsolidated entities~~shares ~~over~~at ~~which~~the wedate ~~have~~of ~~significant influence~~grant, ~~generally~~the ~~representing~~exercise ~~ownership~~price ~~interests~~ of atthe ~~least~~award, ~~20%~~the ~~and~~expected ~~not~~option ~~more~~term, ~~than~~the ~~50%.~~expected ~~Under~~volatility ~~the~~(based ~~equity~~on ~~method~~historical volatility) of ~~accounting,~~our westock ~~recognize~~over ~~our~~the ~~proportionate~~option’s ~~share~~expected ofterm, the risk-free ~~profits~~interest ~~and losses~~rate ofover the ~~entity.~~option’s ~~The~~expected ~~joint~~term, ~~venture~~and ~~agreement specifies~~ the ~~distributions~~expected ofannual ~~capital~~dividend yield, ~~profit~~if ~~and losses~~any.

~~(k) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES~~11

~~For the nine months ended September 30, 2009, we released approximately 281,000 shares of our common stock~~ (~~valued at $10.51 per share at the time of issuance~~o) ~~for an~~PER ~~aggregate~~SHARE ~~value as calculated at the time of issuance of approximately $3.0 million in connection with the 2007 acquisition of MaggieMoo’s.~~DATA

~~For the~~We ~~nine~~compute ~~months~~basic ~~ended~~earnings ~~September~~per ~~30,~~share ~~2008,~~by wedividing ~~issued~~net ~~1.1~~income ~~million~~(loss) ~~shares~~for ofthe ~~our~~period ~~common~~by ~~stock~~the ~~(valued~~weighted ataverage $4number of common shares outstanding during the period.23 We compute diluted earnings per share atby dividing the ~~time~~net ofincome ~~issuance~~(loss) for the period by the weighted average number of common and ~~300,000~~dilutive ~~warrants~~common equivalent ~~with~~shares anoutstanding ~~aggregate~~during ~~value~~the period. We compute the dilutive effects of options, ~~$5.6~~warrants ~~million~~and astheir ~~calculated~~equivalents atusing the ~~time~~“treasury ofstock” method. As ~~issuance~~we had a net loss in ~~connection~~ ~~with~~each of the ~~acquisition~~periods ofpresented, ~~Great~~basic ~~American~~and diluted ~~Cookies~~net loss per share are the same. We ~~also~~have ~~issued 200,000~~excluded ~~warrants~~options and warrants to ~~BTMUCC~~purchase ~~with~~a antotal ~~aggregate~~of ~~value~~50,000 ofand ~~$0.9 million~~200,000 atshares of the Company’s common stock ~~time~~from the calculation of ~~issuance in~~diluted ~~connection~~net ~~with~~loss ~~the~~per ~~financing~~share offor the ~~acquisition~~three ofmonths ended ~~Great~~March ~~American~~31, ~~Cookies~~2010 and 2009, respectively, because their inclusion would be anti-dilutive.

On(p) ~~February~~REVENUE 29, 2008, the Company applied restricted cash of approximately $3.7 million to pay principal and interest on a note issued in connection with the acquisition of Marble Slab. The restricted cash was held in escrow and was paid directly to the noteholders.RECOGNITION

Royalties represent periodic fees we receive from franchisees, which we determine as a percentage of franchisee net sales and recognize as revenues when we earn them on an accrual basis. Franchise fees represent initial fees paid by franchisees for franchising rights. We defer recognition of these revenues and related direct costs until we have performed substantially all initial services required by the franchise agreements, which generally we consider to be upon the opening of the franchisee’s store (lor the first franchised store under an area development agreement). Licensing revenues represent amounts we earn ~~RECENT~~from ~~ACCOUNTING~~the ~~PRONOUNCEMENTS~~use of the Company’s trademarks and we recognize these revenues when we earn them on an accrual basis. We recognize revenues from the sale of goods that we produce and sell to certain franchisees at the time of shipment and classify them in factory revenues.

~~Accounting~~(q) ~~Standards Adopted in 2009~~ADVERTISING

~~FASB ASC~~We ~~825-10-65,~~maintain advertising funds in connection with our franchise brands (“~~Financial~~Marketing ~~Instruments~~Funds”). ~~requires~~We ~~disclosures~~consider ~~about~~these Marketing Funds to be separate legal entities from the ~~fair~~Company. ~~value~~Franchisees offund ~~financial~~the Marketing Funds pursuant to franchise ~~instruments~~agreements ~~for~~that ~~interim~~generally ~~reporting~~require ~~periods~~domestic infranchisees ~~addition~~to remit up to 2% of their gross sales to the ~~current~~applicable ~~requirement~~Marketing Fund. We use these funds exclusively for marketing of the respective franchised brands. The purpose of the Marketing Funds is to ~~make~~centralize ~~disclosures~~the inadvertising ~~annual~~of ~~financial~~the ~~statements~~respective franchise concept into regional and national campaigns. ~~This~~The ~~guidance~~Company ~~also~~serves ~~requires~~as the ~~disclosure~~administrator of the ~~methods~~Marketing Funds, and ~~significant~~the ~~assumptions~~Marketing ~~used~~Funds toreimburse ~~estimate~~the Company on a cost-only basis for the ~~fair~~amount the Company spends for advertising ~~value~~expenses ofrelated ~~financial~~to ~~instruments~~the ~~and~~franchised ~~description~~brands. ofAdditionally, ~~changes~~if we dissolve the Marketing Funds, we will either distribute any remaining cash in the ~~method~~fund ~~and~~back ~~significant~~to ~~assumptions~~the franchisees or spend it on advertising.

~~The~~Based on ~~carrying~~the ~~amounts~~foregoing, we have determined that the Marketing Funds are variable interest entities. The Company is not the primary beneficiary of ~~cash~~these variable interest entities, ~~cash~~and ~~equivalents~~therefore we exclude these funds from our Unaudited Condensed Consolidated Financial Statements. Franchisee contributions to these Marketing Funds totaled approximately $1.0 million in both the three months ended March 31, 2010 and ~~restricted~~2009. ~~cash~~At ~~approximate~~March ~~their~~31, 2010 and December 31, 2009, respectively, our ~~fair~~Unaudited ~~values~~Condensed ~~(Level~~Consolidated Financial Statements include loans and advances receivable of $1).1 million and $1.2 million due from The ~~fair~~Athlete’s Foot Marketing Support Fund, LLC (“TAF MSF”). As of March 31, 2010 and December 31, 2009, we did not have any outstanding loans and advances from any other Marketing Fund. We also established a matching contribution program with the TAF MSF whereby we have agreed to match certain franchisee contributions representing the expected net present value of ~~debt~~these future contributions, aswhich we ~~discussed~~include in ~~Note~~our 7franchising –selling, ~~Long-Term~~general ~~Debt~~and administrative expenses. We contributed approximately $0.1 million for the three months ended March 31, 2010 isand ~~based~~2009 onto the TAF MSF. The amount of the liability recorded related to the ~~fair~~matching ~~value~~contribution program with the TAF MSF was $0.7 million both as of March ~~similar~~31, ~~instruments~~2010 ~~(Level~~and 2)December 31, 2009.

~~FASB ASC~~(r) RESEARCH ~~855,~~AND DEVELOPMENT (“~~Subsequent Events,~~R&D” provides guidance related to the accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. This guidance requires the Company to disclose the date through which it has evaluated subsequent events, as well as whether that date is the date the consolidated financial statements were issued or the date the consolidated financial statements were available to be issued. This guidance became effective for the Company on April 1, 2009. We began applying the guidance prospectively beginning in the second quarter of 2009, and it did not have a material impact on our consolidated financial statements.)

OnWe ~~September~~maintain ~~30,~~an ~~2009,~~innovation welaboratory ~~adopted~~in ~~the~~our ~~FASB~~manufacturing ~~Accounting~~facility ~~Standards~~in ~~Codification~~Atlanta, ~~(“ASC”).~~Georgia ~~The~~where ~~ASC~~we ~~does~~develop ~~not~~new ~~alter~~flavors, ~~current~~new ~~GAAP,~~offerings ~~but~~and ~~rather~~new ~~integrated~~formulations ~~existing~~of our ~~accounting~~food ~~standards~~products ~~with~~across ~~other~~all ~~authoritative~~of ~~guidance.~~our ~~The~~QSR ~~ASC~~brands. ~~provides~~Independent asuppliers provided ~~single~~equipment ~~source~~and ofother ~~authoritative~~resources ~~GAAP~~ for ~~nongovernmental~~the ~~entities~~innovation ~~and~~laboratory. ~~supersedes~~From time to time, ~~all~~independent ~~other~~suppliers ~~previously~~also ~~issued~~conduct ~~non-SEC~~or ~~accounting~~fund research and ~~reporting~~development ~~guidance. The~~activities ~~adoption~~for of the ~~ASC~~benefit ~~did~~of ~~not~~our ~~have~~QSR ~~any~~brands. ~~effect~~In onaddition, ~~our~~we ~~results~~conduct ofconsumer ~~operations~~research orto ~~financial~~determine ~~position.~~our ~~All~~end-consumer’s ~~prior~~preferences, ~~references~~trends toand ~~GAAP~~opinions. ~~have~~For ~~been~~the ~~revised to conform to~~three ~~the~~months ~~ASC.~~ended ~~Updates~~March to31, ~~the~~2010 ~~ASC~~and ~~are~~2009, ~~issued~~R&D inexpenses ~~the~~were ~~form~~less ofthan ~~Accounting Standards~~$0.1 ~~Updates (“ASU”)~~million.

~~Accounting~~(s) INVESTMENTS IN ~~Standards~~UNCONSOLIDATED ~~Not Yet Adopted~~ENTITIES

~~FASB~~Shoe ~~ASC~~Box ~~810~~Holdings, ~~“Consolidation~~LLC ~~Variable Interest~~(See ~~Entities,”~~Note ~~requires~~5 an– ~~enterprise~~Joint toVenture ~~perform~~Investments an– ~~analysis to~~Shoebox ~~determine~~New ~~whether~~York) ~~the~~is ~~enterprise’s~~an ~~variable~~unconsolidated ~~interest~~joint orventure, ~~interests~~the ~~give~~purpose itof ~~a controlling~~which ~~financial~~is ~~interest in a variable interest entity. This analysis~~to ~~identifies~~franchise ~~the~~retail ~~primary~~stores ~~beneficiary~~that ofsell ahigh-quality, ~~variable~~high-fashion ~~interest~~shoes. ~~entity~~We asuse the ~~enterprise~~equity ~~that~~method ~~has both~~ of ~~the~~accounting ~~following~~for ~~characteristics,~~unconsolidated ~~among~~entities ~~others: (a) the~~over ~~power~~which towe ~~direct~~have significant ~~the~~influence ~~activities~~but ofdo anot ~~variable~~control, ~~interest~~generally ~~entity,~~representing ~~which~~ownership ~~most~~interests ~~significantly~~of ~~impact~~at ~~the~~least ~~entity’s~~20% ~~economic performance~~ and ~~(b) the obligation~~not tomore ~~absorb~~than ~~losses~~50%. ofUnder the ~~entity,~~equity ormethod ~~the right to receive benefits from~~of ~~the entity~~accounting, ~~which~~we ~~could~~recognize ~~potentially~~our beproportionate ~~significant~~share toof the ~~variable~~profits ~~interest entity.~~and ~~This~~losses ~~guidance requires ongoing reassessments~~ of ~~whether an enterprise is~~ the ~~primary beneficiary of a variable interest~~ entity. ~~This~~The ~~guidance~~joint ~~will~~venture ~~be effective~~agreement ~~for~~specifies the ~~Company~~distributions onof ~~January 1~~capital, ~~2010. We do not expect it to have a~~ ~~material~~profit ~~impact~~and ~~on the Company’s consolidated financial statements~~losses.

912

(t) RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2010

On January 1, 2010, we adopted FASB ASC 810, “Consolidation Variable Interest Entities,” which requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics, among others: (a) the power to direct the activities of a variable interest entity, which most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity, or the right to receive benefits from the entity, which could potentially be significant to the variable interest entity. This guidance requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This guidance did not have a material impact on the financial condition or results of operations of the Company.

(u) IMPACT OF THE HEALTH CARE AND EDUCATION RECONCILIATION ACT OF 2010

On March 30, 2010, the Health Care and Education Reconciliation Act of 2010 was signed into law. The Health Care and Education Reconciliation Act of 2010 is a reconciliation bill that amends the Patient Protection and Affordable Care Act that was signed into law on March 23, 2010 (collectively, the “Acts”). The Acts make extensive changes to the current system of health care insurance and benefits. Although many of the provisions of the Acts do not take effect immediately, there are various provisions that could have accounting consequences. We do not believe that the Acts will have a material impact on the financial condition or the results of operations of the Company.

(3) PROPERTY AND EQUIPMENT, NET

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

	~~Estimated Useful Lives~~	Estimated Useful Lives	~~September 30, 2009~~	March 31, 2010			~~December 31, 2008~~	December 31, 2009
Furniture and fixtures	~~7 - 10 Years~~	7 - 10 Years	$	~~749~~$	749		$	~~745~~$	749
Computers and equipment	~~3 - 5 Years~~	3 - 5 Years		~~1,699~~	2,991			~~1,591~~	2,206
Software	~~3 Years~~	3 Years		~~715~~	714			~~699~~	714
Building	~~25 Years~~	25 Years		~~966~~	1,129			~~966~~	1,129
Land	~~Unlimited~~	Unlimited		~~263~~	263			~~263~~	263
Leasehold improvements	~~Term of Lease or Economic Life~~	Term of Lease or Economic Life		~~3,062~~	2,884			~~2,937~~	2,882
Total property and equipment				~~7,454~~	8,730			~~7,201~~	7,943
Less accumulated depreciation and amortization				(4,595	)			(2,806	)
Less accumulated depreciation					(4,824	)			(4,681	)
Property and equipment, net of accumulated depreciation			$	~~2,859~~$	3,906		$	~~4,395~~$	3,262

Depreciation ~~and amortization~~ expense related to property and equipment for the three months ended ~~September~~March 3031, ~~2009 and 2008 was $487,000 and $663,000, respectively.~~ ~~Depreciation~~2010 and ~~amortization expense related to property and equipment for the nine months ended September 30,~~ 2009 ~~and 2008~~ was $0.1~~,789,000~~ million and $10.7 million,~~250,000,~~ respectively.

(4) TRADEMARKS AND OTHER INTANGIBLE ASSETS

~~The Company~~We ~~tests~~ test trademarks and other ~~intangibles~~non-amortizable intangible assets for potential impairment ~~annually~~ annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the ~~assets~~ assets below its respective carrying amount. Inherent in our fair value determinations are certain judgments and estimates, including projections of future cash flows, the discount rate reflecting the risk inherent in future cash flows, the interpretation of current economic indicators and market valuations, and our strategic plans with regard to our operations. A change in these underlying assumptions would cause a change in the results of the tests, which could cause the fair value to be more or less than the related carrying amounts. In addition, to the extent that there are significant changes in market conditions, overall economic conditions or our strategic plans, it is possible that impairment charges related to reporting units, which are not currently impaired, may occur in the future.

~~On August~~Inherent 6,in ~~2009,~~our wefair ~~entered~~value ~~into~~determinations ~~long-term~~are ~~license~~certain ~~agreements~~judgments ~~with RCG Corporation Ltd.~~ and ~~The Athlete’s Foot Australia Pty Ltd. through our wholly owned subsidiary TAF Australia~~estimates, ~~LLC (“TAFA”). The Athlete’s Foot Australia Pty Ltd., a~~including ~~subsidiary~~projections of ~~RCG~~future ~~Corporation~~cash ~~Ltd.~~flows, ~~was previously~~ the ~~master~~discount ~~franchisee~~rate ~~for~~reflecting ~~TAF for~~ the ~~territories~~risk ~~of Australia and New Zealand. Pursuant to the license~~inherent ~~agreements,~~in ~~which~~future ~~replace~~cash ~~all prior franchise agreements among the parties~~flows, ~~TAFA granted The Athlete’s Foot Australia Pty Ltd. exclusive licenses of~~ the ~~TAF trademarks~~interpretation ~~and trade dress for the territories~~ of ~~Australia~~current ~~and~~economic ~~New~~indicators ~~Zealand for~~and anmarket ~~initial 99-year term. In consideration for these license agreements~~valuations, ~~The Athlete’s~~and ~~Foot~~our ~~Australia~~strategic ~~Pty~~plans ~~Ltd.~~with ~~paid~~regard ~~one-time,~~to ~~non-refundable~~our ~~licensing fees of $6~~operations.2 ~~million. The license agreements are renewable for three 50-year terms~~A ~~for~~change ~~nominal~~in ~~additional~~these ~~consideration.~~underlying ~~TAFA~~assumptions iswould cause a ~~special~~change ~~purpose, bankruptcy-remote~~in ~~limited liability company formed under~~ the ~~laws~~results of the ~~Delaware~~tests, ~~whose~~ ~~only~~which ~~assets~~could ~~consisted~~cause of the ~~license~~fair ~~agreements~~value ~~and~~to ~~the~~be ~~intellectual property~~more ~~that~~or isless ~~the~~than ~~subject~~their respective ofcarrying ~~those license agreements~~amounts. ~~Although~~In ~~the~~addition, ~~Company retained~~to ~~legal ownership and control of~~ the ~~TAF~~extent ~~trademarks~~that ~~and~~there ~~trade~~are significant ~~dress~~changes in ~~Australia~~ ~~and~~market ~~New~~conditions ~~Zealand,~~or ~~the~~overall economic ~~benefits~~conditions or ~~risks related to these~~our ~~intangible~~strategic ~~assets~~plans ~~no longer impact the Company. In addition~~change, ~~the~~it ~~Company does~~is ~~not~~possible ~~have~~that ~~substantive~~impairment ~~obligations~~charges ~~under~~related ~~the long-term license agreements. As~~to areporting ~~result~~units, ~~the~~which ~~Company~~currently ~~has~~are ~~accounted~~not ~~for~~impaired, ~~this~~may ~~transaction~~occur asin ~~a sale of~~ the ~~related~~ ~~intangible assets~~future. We ~~The~~have ~~Company~~retained an ~~evaluated~~investment ~~the~~bank ~~fair~~to assist ~~market~~us ~~value~~in ofidentifying ~~the amortizable~~ and ~~non-amortizable~~evaluating ~~intangible~~alternatives ~~assets~~to atour ~~the~~current ~~date~~debt ~~of the transaction~~ and capital ~~determined~~structure, ~~the~~including ~~value~~recapitalization of the ~~non-amortizable~~Company, ~~intangible~~restructuring ~~assets to be $5.9~~of ~~million~~our debt and/or ~~the~~sale ~~amortizable~~of ~~intangible~~some ~~assets~~or tosubstantially beall ~~$0.3 million. The Company reduced the carrying value~~ of ~~the~~our assets by(See ~~these~~Note ~~amounts~~7 ~~and~~– Debt). ~~recorded a~~A ~~realized~~recapitalization, ~~gain of $41~~restructuring,~~000~~ onor ~~the~~sales ~~licensing~~transaction ~~agreements~~may result in ~~other~~a ~~income~~future adjustment into the ~~accompanying~~ ~~Unaudited~~carrying ~~Condensed~~value ~~Consolidated~~of ~~Statements~~our ~~of Operations~~intangible assets.

1013

~~Trademarks~~Other ~~and other~~ non-amortizable intangible assets byconsist ~~brand~~of asthe ofcustomer/supplier ~~September~~relationships related ~~30,~~to ~~2009~~Great ~~and~~American ~~December~~Cookies franchisees. Trademarks ~~31,~~and ~~2008~~other non-amortizable assets by brand are as follows (in thousands):

	September 30, 2009		December 31, 2008
	March 31, 2010		December 31, 2009
The Athlete's Foot	$	5,450	$	11,350
Trademarks:
Great American Cookies		44,891		44,891
The Athlete's Foot	$	5,450	$	5,450
Great American Cookies		16,481		16,481
Marble Slab Creamery		9,062		9,062
MaggieMoo's		4,194		4,194
Pretzelmaker		8,925		8,925
Total	$	72,522	$	78,422
Total trademarks		44,112		44,112
Customer/supplier relationships related to Great American Cookies		28,410		28,410
Total trademarks and other non-amortizable intangible assets	$	72,522	$	72,522

Other ~~non-~~amortizable intangible assets ~~consist~~by ofbrand ~~the~~are ~~customer/supplier~~as ~~relationships related~~follows ~~to Great American Cookies franchisees.~~(in thousands):

Other amortizable intangible assets by brand as of September 30, 2009 and December 31, 2008 are as follows (in thousands):

	March 31, 2010			December 31, 2009
The Athlete's Foot	$	2,300		$	2,300
Great American Cookies		780			780
Marble Slab Creamery		1,229			1,229
MaggieMoo's		654			654
Pretzel Time		1,322			1,322
Pretzelmaker		788			788
Total Other Intangible Assets		7,073			7,073
Less: Accumulated Amortization		(2,246	)		(2,053	)
Total	$	4,827		$	5,020

	September 30, 2009			December 31, 2008
The Athlete's Foot	$	2,300		$	2,600
Great American Cookies		780			780
Marble Slab Creamery		1,229			1,229
MaggieMoo's		654			654
Pretzel Time		1,322			1,322
Pretzelmaker		788			788
Total Other Intangible Assets		7,073			7,373
Less: Accumulated Amortization		(1,859	)		(1,215	)
Total	$	5,214		$	6,158

Other amortizable intangible assets consist primarily of franchise agreements and the Pretzel Time trademark. The Pretzel Time trademark became amortizable during the third quarter of 2008 as a result of the Company’s plan to consolidate the Pretzel Time brand under the Pretzelmaker brand. We are amortizing these other intangible assets generally on a straight-line basis over periods ranging from one to twenty years. We recorded total amortization expense of $0.2 million for both the three months ended March 31, 2010 and 2009.

~~Other~~The ~~amortizable~~following ~~intangible~~table ~~assets~~presents ~~consist primarily of franchise agreements and~~ the ~~Pretzel~~ ~~Time~~future ~~trademarks.~~amortization ~~The~~expense ~~Pretzel~~that ~~Time~~we ~~trademarks~~expect ~~became amortizable during third quarter of 2008 as a result of the Company’s plan~~ to ~~consolidate the~~ ~~Pretzel~~recognize ~~Time~~over ~~brand under~~ the ~~Pretzelmaker~~amortization ~~brand.~~period Weof ~~are amortizing these~~ other intangible assets ~~generally~~as ~~on a straight-line basis over periods ranging from one to twenty years. We recorded total amortization expense~~ of ~~$197,000 and~~March ~~$272~~31,~~000~~ ~~for~~2010 ~~the~~(in ~~three months ended September 30, 2009 and 2008, respectively. We recorded total amortization expense of $687,000 and $850,000 for the nine months ended September 30, 2009 and 2008, respectively.~~thousands):

The following table presents the future amortization expense that we expect to recognize over the amortization period of other intangible assets as of September 30, 2009 (in thousands):

	Amortization Period		For the nine months ended December 31,		For the year ended December 31,
	(Years)		2010		2011		2012		2013		2014		Thereafter
The Athlete's Foot		20	$	86	$	115	$	115	$	115	$	115	$	1,361
Great American Cookies		7		83		111		111		111		111		9
Marble Slab Creamery		20		46		61		61		61		61		750
MaggieMoo's		20		25		33		33		33		33		398
Pretzel Time		5		185		225		35		–		–		–
Pretzelmaker		5		125		166		53		–		–		–
Total Amortization			$	550	$	711	$	408	$	320	$	320	$	2,518

	Amortization Period		For the three months ended December 31,		For the year ended December 31,
	(Years)		2009		2010		2011		2012		2013		Thereafter
The Athlete's Foot		20	$	29	$	115	$	115	$	115	$	115	$	1,476
Great American Cookies		7		29		111		111		111		111		121
Marble Slab		20		15		61		61		61		61		811
MaggieMoo's		20		8		33		33		33		33		430
Pretzel Time		5		72		257		225		35		-		-
Pretzelmaker		5		41		166		166		53		-		-
Total Amortization			$	194	$	743	$	711	$	408	$	320	$	2,838

(5) JOINT VENTURE INVESTMENT – SHOEBOX NEW YORK

Shoe Box Holdings, LLC is a joint venture among the Company, the VCS Group, LLC (“VCS”), a premier women's fashion footwear company, and TSBI Holdings, LLC (“TSBI”), the originator of The Shoe Box, a multi-brand shoe retailer based in New ~~York. In~~ January 2008, Shoe Box Holdings, LLC acquired the trademarks and other intellectual property of TSBI for $500,000. The purpose of the joint venture is to franchise The Shoe Box’s high-quality, high-fashion shoes and accessories concept under the Shoebox New York ~~brand~~.

The Company and VCS each ~~contributed~~made ~~$725,000~~initial toinvestments ~~Shoe~~of ~~Box Holdings, LLC~~$0.7 ~~TSBI contributed its knowledge and expertise in retail operations~~million. Until the Company and VCS are ~~re-paid~~repaid ~~their~~these ~~respective~~ initial investments ~~of $725~~,~~000,~~ ~~the Company~~they ~~and VCS~~ each ~~owns 50% of the capital of the joint venture entity and each~~ receive 50% of the profits and losses. Once the Company and VCS are re-paid ~~their~~, ~~respective~~each ~~initial~~member ~~contributions,~~of ~~each~~the joint venture party is entitled to share equally in joint venture entity profits. As of March 31, 2010, our maximum loss exposure is limited to our investment of $0.4 million in the joint venture.

11A wholly owned subsidiary of Shoe Box Holdings, LLC holds the acquired intellectual property of The Shoe Box, Inc. and the intellectual property of the Shoebox New York franchise concept (collectively, the “Shoebox Intellectual Property”). A subsidiary of Shoe Box Holdings, LLC retains the principal of TSBI to assist in the development of the Shoebox New York concept pursuant to a consulting agreement (the “Consulting Agreement”), and TSBI has a non-exclusive license to the Shoebox Intellectual Property (the “License Agreement) to continue operating the existing The Shoe Box stores and to open additional stores under the Shoebox New York brand. If the License Agreement is terminated due to a breach by TSBI or if the Consulting Agreement is terminated due to a breach by the principal of TSBI, Shoe Box Holdings, LLC has the right to repurchase all of TSBI’s ownership interest for $1.00. The terms of the transaction also include an option for TSBI to purchase all of the ownership units of Shoe Box Holdings, LLC in the event that 20 franchised stores are not opened and operating on or prior to the date that is 36 months from the transaction’s second closing date (January 15, 2011) or the date that is 48 months from the transaction’s second closing date (January 15, 2012, collectively, the “Trigger Dates”). The purchase price for the Company and VCS’ ownership interests would be an amount equal to their respective initial investments of $0.7 million less any distributions they received through the Trigger Dates. TSBI also has an alternative option, in the event that 20 franchised stores are not opened and operating on or prior to either of the Trigger Dates, to withdraw from Shoe Box Holdings, LLC by surrendering its ownership units, terminating the License Agreement, and by ceasing all uses of the Shoebox Intellectual Property.

~~A wholly~~NFM ~~owned~~manages ~~subsidiary of Shoe Box Holdings, LLC holds~~ the ~~acquired intellectual property of TSBI and the intellectual property of the~~ Shoebox New York ~~franchise concept (collectively~~brand, ~~the~~as ~~“Shoebox~~it ~~Intellectual~~does ~~Property”).~~NexCen’s ~~The~~other ~~principal of TSBI was retained to assist in the development of the Shoebox New York concept pursuant to a consulting agreement (the “Consulting Agreement”)~~brands, and ~~TSBI was~~ ~~granted~~receives a ~~non-exclusive~~management ~~license~~fee tofor ~~the~~its ~~Shoebox~~services, ~~Intellectual~~in ~~Property~~addition ~~(the “License Agreement)~~ to ~~continue~~any ~~operating the existing The Shoe Box stores and~~distributions tothat ~~open~~NexCen ~~additional~~may ~~stores~~receive ~~under~~from the ~~Shoebox~~joint ~~New~~venture ~~York brand~~entity. IfNFM ~~the~~received ~~License~~management ~~Agreement~~fees ~~is terminated due to a breach by TSBI or if the Consulting Agreement is terminated due to a breach by the principal~~ of ~~TSBI, Shoe Box Holdings, LLC has the right to repurchase all of TSBI’s ownership interest for~~ $10.~~00.~~1 ~~The terms~~million ofduring both the ~~transaction~~three ~~also~~month ~~include~~periods anended ~~option~~March ~~for~~31, ~~TSBI to purchase all of the~~2010 ~~ownership~~and ~~units~~2009 ofwhich ~~Shoe~~we ~~Box~~included ~~Holdings, LLC~~ in ~~the~~our ~~event that 20 franchised stores are not opened and~~ operating onincome. orAs ~~prior~~of toMarch ~~the date that is 36 months from the transaction’s second closing date (January 15~~31, ~~2011) or the date that is 48 months from the transaction’s second closing date (January 15~~2010, ~~2012,~~there ~~collectively,~~are ~~the~~8 ~~“Trigger~~stores ~~Dates”).~~open ~~TSBI also has an alternative option,~~ in the ~~event~~ ~~that~~United 20States ~~franchised stores are not opened~~ and ~~operating~~5 onstores oropen ~~prior~~internationally ~~to the~~in ~~either of the Trigger Dates~~Aruba, toKuwait ~~withdraw from Shoe Box Holdings, LLC by surrendering its ownership units, terminating the License Agreement,~~ and ~~by ceasing all uses of the Shoebox Intellectual Property~~Vietnam.

~~NFM~~Our ~~manages~~investment ~~the~~in ~~Shoebox~~this ~~New~~joint ~~York~~venture ~~brand,~~was as$0.4 itmillion ~~does~~at ~~NexCen’s~~March ~~other brands~~31, 2010 and $0.3 ~~receives~~million aat ~~management~~December ~~fee~~31, ~~for~~2009. ~~its~~We ~~services,~~recorded inequity ~~addition~~income toof ~~any~~$0.1 ~~distributions~~million and ~~that~~income ~~NexCen~~of ~~Brands~~$0.3 ~~may~~million ~~receive~~for ~~from~~ the ~~joint~~three ~~venture~~months ~~entity.~~ending ~~During~~March ~~the~~31, ~~three~~2010 and 2009, ~~month~~respectively. ~~periods~~While ~~ended~~Shoe ~~September~~Box 30Holdings, ~~2009~~LLC ~~and~~is ~~2008~~a variable interest entity (“VIE”), ~~NFM~~due ~~received~~primarily ~~management~~to ~~fees~~the ~~of approximately~~aforementioned ~~$91,000~~TSBI options and ~~$22,000,~~ownership ~~respectively,~~interest versus ~~which~~economic interests, we ~~include~~believe inthe ~~our~~Company is not the primary beneficiary ~~operating~~as ~~income.~~it ~~During~~does not have the ~~nine~~power ~~month~~to ~~periods~~direct ~~ended~~the ~~September~~activities ~~30,~~that ~~2009~~most ~~and~~significantly ~~2008~~impact the VIE’s economic performance. Accordingly, ~~NFM~~we ~~received~~have ~~management~~recorded ~~fees~~our investment ofin ~~approximately~~Shoe ~~$199~~Box Holdings,~~000~~ ~~and~~LLC ~~$294,000,~~under the equity method of ~~respectively~~accounting.

The joint venture, through its wholly owned subsidiary, executed in the nine month period ended September 30, 2009, franchise agreements for the development of stores in Kuwait and Aruba. There are currently eight stores open in the United States and five stores open internationally in Vietnam, South Korea and Kuwait.

The Company’s net investment in this joint venture was $407,000 and $87,000 at September 30, 2009 and December 31, 2008, respectively. The Company recorded equity income (loss) of $18,000 and $(27,000) for the three months ending September 30, 2009 and 2008, respectively. The Company recorded equity income (loss) of $278,000 and $(247,000) for the nine months ending September 30, 2009 and 2008, respectively. The Company also received excess distributions for which we recorded a $42,000 reimbursement payable to the joint venture, which increased our net investment by the same amount.

(6) ACCOUNTS PAYABLE, ACCRUED EXPENSES AND RESTRUCTURING ACCRUALS

(a) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

	September 30, 2009		December 31, 2008
	March 31, 2010		December 31, 2009
Accounts payable	$	23,~~860~~575	$	54,~~883~~470
Accrued interest payable		~~233~~240		~~353~~245
Accrued professional fees		~~638~~538		~~901~~150
Deferred rent - current portion		3780		80
Accrued compensation and benefits		~~484~~686		~~106~~203
Income taxes		447		429
Income and other taxes		393		249
Refundable franchise fees and gift cards		12		24
All other		1,149		1,199
All other		1,452		1,444
Total	$	6,661	$	6,596
Total accounts payable and accrued expenses	$	6,163	$	9,220

(b) RESTRUCTURING ACCRUAL

In ~~2008 and~~ 2009, in conjunction with cost cutting efforts, ~~the sales of the Waverly~~ and ~~Bill~~ ~~Blass brands, and~~ the ~~Company’s~~consolidation ~~efforts~~of toour ~~transition all corporate~~ accounting functions ~~currently in the New York headquarters to the Company’s NFM offices in Norcross~~, ~~Georgia,~~ we reduced the staff in the New York corporate office. ~~The~~and ~~Company~~ recorded charges to earnings from continuing operations related primarily to separation benefits. As we ~~expected~~expect to pay the employee separation benefits within one year of the restructuring announcement, we ~~did~~ have not ~~discount~~discounted the corresponding liability. A roll forward of the restructuring accrual is as follows (in thousands):

	Employee Separation Benefits

Restructuring liability as of December 31, 2009	$	312
Charges to continuing operations		—
Cash payments and other		(267	)
Restructuring liability as of March 31, 2010	$	45

~~A roll~~ ~~forward of the restructuring accrual is as follows~~ (~~in thousands~~7): DEBT

	Employee Separation Benefits
Restructuring liability as of December 31, 2008	$	153
2009 Restructuring:
Charges to continuing operations		222
Cash payments and other		(146	)
Restructuring liability as of September 30, 2009	$	229

(7) LONG-TERM DEBT

(a)

BTMUCC Credit Facility

On March 12, 2007, NexCen Acquisition Corp., now NexCen Holding Corp., (“the Issuer”), a wholly owned subsidiary of the Company, entered into agreements with BTMUCC (the “Original BTMUCC Credit Facility”). In January 2008, in order to finance the acquisition of Great American Cookies, the Company and BTMUCC entered into an amendment to the Original BTMUCC Credit Facility (the “January 2008 Amendment”). On August 15, 2008, the Company restructured the ~~Original~~ Original BTMUCC Credit Facility and the January 2008 Amendment whereby certain ~~NexCen~~ NexCen entities entered into an amended and restated note funding, security, ~~management~~ management and related agreements with BTMUCC (the “Amended Credit Facility”). The Amended Credit Facility replaced all of the agreements comprising both the ~~Original~~ Original BTMUCC Credit Facility and the January 2008 Amendment. ~~The~~BTMUCC ~~Amended Credit~~and ~~Facility~~the ~~was~~ Company subsequently amended the Amended Credit Facility on September 11, 2008, December 24, 2008, January 27, 2009, July 15, 2009, ~~and~~ August 6, 2009, January 14, 2010, February 10, 2010, March 12, 2010, March 30, 2010, April 20, 2010, and May 13, 2010 (as amended, the “BTMUCC Credit Facility”).

Our debt consists of borrowings under the BTMUCC Credit Facility, which is comprised of three separate tranches: the Class A Franchise Notes, the Class B Franchise Note and the Deficiency Note. This debt consists of the following ~~as of September 30, 2009 and December 31, 2008~~ (in thousands):

	September 30, 2009			December 31, 2008
	March 31, 2010			December 31, 2009
Class A Franchise Notes	$	8583,~~596~~831		$	8685,~~300~~367
Class B Franchise Note		3635,~~366~~498			4136,~~724~~251
Deficiency Note		1517,~~946~~194			1416,~~242~~565
Total	$	~~137~~136,~~908~~523		$	~~142~~138,~~266~~183
Three-month weighted average interest rate on variable rate debt		4.13	%		7.32	%
Less debt discount		(728	)		(853	)
Total	$	135,795		$	137,330

The estimated fair value of the Company’s debt as of ~~September~~March 3031, ~~2009~~2010 and December 31, 2009 ~~2008~~ was approximately $95.96 million and $~~101~~92.07 million, respectively.

Each Class A Franchise Note is secured by substantially all of the assets of the Issuer and each of its subsidiaries (the “Co-Issuers”) and is collectively set to mature on July 31, 2013. The Class A Franchise Notes bear interest at LIBOR (which in all cases under the BTMUCC Credit Facility is the one-month LIBOR rate as in effect from time to time) plus 3.75% per year through July 31, 2011 and then LIBOR plus 5% per year thereafter until maturity on July 31, 2013. The rate in effect at ~~September~~March 3031, ~~2009~~2010 was 3.9998%. The weighted average interest rate on variable rate debt for the three months ended March 31, 2010 and 2009 was 3.98% and 4.36%, respectively.

The Class B Franchise Note is secured by substantially all of the assets of the Issuer and each Co-Issuer and is set to mature on July 31, 2011. As of January 20, 2009 through maturity, this note bears interest at a fixed rate of 8% per year. Prior to a January 27, 2009 amendment to the BTMUCC Credit Facility, the Class B Franchise Note would have borne interest at a fixed rate of 12% per year through July 31, 2009 and then 15% per year thereafter. BTMUCC will be entitled to receive a warrant covering up to 2.8 million shares of the Company’s common stock if the Class B Franchise Note has not been repaid by December 31, 2009 (“Warrant Trigger Date”) with the number of shares subject to such warrant being reduced on a pro-rata basis if less than 50% of the original principal amount of the Class B Franchise Note remains outstanding on the Warrant Trigger Date. Prior to the July 15, 2009 amendment, discussed below, the Warrant Trigger Date was July 31, 2009.

13July 31, 2011. As of January 20, 2009 through maturity, these notes bear interest at a fixed rate of 8% per year. BTMUCC will be entitled to receive a warrant covering up to 2.8 million shares of the Company’s common stock at a price of $0.01 per share if the Class B Franchise Note has not been repaid by May 31, 2010 (“Warrant Trigger Date,” which was changed by the January 14, 2010, February 10, 2010, March 30, 2010, and April 20, 2010 amendments) with the number of shares subject to such warrant being reduced on a pro-rata basis if less than 50% of the original principal amount of the Class B Franchise Note remains outstanding on the Warrant Trigger Date.

The Deficiency Note represents the amounts outstanding on the note that was backed by the Bill Blass brand, which remained unpaid because the proceeds from the sale of the Bill Blass brand were insufficient to pay the related note in full. The Deficiency Note is set to mature on July 31, 2013 and bears interest at a fixed rate of 15% per year through maturity. There is no scheduled principal payment on the Deficiency Note until its maturity date, and interest is due on a payment-in-kind (“PIK”) basis that defers cash interest payments until its maturity on July 31, 2013.

~~The~~During ~~aggregate~~the ~~maturities~~months of ~~long-term~~January ~~debt~~2010 ~~under~~through April 2010, we entered into five separate amendments of the BTMUCC Credit Facility onthat cumulatively (1) extended the Warrant Trigger Date from December 31, 2009 to May 31, 2010; (2) modified the cash distribution waterfall such that in February 2010 the Company received $0.5 million to pay operating expenses, with a proportional reduction in the overall reimbursable operating expenditure limits for the 2010 calendar year; ~~basis~~(3) aswaived potential defaults related to failures to meet certain free cash flow margin requirements for each of ~~September~~the 30twelve month periods ended December 31, 2009, January ~~were~~31, as2010, ~~follows~~February 28, 2010 and March 31, 2010; (in4) waived the requirement to provide separate ~~thousands~~audited financial statements for certain subsidiaries of the Company; and (5): waived potential defaults related to failures to meet certain debt service coverage ratios for the Class A and Class B Franchise Notes and timely pay fees to BTMUCC’s outside counsel.

	Class A		Class B		Deficiency Note (1)		Total
2009	$	195	$	93	$	-	$	288
2010		2,700		712		-		3,412
2011		3,390		35,561		-		38,951
2012		3,918		-		-		3,918
2013		75,393		-		28,471		103,864
Total	$	85,596	$	36,366	$	28,471	$	150,433

In February 2010, we made an additional unscheduled principal payment of $1.4 million. Because we exceeded our 2009 expense limit under the BTMUCC Credit Facility, a portion of the cash receipts in lockbox accounts that otherwise would have been released to the Company to reimburse it for operating expenses were instead applied in February 2010 to additional principal payments of $0.8 million on the Class A Franchise Notes and $0.6 million on the Class B Franchise Note.

Although the organization, terms and covenants of the specific borrowings have changed significantly since its inception, the basic structure of the facility has remained the same. The Issuer and Co-Issuers issued notes pursuant to the terms of the BTMUCC Credit Facility. These notes were and are secured by the assets of each brand, which consist of the respective intellectual property assets and the related royalty revenues and trade receivables. Special purpose, bankruptcy-remote entities (1each, a “Brand Entity”) ~~Maturities~~hold ~~related~~the toassets of each brand. The Issuer, also a special purpose, bankruptcy-remote entity, is the ~~Deficiency~~parent ~~Note~~of ~~include~~all ~~PIK~~of ~~interest~~the Brand Entities. The notes are cross-collateralized with each other, and each Brand Entity is a Co-Issuer of ~~approximately~~each ~~$12~~note.5 ~~million~~Repayment ~~that~~of each ~~will~~note beand ~~due~~all inother ~~2013~~obligations ifunder wethe facility are the joint and several obligation of the Issuer and each Brand Entity. Certain other NexCen subsidiaries (the “Managers”) do not ~~pay~~own any assets comprising the ~~Deficiency~~brands, ~~Note~~but manage ~~prior~~the various Brand Entities and are parties to ~~its~~management ~~maturity~~agreements that define the relationship among the Managers and the respective Brand Entities they manage. In the event that certain adverse events occur with respect to the Company, or if the Managers fail to meet certain qualifications, BTMUCC has the right to replace the Managers.

~~On January 27, 2009,~~ NexCen ~~entered~~is not ~~into~~a annamed ~~amendment~~borrowing ofentity ~~the~~under ~~credit facility, which reduced~~ the ~~interest~~BTMUCC ~~rate~~Credit onFacility. ~~the Class B Franchise Note~~However, the ~~outstanding balance~~ ofBrand ~~which~~Entities ~~totaled~~earn ~~approximately~~substantially ~~$41.7~~all ~~million as~~ of ~~such~~our ~~date,~~revenues toand 8%remit ~~per year effective January 20, 2009 through July 31, 2011,~~ the ~~maturity~~related ~~date on the Class~~cash Breceipts ~~Franchise~~to ~~Note.~~lockbox Inaccounts ~~addition~~that towe ~~the~~have ~~change~~established in ~~interest~~connection ~~rate~~with on the ~~Class B~~ ~~Franchise~~BTMUCC ~~Note,~~Credit ~~the~~Facility ~~amendment~~to ~~also~~perfect ~~gave~~ the ~~Company~~lender’s ~~greater~~security ~~operating flexibility~~interest ~~by:~~in ~~(i) reducing~~ the ~~debt service coverage ratio requirements for~~cash ~~the~~receipts. ~~remainder~~See ofNote ~~2009;~~ 2(iid) ~~allowing~~– ~~certain~~Accounting ~~funds~~Policies ~~paid by supply vendors to be~~and ~~excluded~~Pronouncements ~~from~~- ~~debt~~Cash ~~service obligations~~ and ~~capital~~Cash ~~expenditure~~Equivalents. ~~limitations; (iii)~~The ~~revising~~terms ~~the covenant causing a manager event~~ of ~~default~~the ~~upon NexCen~~BTMUCC ~~filing~~Credit aFacility ~~qualified~~control ~~financial~~the ~~statement~~amount ~~for~~of ~~the~~cash ~~2008~~that ~~fiscal~~may ~~year~~be ~~such~~distributed ~~that~~by iteach Brand ~~applies~~Entity to ~~2009~~the ~~fiscal~~Managers, ~~year~~the ~~and~~Issuer ~~thereafter;~~ and ~~(iv)~~NexCen ~~eliminating~~Brands, ~~the requirement~~and certain ~~for~~non-ordinary ~~valuation~~course ~~reports~~expenses ~~for~~or ~~fiscal~~expenses ~~year~~beyond ~~2008,~~a ~~which~~certain ~~would~~annual betotal ~~used for measuring~~limit ~~compliance~~must ~~with~~be ~~loan-to-value~~paid ~~covenants,~~out ~~unless~~of ~~requested~~cash ~~by BTMUCC~~on hand.

~~On July~~Our 15BTMUCC Credit Facility prohibits NexCen, ~~2009~~the Issuer, ~~NexCen~~the ~~entered~~Managers ~~into~~and ~~another~~each ~~amendment~~Brand Entity offrom securing any additional borrowings without the ~~credit~~prior ~~facility.~~written ~~The~~consent ~~material~~of ~~terms~~BTMUCC. ofIt ~~the~~also ~~amendment~~contains ~~increased~~numerous ~~certain~~reporting ~~operating~~obligations, ~~expenditure~~as ~~limits~~well as ~~for~~affirmative ~~2009~~and negative covenants, ~~reduced~~including, ~~debt~~among ~~service~~other ~~coverage~~things, ~~ratio~~restrictions on ~~requirements~~indebtedness, ~~reduced~~liens, ~~free~~fundamental ~~cash~~changes, asset sales, acquisitions, capital ~~flow~~and ~~margin~~other ~~requirements~~expenditures, ~~extended~~dividends ~~the~~and ~~time~~other ~~period~~payments affecting subsidiaries. The Company’s failure to ~~provide~~comply ~~valuation~~with ~~reports~~the financial and other restrictive covenants could result in a default under the BTMUCC Credit Facility, which could then trigger, among other things, the lender’s right to accelerate principal payment obligations, foreclose on virtually all of the assets of the Company and ~~waived~~take control ~~certain~~of ~~potential~~all ~~defaults.~~of ~~The~~the ~~amendment~~Company’s ~~also~~cash ~~extended~~flows from ~~July~~operations. ~~31,~~Our BTMUCC Credit ~~2009~~Facility further contains a subjective acceleration clause whereby our lender has the right to ~~December~~accelerate 31all principal payment obligations upon a “material adverse change,” ~~2009~~which is broadly defined as the occurrence of any event or condition that, individually or in the ~~trigger~~aggregate, ~~date~~has onhad, ~~which~~is ~~BTMUCC~~having ~~would~~or could reasonably be ~~entitled~~expected to have a material adverse effect on (i) the ~~receive~~collectability ~~warrants~~of ~~covering~~interest upand toprincipal ~~2.8~~on ~~million~~the ~~shares~~debt, (ii) the value or collectability of the assets securing the debt, (iii) the business, financial condition, or operations of the Company or our subsidiaries, individually or taken as a whole, (iv) the ability of the Company or our subsidiaries to perform its respective obligations under the loan agreements, (v) the validity or enforceability of any of the loan documents, and (vi) the lender’s ~~common~~ability ~~stock~~to ifforeclose or otherwise enforce its interest in any of the ~~Class~~assets Bsecuritizing the ~~Franchise~~debt. ~~Note~~To isdate, BTMUCC has not ~~repaid~~invoked bythe ~~that~~“material ~~trigger~~adverse ~~date~~change” provision or otherwise sought acceleration of our principal payment obligations.

On August 6, 2009, in connection with certain Australian and New Zealand license agreements, NexCen entered into an amendment of the credit facility whereby the Company used $5.0 million of the licensing proceeds to pay down a portion of the Class B Franchise Note and BTMUCC released its security interest in the intellectual property that is the subject of the license agreements. The balance of the Class B Franchise Note following the re-payment was approximately $36.4 million, and the Company’s repayment will result in interest expense savings of $400,000 on an annualized basis. The August 6, 2009 amendment also permitted the Company to use up to $1.2 million of net proceeds from the license agreements for expenditures, as approved in writing by BTMUCC, including capital expenditures to expand production capabilities of our manufacturing facility to produce products beyond cookie dough. 17

~~Although~~BTMUCC has provided the ~~organization,~~Company ~~terms~~amendments and ~~covenants~~waivers ofsince the ~~specific~~restructuring ~~borrowings~~of ~~have changed~~the ~~significantly~~debt ~~since~~in ~~its~~August ~~inception~~2008, ~~the~~including ~~basic~~reduction ~~structure~~ of ~~the~~interest ~~facility~~rates, ~~has~~deferral of ~~remained~~scheduled ~~the~~principal ~~same.~~payment ~~The~~obligations ~~Issuer~~and certain interest payments, waivers and ~~Co-Issuers~~extensions ~~issued~~of ~~notes~~time ~~pursuant~~related to the ~~terms of~~obligations ~~the~~to ~~credit~~issue ~~facility.~~dilutive ~~These~~warrants, allowance ~~notes~~of ~~were~~certain ~~and~~payments ~~are~~to ~~secured~~be byexcluded ~~the~~from ~~assets~~debt ofservice ~~each brand~~obligations, ~~which~~as well ~~consist~~as ofrelief ~~the~~from ~~respective~~debt ~~intellectual~~service ~~property~~coverage ~~assets~~ratio ~~and~~requirements, ~~the~~certain capital ~~related~~and ~~royalty~~operating ~~revenues~~expenditure ~~and~~limits, ~~trade~~certain ~~receivables.~~loan-to-value ~~Special~~ratio ~~purpose~~requirements, ~~bankruptcy-remote~~certain ~~entities~~free ~~(each,~~cash aflow ~~“Brand~~margin ~~Entity”)~~requirements, ~~hold~~and the ~~assets~~requirement ofto ~~each~~provide ~~brand,~~financial ~~and~~statements ~~the~~by ~~Issuer,~~certain ~~also~~deadlines. aWe ~~special~~anticipate ~~purpose~~that, ~~bankruptcy-remote~~unless ~~entity,~~we ~~is the~~are ~~parent~~able ofto ~~all~~obtain ofwaivers ~~the~~or ~~Brand~~amendments ~~Entities.~~from ~~The~~our ~~notes~~lender, ~~are~~we ~~cross-collateralized~~will ~~with~~breach certain ~~each~~covenants ~~other~~under the BTMUCC Credit Facility in 2010, ~~and~~including ~~each~~requirements ~~Brand~~to meet ~~Entity~~certain isfree acash ~~Co-Issuer~~flow ofmargin ~~each~~and ~~note~~debt service coverage ratio. ~~Repayment~~There ofcan ~~each~~be ~~note~~no ~~and~~assurance ~~all~~that ~~other~~we ~~obligations~~will ~~under~~be ~~the~~able ~~facility~~to ~~are~~obtain ~~the~~waivers ~~joint~~or amendments, and ~~several~~our ~~obligation~~lender ofmay default the ~~Issuer~~Company and ~~each~~seek ~~Brand~~to ~~Entity.~~accelerate ~~Certain~~our ~~other~~principal ~~NexCen~~payment ~~subsidiaries~~obligations ~~(the~~pursuant ~~“Managers”)~~to doany ~~not~~of ~~own~~the ~~any~~covenants ~~assets~~or ~~comprising~~ the ~~brands,~~subjective ~~but~~acceleration ~~manage~~clause of the ~~various~~BTMUCC ~~Brand~~Credit ~~Entities~~Facility. ~~and~~In ~~are~~addition, ~~parties~~our toscheduled ~~management agreements that~~principal ~~define~~payments under the ~~relationship~~BTMUCC ~~among~~Credit ~~the~~Facility ~~Managers~~include ~~and~~a ~~the~~final ~~respective~~principal ~~Brand~~payment ~~Entities~~on ~~they~~our ~~manage.~~Class InB ~~the~~Franchise ~~event~~Note ~~that~~of ~~certain~~$34.5 ~~adverse~~million ~~events~~in ~~occur~~July ~~with~~2011. ~~respect~~We tocurrently ~~the~~do not ~~Company,~~expect orthat ifwe ~~the~~will ~~Managers~~be ~~fail~~able to ~~meet~~make ~~certain~~this ~~qualifications~~principal payment. Accordingly, ~~BTMUCC~~we ~~has~~have classified all of the ~~right~~ todebt ~~replace~~outstanding under the ~~Managers~~BTMUCC Credit Facility as a current liability as of March 31, 2010 and December 31, 2009.

14On May 13, 2010, in connection with NexCen’s agreement to sell our franchise business to an affiliate of LLCP for $112.5 million, subject to certain closing adjustments, NexCen and certain of our subsidiaries entered into agreements with BTMUCC that are intended to facilitate and support the completion of the sale transaction. The agreements provide for the satisfaction of the debt owed to BTMUCC and the release of liens in favor of BTMUCC, upon payment to BTMUCC of a portion of the sale proceeds (in no event less than $98 million), as well as certain limited waivers of covenants and obligations in the BTMUCC Credit Facility to facilitate the completion of, and assist NexCen in remaining in compliance with the BTMUCC Credit Facility pending completion of, the sale transaction. As of April 30, 2010, the outstanding amount of indebtedness owed to BTMUCC was $136.4 million. See Note 13 – Subsequent Events for additional information about the agreements with LLCP and BTMUCC.

NexCen Brands is not a named borrowing entity under the BTMUCC Credit Facility. However, substantially all of our revenues are earned by the Brand Entities and are remitted to “lockbox accounts” that have been established in connection with the credit facility to perfect the lender’s security interest in the cash receipts. (See Note 2 – Accounting Policies and Pronouncements - Cash and Cash Equivalents.) The ~~terms of the credit~~ ~~facility~~scheduled ~~control~~aggregate ~~the~~maturities ~~amount~~ of cash that may be distributed by each Brand Entity to the Managers, the Issuer and NexCen Brands, and certain non-ordinary course expenses or expenses beyond a certain annual total limit must be paid out of cash on hand. Our current projections indicate that, although cash generated from operations will provide us with sufficient liquidity to meet our debt ~~service~~ ~~obligations~~as ~~for~~of atMarch ~~least the next twelve months~~31, we will exceed the total annual expense limit for 2009 in December prior to year-end. Once we exceed the limit, we will not be able to use the cash in the lockbox accounts to pay expenses. Instead, we must use our cash on hand until the expense limit resets in January 2010. We are inas ~~discussions with BTMUCC to increase the~~follows ~~annual expense limit. However, if our lender declines to do so, we may be required to defer payment of some 2009 expenses until the expense limit resets~~ (in January 2010, defer, reduce or eliminate certain expenditures going forward, and/or use some or all of our available cash on hand to cover expenses, any or all of which may negatively impact our operations. (See Note 1(cthousands) ~~– Liquidity and Going Concern.)~~:

Our BTMUCC Credit Facility prohibits NexCen Brands, the Issuer, the Managers and each Brand Entity from securing any additional borrowings without the prior written consent of BTMUCC. It also contains numerous reporting obligations, as well as affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, fundamental changes, asset sales, acquisitions, capital and other expenditures, dividends and other payments affecting subsidiaries. The Company’s failure to comply with the financial and other restrictive covenants could result in a default under our BTMUCC Credit Facility, which could then trigger, among other things, the lender’s right to accelerate principal payment obligations, foreclose on virtually all of the assets of the Company and take control of all of the Company’s cash flows from operations. In addition, our BTMUCC Credit Facility contains provisions whereby our lender has the right to accelerate all principal payment obligations upon a “material adverse change,” which is broadly defined as the occurrence of any event or condition that, individually or in the aggregate, has had, is having or could reasonably be expected to have a material adverse effect on (i) the collectability of interest and principal on the debt, (ii) the value or collectability of the assets securing the debt, (iii) the business, financial condition, or operations of the Company or our subsidiaries, individually or taken as a whole, (iv) the ability of the Company or our subsidiaries to perform its respective obligations under the loan agreements, (v) the validity or enforceability of any of the loan documents, and (vi) the lender’s ability to foreclose or otherwise enforce its interest in any of the assets securitizing the debt. To date, BTMUCC has not invoked the “material adverse change” provision or otherwise sought acceleration of our principal payment obligations.

	Class A(1)		Class B		Deficiency Note(1)		Total
2010	$	2,025	$	534	$	–	$	2,559
2011		3,390		34,964		–		38,354
2012		3,918		–		–		3,918
2013		74,498		–		28,471		102,969
Total	$	83,831	$	35,498	$	28,471	$	147,800

~~The Company has received amendments and waivers from BTMUCC~~ (~~without concessions from the Company~~1) ~~since~~Maturities ~~the~~related ~~restructuring~~to of the ~~debt~~Deficiency inNote ~~August~~include ~~2008,~~additional ~~including reduction~~PIK of interest ~~rates, deferral~~ of ~~scheduled~~approximately principal payment obligations and certain interest payments, waivers and extensions of time related to the obligations to issue dilutive warrants, allowance of certain payments to be excluded from debt service obligations, as well as relief from debt service coverage ratio requirements, certain capital and operating expenditure limits, certain loan-to-value ratio requirements, certain free cash flow margin requirements, and the requirement to provide financial statements by certain deadlines$11.3 Inmillion ~~light of these amendments and waivers and the Company’s projected ability to meet our debt service obligations for at least the next twelve months, we believe it is unlikely~~ that ~~the Company~~ will ~~need~~be todue ~~seek~~in ~~additional material~~2013 ~~waivers~~if ~~of,~~we ordo ~~otherwise~~not ~~default~~pay ~~on,~~ the ~~covenants~~Deficiency ofNote ~~our~~prior ~~BTMUCC Credit Facility through June 30, 2010. However, as noted above, the Company is in discussions with BTMUCC~~ to ~~increase~~its ~~the total annual expense limit for 2009, which would be an amendment of a non-covenant term of the BTMUCC Credit Facility~~maturity.

~~The~~We ~~Company~~amortize ~~does~~certain ~~not~~costs ~~have~~incurred ~~any~~in ~~remaining~~connection ~~borrowing~~with ~~capacity under~~ the Original BTMUCC Credit Facility. ~~Although~~and wethe ~~have~~Amended ~~not~~Credit ~~sought~~Facility ~~additional~~over ~~equity~~the orterm ~~debt~~of ~~financing~~the toloan using the ~~date~~effective ~~(and~~interest ~~BTMUCC’s~~method. ~~written~~We ~~consent~~expense ~~would~~certain beother ~~required~~third party costs associated with various amendments to dothe soOriginal ~~other~~BTMUCC ~~than~~Credit ~~with~~Facility, including the ~~respect~~January to2008 ~~equity~~Amendment, ~~financing~~the ofAmended upCredit Facility and all subsequent amendments to ~~$10~~date, ~~million)~~as we incur them, and we ~~review~~include ~~from~~these ~~time~~costs toin ~~time~~ our Consolidated ~~financing~~Statements ~~opportunities~~of ~~for~~Operations ~~suitable~~as ~~options~~Financing Charges.

We are amortizing certain costs incurred in connection with the Original BTMUCC Credit Facility and the Amended Credit Facility over the term of the loan using the effective interest method. We expense certain other third party costs associated with various amendments to the Original BTMUCC Credit Facility, including the January 2008 Amendment, the Amended Credit Facility and all subsequent amendments to date, as we incur them, and we include these costs in the Unaudited Condensed Consolidated Statements of Operations as “Financing Charges.”

(b)

Direct and Guaranteed Lease Obligations

~~The~~We ~~Company~~recognize ~~recognizes~~ a liability for the fair value of certain lease obligations ~~undertaken~~ undertaken at the inception of a lease guarantee. ~~During~~We ~~2007, the Company~~ assumed direct lease obligations with respect to the purchase of certain formerly company-owned and ~~operated~~ operated MaggieMoo’s stores. ~~The~~(“Lease ~~Company~~Obligations”). We also assumed certain guarantees for leases related to certain MaggieMoo’s franchised locations (“Lease Guarantees”). In general, the Lease Guarantees are contingent guarantees that become ~~direct~~our direct obligations ~~of the Company~~ if a franchisee defaults on its lease agreement. ~~The Company~~We treated all of the direct ~~lease~~Lease ~~obligations~~Obligations and the Lease Guarantees as ~~assumed~~ assumed liabilities at the time of acquisition of MaggieMoo’s and as a result ~~included~~ included these assumed liabilities in the purchase price of the acquisition.

1518

~~The~~We ~~Company~~analyze ~~analyzed~~ each Lease Obligation and Lease Guarantee and ~~determined~~determine the fair value based on the facts and circumstances of the lease and franchisee performance. Based ~~The~~on ~~Company includes~~those analyses, we include the carrying amounts of these liabilities in acquisition related liabilities as of March 31, 2010 and December 31, 2009 as follows (in thousands):

	September 30, 2009		December 31, 2008
	March 31, 2010		December 31, 2009
Assumed lease obligations	$	443	$	891
Lease obligations	$	326	$	313
Assumed lease guarantees		336		354
Lease guarantees		315		315
Total	$	~~779~~641	$	~~1,245~~628

	September 30, 2009		December 31, 2008
	March 31, 2010		December 31, 2009
Current	$	~~490~~432	$	~~765~~432
Long term		289		480
Long-term		209		196
Total	$	~~779~~641	$	~~1,245~~628

At the end of each calendar year, ~~the~~we ~~Company~~review ~~reviews~~ the facts and circumstances of each ~~direct~~Lease Obligation ~~lease obligation~~ and Lease Guarantee. Based on this review, ~~the Company’s~~we may change our determination as to the carrying amounts of these liabilities ~~may~~and/or expected ~~change~~maturities of the leases.

In addition to the Lease Guarantees, under the terms of the Pretzel Time, Pretzelmaker and Great American Cookies acquisitions, ~~the~~we ~~Company~~ agreed to reimburse the respective sellers for 50% of the sellers’ obligations under certain lease guarantees if certain franchise agreements were terminated after a period of one year from the date of acquisition. ~~The~~We ~~Company~~are is not a guarantor of any leases to third parties and ~~has~~have not recorded any amounts in the financial statement related to these contingent obligations. ~~The~~We ~~Company~~may ~~had~~mitigate aour ~~maximum~~exposure to these lease ~~amount~~guarantees in cases where the primary lessors of the property have also personally guaranteed the lease obligations by finding new franchisees to perform on the leases, or by negotiating directly with landlords to settle the amounts due. We had maximum amounts of undiscounted potential exposure related to these third-party contingent lease guarantees as of ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008,~~2009 of $32.0 2 million and $42.17 million, respectively.

(8) STOCK BASED COMPENSATION

~~Effective October~~We ~~31, 2006, the Company adopted the 2006 Equity Incentive Plan (the “2006~~did ~~Plan”)~~not togrant ~~replace~~any ~~two~~options ofor ~~its~~warrants ~~previously~~during ~~existing plans. The Company’s stockholders approved~~ the ~~adoption~~three ofmonths ~~the~~ending ~~2006~~March ~~Plan at the 2006 Annual Stockholders’ Meeting on October~~ 31, ~~2006~~2010. ~~The 2006 Plan is now the sole~~ ~~plan~~Information ~~for~~related ~~issuing stock-based compensation~~ to ~~eligible~~options employees, directors and consultants. The previous plans will remain in existence solely for the purpose of addressing the rights of holders of existing awards already granted under those plans prior to the adoption of the 2006 Plan. No new awards will be granted under the previous plans. A total of 3.5 million shares of common stock were initially reserved for issuance under the 2006 Plan, which represented approximately 7.4% of NexCen’s outstanding ~~shares at the time of adoption. Options under the 2006 Plan expire after ten years~~ and ~~are~~warrants ~~granted~~issued atby ~~an exercise price no less than~~ the ~~fair~~Company ~~value of the common stock on the grant~~is ~~date.~~as follows:

Total stock-based compensation expense was approximately $37,000 and $775,000 for the three months ended September 30, 2009 and 2008, respectively. Total stock-based compensation expense was approximately $324,000 and $3.0 million for the nine months ended September 30, 2009 and 2008, respectively. A summary of stock option activity under the 2006 Plan and the previous plans and warrants outstanding as of September 30, 2009 and changes during the nine months then ended is as follows:

	Number of shares (in thousands)			Weighted - Average Exercise Price
Outstanding at January 1, 2010		4,292		$	2.60
Cancelled/Forfeited/Expired		(80	)	$	0.92
Outstanding March 31, 2010		4,212		$	2.63

	Number of shares (in thousands)			Weighted - Average Exercise Price
Outstanding at January 1, 2009		4,005		$	3.73
Granted		-			-
Exercised		-			-
Expired/Cancelled/Forfeited		(407	)	$	3.92
Outstanding September 30, 2009		3,598		$	3.71

Total stock-based compensation expense included in selling, general and administrative expenses was approximately $0.1 million during both of the three months ended March 31, 2010 and 2009. The total unrecognized compensation cost related to non-vested share-based compensation agreements granted under all stock option plans as of March 31, 2010 is approximately $0.2 million. We expect to recognize this cost over the vesting period of approximately 2 years. There was no income tax benefit recognized in the income statement for stock-based compensation arrangements and no capitalized stock-based compensation cost incurred during the three months ended March 31, 2010 and 2009.

~~The Company~~No ~~did not grant any~~ stock options orwere ~~warrants~~exercised in the three ormonths ~~nine~~ended ~~month~~March ~~periods ending~~31, ~~September~~2010 ~~30,~~or 2009. The total ~~unrecognized compensation~~number ~~cost~~of ~~related~~warrants tooutstanding ~~non-vested share-based compensation agreements granted under all stock option plans~~ as of ~~September~~March 3031, ~~2009~~2010 iswas ~~approximately $0.3~~1,183,333, ~~million.~~all ~~We expect to recognize these costs over the remaining vesting~~of ~~period~~which ofwere ~~approximately 2 years~~exercisable. ~~Options~~There ~~and~~were ~~warrants to purchase 430~~887,~~000~~922 shares of ~~the~~available ~~Company’s~~for ~~common~~issuance ~~stock~~as ~~were~~of March ~~at exercise prices below the September 30~~31, ~~2009~~ ~~closing price of the Company’s stock of $0~~2010.~~29.~~

(9) INCOME TAXES

~~The Company’s~~We ~~effective tax rate from continuing operations was 11.5% and 0.2% for~~incur ~~the~~state ~~three~~income ~~months ended September 30, 2009 and 2008, respectively. The Company’s effective~~ tax ~~rate~~expense ~~from continuing operations was 11.4% and 1.7%~~ for ~~the~~taxable ~~nine months~~income ~~ended~~at ~~September 30, 2009 and 2008, respectively. The current provision for taxes for~~ the ~~three~~subsidiary ~~and~~level ~~nine month periods ending September 30, 2009 of $102,000~~ and ~~$256,000, respectively, is comprised primarily of~~ foreign ~~taxes~~ taxes withheld on franchise royalties received from foreign based franchisees in accordance with ~~applicable~~acceptable tax treaties. ~~Deferred~~Our ~~income~~current ~~tax~~provision ~~benefits~~for oftaxes ~~$2.9 million~~ for the three ~~nine~~months ~~month period~~ ending ~~September~~March 3031, ~~2008~~2010 ~~resulted~~and ~~from~~2009 ~~the timing~~was ~~differences~~$0.1 ~~between~~million ~~the~~in ~~amortization~~both ofperiods. ~~trademarks~~We recorded ~~and~~no ~~other~~deferred ~~intangible assets~~income ~~for~~taxes ~~tax~~or ~~purposes~~benefits ~~and~~for ~~impairment~~the ~~charges~~three ~~recorded~~months ~~for~~ending ~~book~~March ~~purposes~~31, 2010 and 2009.

The Company records income tax expense and benefits for financial statement recognition and measurement for tax positions that the Company believes more-likely-than-not will be sustained upon examination by taxing authorities. The Company measures the amount recognized as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company’s practice is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. The Company had no accrued interest or penalties related to uncertain tax positions as of September 30, 2009 and December 31, 2008. Tax returns for all years after 2006 are subject to future examination by tax authorities. The state of New York has selected the Company’s combined tax returns for 2006 through 2008 for examination.19

~~The~~We record ~~Company~~income ~~has~~tax ~~accumulated~~expense ~~significant~~and ~~deferred~~benefits ~~tax~~for ~~assets~~financial ~~from~~statement ~~federal~~recognition ~~net~~and ~~operating~~measurement ~~loss~~for ~~carry~~tax ~~forwards,~~positions ~~which~~that ~~expire~~we atbelieve ~~various~~more-likely-than-not ~~dates~~will ~~through~~be substantiated ~~2028,~~upon ~~and~~examination by taxing authorities. We measure the ~~capital~~amount ~~loss~~recognized ~~carry~~as ~~forwards,~~the ~~which~~largest ~~expire~~amount atof ~~various~~benefit ~~dates~~that ~~between~~has ~~2009~~a ~~and~~greater than 50% ~~2011~~likelihood of being realized upon ultimate settlement. ~~The~~It is the Company’s position ~~has~~to ~~provided~~recognize ainterest ~~full~~and/or ~~valuation~~penalties ~~allowance~~related ~~against~~to ~~our~~uncertain ~~deferred~~ tax positions ~~assets~~in ~~for~~income ~~financial~~tax ~~reporting~~expense. ~~purposes~~We ~~because we~~ have not ~~satisfied~~been audited by the ~~GAAP~~ ~~requirement~~IRS inand currently ~~order~~are tonot ~~recognize~~under ~~the~~IRS ~~value~~examination, ~~namely,~~although ~~that~~all ~~there~~tax ~~exists~~years for which we ~~objective~~have ~~evidence~~tax ofloss ~~our~~carry-forwards ~~ability~~are subject to ~~generate~~future ~~sustainable~~examination ~~taxable~~by ~~income~~taxing authorities. ~~from~~We are currently under examination by the state of New York for the ~~our~~2006 ~~operations~~through 2008 tax years.

InDeferred ~~addition~~income totaxes reflect the ~~time~~net ~~limitations~~tax ~~that~~effect ~~apply~~of totemporary ~~the~~differences ~~loss~~that ~~carry~~may ~~forwards noted~~exist ~~above,~~between ~~we may be subject to additional limitations on~~ the ~~loss~~carrying ~~carry~~amounts ~~forwards under Section 382~~ of ~~the~~assets ~~Internal~~and ~~Revenue~~liabilities ~~Code.~~for Iffinancial ~~we have an “ownership change”~~reporting aspurposes ~~defined~~and inthe ~~Section~~amounts ~~382~~used offor ~~the~~income ~~Internal~~tax ~~Revenue Code~~purposes, ~~our~~using ~~net~~enacted ~~operating~~tax ~~loss~~rates ~~carry-forwards~~in ~~and~~effect ~~capital~~for ~~loss~~the ~~carry-forwards~~year ~~generated~~in ~~prior~~which to the ~~ownership change~~differences ~~would~~are beexpected ~~subject~~ to ~~annual~~reverse. As ~~limitations,~~of ~~which~~December ~~could reduce~~31, ~~eliminate, or~~2009 ~~defer the utilization of our~~ deferred tax assets. Aswere of$359.2 ~~the date of this Report~~million, we doconsisting ~~not~~primarily ~~believe~~of ~~that~~$293.0 ~~we have experienced an ownership change as defined under~~million ~~Section 382 resulting~~ from ~~transfer~~federal ofnet ~~shares~~operating byloss ~~our~~carry-forwards ~~existing~~of ~~shareholders~~$837. ~~However~~0 million, ~~the~~which ~~Company~~expire at ~~has~~various ~~entered~~dates ~~into~~through ~~recent amendments of the BTMUCC Credit Facility~~2029, and we$36.6 ~~are~~million inof ~~the~~deferred ~~process~~tax ofbenefits arising ~~assessing~~from the ~~impact~~impairment of ~~those~~intangible ~~amendments and what limitations, if any, we may be subject to under Section 382~~assets. ~~Until our assessment is complete, we are not presenting any amounts as uncertain tax positions.~~

~~If we~~Consistent ~~determine~~with ~~that~~ASC it740, iswe ~~more~~have ~~likely~~provided ~~than not that there has been~~ a ~~Section~~full ~~382 ownership change, there will be no impact to our financial position given the~~ valuation allowance ~~recorded~~against on our deferred tax assets. ~~However,~~for ~~even~~financial ifreporting ~~the amendments~~purposes tobecause ~~our~~we ~~credit~~have ~~facility~~not ~~did~~satisfied ~~not~~the GAAP ~~result~~requirement in aorder ~~change~~to ofrecognize ~~control~~the ~~as defined~~value, ~~by Section 382~~namely, ~~we cannot guarantee~~ that wethere ~~will not enter into other~~exists ~~transactions~~objective orevidence ~~that transfers~~ of ~~stock~~our ~~will~~ability ~~not~~to ~~occur,~~generate ~~which~~sustainable ~~may~~taxable ~~result~~income ~~in an~~from ~~ownership change that would severely limit~~ our ~~ability~~operations. toBased ~~use~~upon our ~~net~~historical operating ~~loss~~ ~~carry-forwards~~performance and ~~capital~~the ~~loss~~reported cumulative ~~carry-forwards~~net losses to ~~offset~~date, ~~future~~as ~~taxable income.~~well Inas ~~addition,~~amortization weexpense ~~are,~~relating ~~and~~to intangible ~~expect~~assets that we will ~~continue to~~ be, ~~subject~~deductible ~~to certain~~in ~~state,~~computing ~~local,~~taxable ~~and~~income ~~foreign~~in ~~tax obligations~~future years, aswe ~~well~~presently asdo tonot ahave ~~portion~~sufficient ~~of the~~objective ~~federal~~evidence ~~alternative~~to ~~minimum~~support ~~tax for which~~ the recovery ~~use~~ of our deferred tax ~~loss carry-forwards may be limited~~assets.

Because we have significant tax loss carry-forwards, we monitor any potential “ownership changes” as defined in Section 382 of the Internal Revenue Code (10“Code Section 382”) by reviewing available information regarding the transfer of shares by our ~~PER~~existing ~~SHARE~~shareholders ~~DATA~~and evaluating other transactions that may be deemed an “ownership change,” such as amendments to our credit facility. If we have an “ownership change” as defined in Code Section 382, our net operating loss carry-forwards and capital loss carry-forwards generated prior to the ownership change would be subject to annual limitations, which could reduce, eliminate, or defer the utilization of our deferred tax assets. As of the date of this Report, we do not believe that we have experienced an ownership change as defined under Code Section 382 resulting from transfer of shares by our existing shareholders or from deemed ownership changes resulting from the various amendments to the BTMUCC Credit Facility. In the future, we may enter into additional amendments to our outstanding debt, other transactions, or have transfers of stock, which may result in an ownership change that would severely limit our ability to use our net operating loss carry-forwards and capital loss carry-forwards to offset future taxable income. In the event of an ownership change, there will be no impact to our financial position given the valuation allowance recorded on our deferred tax assets. In addition, we are, and expect that we will continue to be, subject to certain state, local, and foreign tax obligations, as well as to a portion of the federal alternative minimum tax for which the use of our tax loss carry-forwards may be limited.

~~Basic earnings per share are computed by dividing net income~~ (~~loss~~10) ~~for the period by~~ ~~the~~RELATED ~~weighted~~PARTY average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income (loss) for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The dilutive effects of options, warrants and their equivalents are computed using the “treasury stock” method. TRANSACTIONS

17We receive legal services from Kirkland & Ellis LLP, which we consider to be a related party because a partner at that firm, George P. Stamas, is a member of our Board of Directors. Expenses related to Kirkland & Ellis LLP for the three months ended March 31, 2010 and 2009 were approximately $0.1 million and $0.2 million, respectively. Outstanding payables due to Kirkland & Ellis LLP were $0.4 million at March 31, 2010 and December 31, 2009.

~~Information~~The ~~relating~~Athlete’s Foot Marketing Support Fund, LLC (the “TAF MSF”), is an entity that is funded by the domestic franchisees of TAF to provide domestic marketing and promotional services on behalf of the ~~calculation~~franchisees. We previously advanced funds to the TAF MSF under a loan agreement. The terms of ~~earnings~~the ~~per~~loan ~~share~~agreement isincluded a ~~summarized~~borrowing asrate ~~follows~~of prime (on the date of the loan) plus 2%, and repayment by the TAF MSF with no penalty, at any time. As of March 31, 2010 and December 31, 2009, we had receivable balances of $1.1 million and $1.2 million, respectively, from the TAF MSF. We recorded interest income earned from the fund in ~~thousands~~the amount of less than $0.1 million for the three months ended March 31, ~~except~~2010 and ~~share~~2009. ~~data):~~We also established a matching contribution program with the TAF MSF whereby we agreed to match certain franchisee contributions, not to exceed $0.1 million per quarter over 12 quarters. For both the three months ended March 31, 2010 and 2009, we contributed approximately $0.1 million in matching funds to the TAF MSF. The amount of the liability recorded related to the matching contribution program with the TAF MSF was $0.7 million as of both March 31, 2010 and December 31, 2009.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Net loss	$	(1,013	)	$	(38,354	)	$	(2,294	)	$	(239,508	)
Weighted-average shares outstanding-basic and diluted		56,952			56,639			56,859			56,509
Loss per share – basic and diluted from continuing operations	$	(0.01	)	$	(0.57	)	$	(0.04	)	$	(2.67	)
(Loss) income per share – basic and diluted from discontinued operations	$	(0.00	)	$	(0.11	)	$	0.00		$	(1.56	)
Net loss per share – basic and diluted	$	(0.01	)	$	(0.68	)	$	(0.04	)	$	(4.23	)

As (11) ~~the~~COMMITMENTS ~~Company has had a net loss in~~AND each of the periods presented, basic and diluted net loss per share are the same. The Company has excluded options of 130,000 shares and warrants of 200,000 shares of the Company’s common stock outstanding during the three and nine month periods ended September 30, 2009, respectively, from the calculation of diluted net loss per share because their inclusion would also be anti-dilutive. The Company has excluded options of 52,609 shares and warrants of 200,000 shares of the Company’s common stock outstanding during the three and nine month periods ended September 30, 2008, respectively, from the calculation of diluted net loss per share because their inclusion also would be anti-dilutive.CONTINGENCIES

(11) RELATED PARTY TRANSACTIONS

The Company receives legal services from Kirkland & Ellis LLP, which we consider to be a related party because a partner at that firm, George P. Stamas, is a member of the Company’s Board of Directors. Expenses related to Kirkland & Ellis LLP for the three months ended September 30, 2009 and 2008, were approximately $64,000, and $1,036,000, respectively. Expenses related to Kirkland & Ellis LLP for the nine months ended September 30, 2009 and 2008, were approximately $332,000, and $1,775,000, respectively. As of September 30, 2009 and December 31, 2008, the Company had outstanding payables due to Kirkland & Ellis LLP of approximately $407,000 and $989,000, respectively.

Athlete’s Foot Marketing Support Fund, LLC (“TAF MSF”), is an entity that is funded by the domestic franchisees of TAF to provide domestic marketing and promotional services on behalf of the franchisees. The Company previously advanced funds to the TAF MSF under a loan agreement. The terms of the loan agreement included a borrowing rate of prime (on the date of the loan) plus 2%, and repayment by the TAF MSF with no penalty at any time. As of September 30, 2009 and December 31, 2008, the Company had receivable balances of $1.3 million and $1.7 million from the TAF MSF, respectively. The Company recorded interest income earned from the fund in the amounts of $18,000 and $29,000 for the three months ended September 30, 2009 and 2008, respectively. The Company recorded interest income earned from the fund in the amounts of $60,000 and $85,000 for the nine months ended September 30, 2009 and 2008, respectively. In December 2008, the Company also established a matching contribution program with the TAF MSF whereby the Company agreed to match certain franchisee contributions, not to exceed $1.2 million over 12 quarters. For the three months ended September 30, 2009, the Company contributed approximately $0.1 million in matching funds to the TAF MSF. For the nine months ended September 30, 2009, the Company contributed approximately $0.3 million in matching funds to the TAF MSF.

(12) COMMITMENTS AND CONTINGENCIES

(a) LEGAL PROCEEDINGS

Securities Class Action. A total of four putative securities class actions were filed in May, June and July 2008 in the United States District Court for Southern District of New York against NexCen ~~Brands~~ and certain of our former officers and a current director for alleged violations of the federal securities laws. On ~~March~~ March 5, 2009, the court consolidated the actions under the caption, In re NexCen Brands, Inc. Securities Litigation, No. 08-cv-04906, and appointed Vincent Granatelli as lead plaintiff and Cohen, Milstein, ~~Hausfeld~~Sellers & Toll, ~~P.L.L.C.~~PLLC as lead counsel. On ~~August~~ August 24, 2009, plaintiff filed an Amended Consolidated Complaint. Plaintiff ~~alleges~~ alleges that defendants violated federal securities laws by misleading investors in the Company’s public filings and statements during a putative class period ~~that~~ that begins on March 13, 2007, when the Company announced the establishment of ~~the~~ the credit facility with BTMUCC, and ends on May 19, 2008, when the Company’s ~~stock~~ stock fell in the wake of the Company’s disclosure of the previously undisclosed ~~terms~~ terms of a January 2008 amendment to the credit facility, the substantial doubt ~~about~~ about the Company’s ability to continue as a going concern, the Company’s inability to timely file its periodic report and the expected restatement of its Annual Report on Form 10-K for the year ended December 31, 2007, initially filed on March 21, 2008. The ~~amended~~Amended ~~complaint~~Consolidated Complaint asserts claims under Section 10(b) of the Exchange Act and SEC Rule 10b-5, and also asserts that the individual defendants are liable as controlling persons under Section 20(a) of the Exchange Act. Plaintiff seeks damages and attorneys’ fees and costs. On October 8, 2009, the Company filed a motion to dismiss the amended complaint. ~~in accordance~~Plaintiff ~~with~~filed ~~the~~his ~~scheduling~~opposition ~~order~~on ~~entered~~December by14, 2009, ~~the~~and ~~court. Under~~ the ~~scheduling~~ ~~order,~~Company ~~plaintiff~~filed ~~must~~a ~~file~~reply ~~his~~on ~~opposition~~January to27, ~~the~~2010. ~~motion~~The tocourt ~~dismiss by~~has ~~November~~rescheduled ~~23,~~the ~~2009,~~hearing ~~and~~on the ~~Company~~motion ~~must~~to ~~file~~dismiss ~~its~~for ~~reply~~June ~~by December~~ 8, ~~2009~~ 2010.

Shareholder Derivative Action. A federal shareholder derivative action premised on essentially the same factual assertions as the federal securities actions also was filed in June 2008 in the United States District Court for Southern District of New York against the directors and former directors of NexCen. This action is captioned: Soheila Rahbari v. David Oros, Robert W. D’Loren, James T. Brady, Paul Caine, Jack B. Dunn IV, Edward J. Mathias, Jack Rovner, George Stamas & Marvin Traub, No. 08-CV-5843 (filed on June 27, 2008). In this action, plaintiff alleges that NexCen’s Board of Directors breached its fiduciary duties in a variety of ways, mismanaged and abused its control of the Company, wasted corporate assets, and unjustly enriched itself by engaging in insider sales with the benefit of material non-public information that was not shared with shareholders. Plaintiff further contends that she was not required to make a demand on the Board of Directors prior to bringing suit because such a demand would have been futile, due to the board members’ alleged lack of independence and incapability of exercising disinterested judgment on behalf of the shareholders. Plaintiff seeks damages, restitution, disgorgement of profits, attorneys’ fees and costs, and miscellaneous other relief. On November 18, 2008, the Court informed the parties that the case would be stayed for 180 days and requested that they file a status report thereafter so the Court might consider whether the stay should be extended. Plaintiff thereafter indicated that she intended to file an amended derivative complaint after the Company filed its amended Annual Report on Form 10-K for the year ended December 31, 2007, including a restatement of its 2007 financial results. On June 2, 2009, the Court lifted the stay and ordered the plaintiff to file her amended derivative complaint no later than two weeks after the Company filed its restated 2007 financials. On August 25, 2009, plaintiff filed an amended complaint that includes additional allegations based on the Company’s August 11, 2009 Form 10-K/A. However, the amended complaint does not assert any new legal claims, and omits plaintiff’s previously asserted claim for corporate waste. Defendants moved to dismiss the amended complaint on October 8, 2009. Plaintiff filed her opposition on November 23, 2009, and defendants filed their reply on December 8, 2009. The court has scheduled the hearing on the motion to dismiss for June 25, 2010.

Shareholder Derivative Action. A federal shareholder derivative action premised on essentially the same factual assertions as the federal securities actions also was filed in June 2008 in the United States District Court for Southern District of New York against the directors or former directors of NexCen. This action is captioned: Soheila Rahbari v. David Oros, Robert W. D’Loren, James T. Brady, Paul Caine, Jack B. Dunn IV, Edward J. Mathias, Jack Rovner, George Stamas & Marvin Traub , No. 08-CV-5843 (filed on June 27, 2008). In this action, plaintiff alleges that NexCen’s Board of Directors breached its fiduciary duties in a variety of ways, mismanaged and abused its control of the Company, wasted corporate assets, and unjustly enriched itself by engaging in insider sales with the benefit of material non-public information that was not shared with shareholders. Plaintiff further contends that she was not required to make a demand on the Board of Directors prior to bringing suit because such a demand would have been futile, due to the board members’ alleged lack of independence and incapability of exercising disinterested judgment on behalf of the shareholders. Plaintiff seeks damages, restitution, disgorgement of profits, attorneys’ fees and costs, and miscellaneous other relief. On November 18, 2008, the court agreed to stay the derivative case until at least May 18, 2009, on which date the court scheduled a status conference. After holding the status conference on May 18, 2009, the court stayed the derivative case until the filing of the Company’s Amendment No. 2 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2007 (“Amended 2007 10-K”) and ordered plaintiff to file its amended complaint within two weeks after the filing of the Amended 2007 10-K. On June 9, 2009, plaintiff requested transfer of the derivative case to the court presiding over the securities class action case. This request was denied. On August 24, 2009, plaintiff filed the first amended shareholder derivative complaint. The Company filed a motion to dismiss on October 8, 2009 in accordance with the scheduling order entered by the court. Under the scheduling order, Plaintiff must file her opposition to the motion to dismiss by November 23, 2009, and the Director Defendants must file their reply by December 23, 2009.

California Litigation. A direct action was filed in Superior Court of California, Marin County against NexCen Brands and certain of our former officers by a series of limited partnerships or investment funds. The case is captioned: Willow Creek Capital Partners, L.P., et al. v. NexCen Brands, Inc., Case No. CV084266 (Cal. Superior Ct., Marin Country) (filed on August 29, 2008). Predicated on similar factual allegations as the federal securities actions, this lawsuit is brought under California law and asserts both fraud and negligent misrepresentation claims. Plaintiffs seek compensatory damages, punitive damages and costs.

The California state court action was served on NexCen on September 2, 2008. Plaintiffs in the California action served NexCen with discovery requests on September 19, 2008. On October 17, 2008, NexCen filed two simultaneous but separate motions in order to limit discovery. First, NexCen filed a motion in the United States District Court for Southern District of New York to stay discovery in the California actions pursuant to the Securities Litigation Uniform Standards Act of 1998. Second, NexCen filed a motion in the California court to dismiss the California complaint on the ground of forum non conveniens, or to stay the action in its entirety, or in the alternative to stay discovery, pending the outcome of the federal class action.

The California state court held a hearing on NexCen’s motion on December 12, 2008. At the hearing, the court issued a tentative ruling from the bench granting defendants’ motion to stay. On December 26, 2008, the court entered a final order staying the California action in its entirety pending resolution of the class action securities litigation pending in the Southern District of New York. Plaintiff filed a motion to lift the stay, which motion was denied on October 8, 2009.

SEC Investigation. We voluntarily notified the Enforcement Division of the SEC of our May 19, 2008 disclosure. The Company has been cooperating with the SEC and voluntarily provided documents and testimony, as requested. On or about March 17, 2009, we were notified that the SEC had commenced a formal investigation of the Company as of October 2008.21

~~Legacy Aether IPO~~SEC ~~Litigation~~Investigation. ~~The~~We voluntarily ~~Company~~notified ~~was among~~ the ~~hundreds~~Enforcement ofDivision ~~defendants named in a series~~ of ~~securities~~ ~~class action lawsuits brought in 2001 against issuers and underwriters of technology stocks that had their initial public offerings during~~ the ~~late~~SEC ~~1990’s. These cases were consolidated and pending in the United States District Court for the Southern District~~ of ~~New York~~our ~~under~~May ~~the caption~~19, ~~In Re~~2008 ~~Initial Public Offerings Litigation, Master File 21 MC 92 (SAS)~~disclosure. ~~As to~~ ~~NexCen,~~The ~~these~~SEC ~~actions~~commenced ~~were~~an ~~filed~~informal oninvestigation ~~behalf~~ of ~~persons and entities that acquired~~ the Company~~’s stock after our initial public offering in~~ ~~October 20,~~regarding ~~1999. Among other things,~~ the ~~complaints~~matters ~~claimed that prospectuses~~disclosed, ~~dated October 20, 1999~~ and ~~September 27, 2000 and issued~~ by the Company inhas ~~connection~~been cooperating with the ~~public~~SEC ~~offerings~~and ofvoluntarily ~~common~~provided ~~stock, allegedly~~documents ~~contained~~and ~~untrue~~testimony, ~~statements~~as requested. ofOn ~~material fact~~ or ~~omissions~~about ofMarch ~~material fact~~17, in2009, ~~violation~~we ofwere ~~securities~~notified ~~laws. The complaint alleged~~ that the ~~prospectuses~~ ~~allegedly~~SEC ~~failed to disclose that the offerings’ underwriters~~ had ~~solicited~~commenced ~~and~~a ~~received~~formal ~~additional~~investigation ~~and~~of ~~excessive fees, commissions and benefits beyond those listed in~~ the ~~arrangements~~Company ~~with~~as ~~certain~~ of ~~their~~October ~~customers,~~2008. ~~which were~~The ~~designed~~Company tois ~~maintain,~~continuing ~~distort~~to ~~and/or~~cooperate with ~~inflate~~ the ~~market~~SEC ~~price of the Company’s common stock~~ in ~~the~~its ~~aftermarket. The~~formal ~~actions sought unspecified monetary damages and rescission~~investigation. ~~NexCen reserved $465,000 for the estimated exposure for this matter.~~

InLegacy ~~March~~Aether IPO ~~2009,~~Litigation. ~~the~~The ~~parties,~~Company ~~including~~was ~~NexCen,~~among ~~reached~~the ahundreds ~~preliminary~~of ~~global~~defendants ~~settlement of~~named ~~all~~in a ~~309~~series ~~coordinated~~of securities class ~~actions~~action ~~cases~~lawsuits ~~under~~brought ~~which~~in ~~defendants~~2001 against ~~would~~issuers ~~pay~~and aunderwriters ~~total~~ of ~~$586~~technology ~~million~~stocks ~~(the~~that ~~“Settlement~~had ~~Amount”)~~initial topublic offerings during the ~~settlement~~late ~~class~~1990’s. inThese ~~exchange for~~cases ~~plaintiffs~~were ~~releasing~~consolidated ~~all~~in ~~claims~~the ~~against~~United States ~~them.~~District ~~Under~~Court for the ~~proposed~~Southern ~~terms~~District of ~~this~~ ~~settlement,~~New ~~NexCen’s~~York ~~portion~~under of the ~~Settlement~~caption, In ~~Amount~~Re ~~would~~Initial bePublic ~~paid by our~~Offerings ~~insurance~~Litigation, ~~carrier.~~Master InFile ~~October~~21 ~~2009,~~MC ~~the~~92 ~~district~~(SAS). As ~~court~~to ~~issued~~NexCen, athese ~~decision~~actions ~~granting~~were ~~final~~filed ~~approval~~on behalf of ~~the~~persons ~~settlement.~~and ~~Because~~entities ~~NexCen~~that ~~has~~acquired nothe ~~out-of-pocket~~Company’s stock ~~liability~~after ~~under~~our ~~the~~initial ~~approved~~public ~~settlement,~~offering weon ~~will~~October 20, no1999. Among ~~longer~~other things, ~~maintain~~ the ~~reserve of~~complaints ~~$465~~claimed that prospectuses,~~000.~~ Wedated ~~recorded~~October 20, ~~the~~1999 and ~~reversal~~September 27, of2000 ~~this~~and ~~reserve~~issued inby ~~income~~the ~~from discontinued~~Company ~~operations~~in ~~for~~connection with the public ~~three~~offerings ~~month~~of ~~period~~common ~~ended~~stock, ~~June~~allegedly ~~30,~~contained ~~2009.~~untrue Onstatements of ~~October~~material ~~23,~~fact ~~2009,~~or ~~certain~~omissions ~~objectors~~of ~~filed~~material afact ~~petition~~in toviolation ~~the~~of Usecurities laws.S. The ~~Court~~complaint ~~of Appeals~~alleged ~~for~~that the ~~Second~~prospectuses ~~Circuit~~allegedly failed to disclose ~~appeal~~that the ~~class~~offerings’ ~~certification~~underwriters ~~order~~had onsolicited ~~an interlocutory~~and ~~basis.~~received ~~Plaintiffs~~from certain ~~filed~~of ~~opposition~~their ~~papers~~customers onadditional ~~October~~and 31excessive fees, ~~2009.~~commissions ~~The~~and ~~underwriter~~benefits ~~defendants~~beyond ~~filed~~those ~~opposition~~listed ~~papers~~in onthe ~~November~~arrangements, 2which were designed to maintain, ~~2009~~distort and/or inflate the ~~issuer~~ ~~defendants~~market ~~have~~price ~~not~~of ~~yet~~the ~~filed~~Company’s ~~opposition~~common ~~papers~~stock in the aftermarket. The ~~Two~~actions ~~other~~sought ~~notices~~unspecified ofmonetary damages and ~~appeal~~rescission. ~~were~~NexCen ~~filed~~reserved by$0.5 ~~nine~~million ~~other~~for ~~objectors~~the estimated exposure for this matter.

19In March 2009, the parties, including NexCen, reached a preliminary global settlement of all 309 coordinated class actions cases under which defendants would pay a total of $586 million (the “Settlement Amount”) to the settlement class in exchange for plaintiffs releasing all claims against them. Under the proposed terms of this settlement, NexCen’s portion of the Settlement Amount would be paid by our insurance carrier. In October 2009, the district court issued a decision granting final approval of the settlement. Because NexCen has no out-of-pocket liability under the approved settlement, we no longer maintain the reserve of $0.5 million. We recorded the reversal of this reserve in income from discontinued operations as of June 30, 2009. On October 23, 2009, certain objectors filed a petition to the U.S. Court of Appeals for the Second Circuit to appeal the class certification order on an interlocutory basis. Two other notices of appeal were filed by nine other objectors. Plaintiffs, underwriter defendants, and the issuer defendants filed opposition papers. The appeals are pending.

Other. NexCen Brands and our subsidiaries are subject to other litigation in the ordinary course of business, including contract, franchisee, trademark and employment-related litigation. In the course of operating our franchise systems, occasional disputes arise between the Company and our franchisees relating to a broad range of subjects, including, without limitation, contentions regarding grants, transfers or terminations of franchises, territorial disputes and delinquent payments.

(b) CONTRACTUAL COMMITMENTS

In connection with our existing businesses and the businesses sold in 2008, ~~the Company~~we is are obligated under various leases for office space in New York City and Norcross, Georgia and other locations, which leases expire at various dates through 2017. As of the date of this Report, we have subleased or assigned all of the Company’s lease obligations, other than for our headquarters in New York ~~City~~ City and our NFM facility in Norcross, Georgia.

~~The~~As of ~~Company~~March ~~held~~31, ~~total~~2010 and December 31, 2009, we had long-term restricted cash of $0.4 million and $1.90 million, asrespectively. ofApproximately ~~September 30, 2009~~$0.1 ~~Long~~million of the long-term restricted cash ~~includes~~is ~~$1.2~~used ~~million~~for ~~consisting~~a ofsecurity adeposit ~~portion~~on ofour NFM lease, and the ~~one-time,~~remainder ~~non-refundable~~consists ~~licensing~~of ~~fees~~amounts ~~that~~to webe ~~received~~used ~~from~~to fund the ~~licenses~~capital improvements to ofexpand ~~The~~the ~~Athlete’s~~production ~~Foot~~capabilities ~~trademarks~~of ~~and~~our ~~trade~~manufacturing ~~dress~~facility ~~for~~to ~~the~~enable ~~territories~~us ofto ~~Australia~~produce and ~~New~~sell ~~Zealand~~pretzel ~~(See~~mix ~~Note~~to 4our –pretzel ~~Trademarks and Other Intangible Assets)~~franchisees. We ~~plan~~utilized approximately ~~to use the~~ $10.25 million of ~~long-term~~this restricted cash ~~over~~ ~~the~~in ~~fourth quarter of 2009 and~~ the first quarter of 2010 ~~to expand~~ ~~production~~and ~~capabilities~~plan ~~of our manufacturing facility~~ to ~~produce~~utilize ~~pretzel~~the ~~mix~~remaining ~~for our pretzel franchisees. Long-term restricted cash also included~~ $0.73 million ~~for~~ ~~security~~during ~~deposits~~the ~~relating~~second toquarter ~~letters~~ of ~~credit that secure our NFM facility~~2010 into ~~Norcross,~~fund ~~Georgia~~the ~~and~~balance ~~our~~of ~~headquarters~~the incapital ~~New York City~~improvements.

~~(13) DISCONTINUED OPERATIONS~~22

The following table details the income statement for the Company’s Consumer Branded Products business that was sold during the quarter ended December 31, 2008, as well as its UCC business that the Company discontinued in 2008 ( ~~in thousands,~~12) ~~except~~DISCONTINUED ~~per share data).~~OPERATIONS

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009		2008
Revenues	$	-		$	3,849		$	-	$	13,304
Operating costs and expenses		(22	)		(9,960	)		205		(116,861	)
Operating (loss) income		(22	)		(6,111	)		205		(103,557	)
Interest and other expense, net		-			(990	)		2		(2,972	)
Minority interest		-			-			-		2,386
(Loss) income before income taxes		(22	)		(7,101	)		207		(104,143	)
Current tax		-			-			-		(163	)
Deferred tax benefit		-			1,034			-		16,279
Net (loss) income from discontinued operations	$	(22	)	$	(6,067	)	$	207	$	(88,027	)
(Loss) income per share (basic and diluted) from discontinued operations	$	(0.00	)	$	(0.11	)	$	0.00	$	(1.56	)
Weighted average shares outstanding - basic and diluted		56,952			56,639			56,859		56,509

The table below shows the results of discontinued operations (in thousands, except per share data):

(14) SUBSEQUENT EVENTS

	Three Months Ended March 31,
	2010			2009
Revenues	$	–		$	–
Operating expenses		(7	)		(133	)
Other income		24			–
Income (loss) before income taxes		17			(133	)
Income taxes		–			–
Net income (loss) from discontinued operations	$	17		$	(133	)
Income (loss) per share (basic and diluted) from discontinued operations	$	0.00		$	(0.00	)
Weighted average shares outstanding		56,952			56,671

~~The Company~~ (13) ~~has evaluated subsequent events through November 16, 2009, which is the~~SUBSEQUENT ~~date these financial statements are issued.~~EVENTS

20On April 29, 2010, we entered into an amendment to the lease for the Company’s New York office which reduced the rent by approximately $50,000 per month effective as of January 15, 2010. In connection with the execution of this amendment, we provided a letter of credit for approximately $0.6 million to secure the lease.

On May 13, 2010, NexCen entered into an agreement to sell our franchise business to an affiliate of LLCP. The purchase price for the business is $112.5 million and is subject to certain closing adjustments. Under the terms of the sale agreement, LLCP’s affiliate, Global Franchise Group, LLC (“Purchaser”), will acquire the subsidiaries of the Company that own the Company’s franchise business assets and also the Company’s franchise management operations, including the Company’s management operations in Norcross, Georgia, and its cookie and pretzel dough factory and research facility in Atlanta, Georgia. Specifically, the Company will: (i) sell to Purchaser all of the Company’s equity interests in TAF Australia, LLC; (ii) cause NexCen Holding Corporation to sell to Purchaser all of its equity interests in Athlete’s Foot Brands, LLC, The Athlete’s Foot Marketing Support Fund, LLC, GAC Franchise Brands, LLC, GAC Manufacturing, LLC, GAC Supply, LLC, MaggieMoo’s Franchise Brands, LLC, Marble Slab Franchise Brands, LLC, PM Franchise Brands, LLC, PT Franchise Brands, LLC, and ShBx IP Holdings LLC; (iii) cause NB Supply Management Corp. to sell to Purchaser certain specified assets, and to assign to Purchaser certain specified liabilities; and (iv) cause NexCen Franchise Management, Inc. to sell to Purchaser certain specified assets, and to assign to Purchaser certain specified liabilities (such shares and assets, collectively the “NexCen Franchise Business”). The purchase price is subject to closing adjustments for cash, indebtedness, other than borrowings under the BTMUCC Credit Facility, which will be satisfied at closing, working capital and other specified items, including approval of the stockholders of NexCen. The agreement does not provide for any post-closing indemnities. The transaction is expected to close in the third quarter of 2010.

In connection with the sale transaction, and as contemplated by the sale agreement, NexCen’s Board of Directors expects to approve, and recommend to stockholders the adoption of a plan of dissolution that, absent the emergence of a higher value alternative, would be implemented after the closing of the sale transaction. Subject to the resolution of existing and contingent liabilities and claims, as required by Delaware law, it is expected that the plan of dissolution will result in a liquidating distribution to NexCen’s stockholders. NexCen cannot yet predict with certainty the timing or amount of any such distribution.

In conjunction with the sale agreement, NexCen and certain of our subsidiaries entered into an accord and satisfaction agreement with BTMUCC, under which BTMUCC will accept a portion of the sale proceeds (but in no event less than $98.0 million), at the closing of the sale transaction, in full satisfaction of the outstanding indebtedness owed to BTMUCC. The accord and satisfaction agreement provides that the Issuer and the Co-Issuers can satisfy and permanently extinguish all outstanding obligations under the BTMUCC Credit Facility (which was an aggregate principal amount (plus accrued and unpaid interest) of $136.4 million as of April 30, 2010) through the payment of (i) $98.0 million, (ii) the amount by which aggregate consideration for the sale of the Company (after giving effect to various adjustments) exceeds $112.5 million, (iii) the amount by which the Company’s cash (after giving effect to various adjustments) exceeds $6.0 million, and (iv) all outstanding third-party fees and expenses of BTMUCC. NexCen will retain the balance of the sale proceeds, plus a portion of the cash on hand. NexCen and certain of our subsidiaries also entered into an amendment and waiver agreement with BTMUCC on May 13, 2010, which includes certain limited waivers of covenants and obligations in the existing credit agreement with BTMUCC to facilitate the completion of, and assist NexCen in remaining in compliance with the BTMUCC Credit Facility pending completion of, the sale transaction.

For additional information about the agreements with LLCP and BTMUCC, as well as copies of the agreements, see our Current Report on Form 8-K filed with the SEC on May 17, 2010.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

In this Report, we make statements that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “anticipate,” “believe,” “estimate,” “intend,” “may,” “will,” “expect,” and similar expressions often indicate that a statement is a “forward-looking statement.” Statements about non-historic results also are considered to be forward-looking statements. None of these forward-looking statements are guarantees of future performance or events, and they are subject to numerous risks, uncertainties and other factors. Given the risks, uncertainties and other factors, you should not place undue reliance on any forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include those discussed throughout this Report, in Item 1A, under the heading “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 (“~~2008~~2009 10-K”), and our other periodic reports filed with the Securities and Exchange Commission. Forward-looking statements reflect our reasonable beliefs and expectations as of the time we make them, and we have no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW

~~OVERVIEW~~NexCen is a strategic brand management company that owns and manages a portfolio of seven franchised brands, operating in a single business segment: Franchising. Five of our brands (Great American Cookies, Marble Slab Creamery, MaggieMoo’s, Pretzel Time and Pretzelmaker) are in the QSR industry. The other two brands (TAF and Shoebox New York) are in the retail footwear and accessories industry. All seven franchised brands are managed by NFM, a wholly owned subsidiary of NexCen. Our franchise network, across all of our brands, consists of approximately 1,700 stores in 38 countries.

~~NexCen~~We isearn arevenues ~~strategic~~primarily ~~brand~~from ~~management~~the ~~company~~franchising, royalty, ~~that~~licensing ~~owns~~ and ~~manages~~other contractual afees ~~portfolio~~that ofthird ~~seven franchised~~parties ~~brands,~~pay ~~operating~~us infor athe ~~single~~right ~~business~~to ~~segment:~~use ~~Franchising.~~the ~~Five of~~intellectual ~~our~~property ~~brands~~associated ~~(Great~~with ~~American~~our ~~Cookies,~~brands ~~Marble Slab Creamery, MaggieMoo’s, Pretzel Time~~ and ~~Pretzelmaker)~~from ~~are in~~ the ~~QSR~~sale ~~industry.~~of ~~The~~cookie ~~other~~dough ~~two brands (TAF~~ and other ~~Shoebox~~ancillary ~~New~~products ~~York)~~to ~~are~~our inGreat ~~the~~American ~~retail~~Cookies ~~footwear~~franchisees. ~~and~~We ~~accessories~~are ~~industry. NFM~~expanding ~~manages~~production ~~all~~capabilities ~~seven~~of ~~franchised~~our ~~brands. Our~~manufacturing ~~franchise~~facility ~~network,~~in ~~across~~2010 ~~all~~to ~~of our~~enable ~~brands,~~us ~~consists~~to produce ofand ~~approximately~~sell ~~1,750~~pretzel ~~retail~~mix ~~stores~~to inour ~~approximately~~pretzel ~~40 countries~~franchisees.

We ~~earn~~ ~~revenues~~discuss ~~primarily~~our ~~from~~business ~~the~~in ~~franchising, royalty,~~detail ~~licensing~~in ~~and~~Item ~~other contractual~~1-Business ~~fees~~of ~~that~~our ~~third~~2009 ~~parties~~10-K, ~~pay~~and uswe discuss ~~for~~ the ~~right~~risks toaffecting ~~use the intellectual property associated with~~ our ~~brands~~business ~~and~~in ~~from~~Item ~~the~~1A-Risk ~~sale~~Factors of ~~cookie dough and other ancillary products to~~ our ~~Great American Cookies franchisees~~2009 10-K.

WeAs ~~discuss~~discussed in Note 13 – Subsequent Events to our Unaudited ~~business~~Condensed inConsolidated ~~detail~~Financial Statements contained in ~~Item~~this ~~1-Business~~report, on May 13, 2010 we entered into an agreement to sell our franchise business, including all seven of our ~~2008~~existing ~~10-K~~brands. Completion of the sale is subject to various closing conditions, ~~and~~including wethe approval of NexCen’s ~~discuss~~stockholders. We expect the ~~risks~~transaction ~~affecting~~to ~~our~~close in the third quarter. The decision to sell the business inresulted ~~Item~~from ~~1A-Risk~~an ~~Factors~~extensive strategic review of various alternatives to address our ~~2008~~debt and capital structure, which ~~10-K~~we began in November 2009 and carried out with the assistance of an investment bank.

The Company’s financial condition and operating results for the three and nine month periods ended September 30, 2009 reflect the changes that the Company implemented to address the financial and operational challenges that we faced in 2008. By the end of 2008, we improved our cash management, reduced operating expenses, restructured our credit facility, sold our Waverly and Bill Blass businesses, reduced our outstanding debt, and ceased all activities of UCC Capital. As a result of these changes, for the three and nine month periods ended September 30, 2009 as compared to the same periods in 2008, the Company generated positive cash flow from operations, operating income instead of operating loss, and significantly decreased its net loss.

The following factors impacted our operating results for the three and nine month periods ended September 30, 2009 compared to the same periods in 2008:

· We acquired Great American Cookies on January 28, 2008. Thus, our financial results for the nine months ended September 30, 2009 reflect a full period of ownership of Great American Cookies, whereas our financial results for the nine months ended September 30, 2008 do not. · We acquired our joint venture interest in Shoebox New York on January 15, 2008. Fees paid to the Company by the joint venture to manage the brand are reflected in the Company’s revenues. The Company’s portion of income or expense from the joint venture investment is included in non-operating income (expense). · We report the Bill Blass, Waverly and UCC Capital businesses as discontinued operations for all periods presented. · We disclosed issues related to our debt structure in May 2008 that materially and negatively affected the Company. As a result of the events of May 2008, we incurred significant expenses in the third quarter of 2008 that we did not incur in the third quarter of 2009, including $1.7 million in professional fees related to special investigations, $28.1 million of impairment charges related to our intangible assets, and $0.3 million in restructuring charges. Thus, our expenses in 2009 reflect the effects of our ongoing cost reduction measures that began in May 2008 as well as more normalized expenses.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are the accounting policies that are most important to the presentation of our financial condition and results of operations and require management’s most difficult, subjective or complex estimates and judgments. Our critical accounting policies include valuation of our deferred tax assets, valuation of trademarks and intangible assets, valuation of stock-based compensation and valuation of allowances for doubtful accounts. We discuss these critical accounting policies in detail in our ~~2008~~2009 10-K in Item 7 under the heading “Critical Accounting Policies.” We also discuss our significant accounting policies in Note 2 to our Unaudited Condensed Consolidated Financial Statements contained in this Report and in Notes 2 and 3 to our Audited Consolidated Financial Statements included in Item 8 in our ~~2008~~2009 10-K.

We discuss new accounting pronouncements in Note 2 to the Unaudited Condensed Consolidated Financial Statements contained in this Report.

SEASONALITY

~~Royalty~~The ~~revenues~~business associated with certain of our brands ~~are~~is seasonal. However, ~~but~~we believe the seasonality of our brands is complementary, so that wethe ~~generally~~Company’s operations do not experience material seasonality ~~in royalty revenues~~ on an aggregate basis. For example, average ~~our~~sales ~~royalty~~of ~~revenues from~~ our mall-based QSR’s brands (Great American Cookies, Pretzel Time, and Pretzelmaker) ~~and our~~are ~~retail brands (TAF and Shoebox New York) tend to be~~ higher induring the ~~fourth quarter~~winter ofmonths, ~~the~~especially ~~year due to higher retail sales from higher mall traffic around~~in ~~the holiday season. Conversely~~December, ~~royalty~~whereas ~~revenues~~average ~~from~~sales of our ice cream brands (MaggieMoo’s and Marble Slab Creamery) ~~tend~~are ~~to be~~ higher in the ~~warmer~~summer months ~~of the second~~ and ~~third~~lower ~~quarters~~during ~~from~~ the ~~higher retail sales in those~~winter months.

~~COMPARISON OF RESULTS FOR THREE MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008~~24

RESULTS OF CONTINUING OPERATIONS FOR THREE MONTH PERIODS ENDED MARCH 31, 2010 AND MARCH 31, 2009

Royalty, Franchise Fee, Factory, Licensing and Other Revenues

We recognized $10.80 million in revenues for the three months ended ~~September 30~~March 31, ~~2009,~~ 2010, a decrease of $1.49 million, or 1116%, ~~from $12.2 million~~ in revenues ~~for~~from the three months ended March ~~September 30~~31, ~~2008~~ 2009. Of the $10.8 0 million in revenues recognized for the three months ended ~~September 30~~March 31, ~~2009~~ 2010, $54.9 million related to royalties, a decrease of $0.8 9 million, or 13 15%, from the ~~2008~~2009 comparable quarter; $4.02 million related to factory revenues from the sales of cookie dough and other products to our Great American Cookies franchisees, a decrease of $0.63 million, or 136%, from the ~~2008 comparable~~2009 comparable quarter; $0.6 million related to franchise fees, ana ~~increase~~decrease of $0.1 8 million, or 41 57%, from the ~~2008~~2009 comparable quarter; and $0.3 million related to licensing and other revenues, awhich ~~decrease~~remained ~~of $0.1~~flat ~~million~~as ~~from~~compared to the ~~2008 comparable~~2009 comparable quarter. Other revenues consist primarily of management fees paid to ~~the Company~~ us from the Shoebox New York joint venture and rebates earned from vendors with which ~~the~~we ~~Company~~conduct ~~conducts~~ business.

Our royalty revenues have declined as a result of the quarter-over-quarter lower store count, ~~and~~reduced ~~lower~~ consumer spending ~~that~~which ~~have~~has affected all of our brands, as well as a decline in TAF revenue as a result of the ~~TAFA~~August ~~licensing~~6, ~~transaction. We~~2009 ~~anticipate~~FAF ~~that~~Australia and ~~the~~New ~~TAFA~~Zealand licensing transaction. ~~will~~Because ~~result~~of inthe aeconomic ~~decline~~factors inthat ~~our~~negatively ~~future~~affected ~~royalties~~our ofrevenues ~~approximately~~during ~~$0.2~~2009, ~~million~~we ~~per~~currently ~~quarter,~~are asunable ~~we ceased~~to ~~receiving~~determine ~~royalties~~whether ~~from~~our ~~franchised~~revenues ~~stores~~will instabilize ~~Australia~~ or ~~New~~will ~~Zealand~~continue ~~upon~~to ~~the execution~~decline ~~of the TAFA licensing transaction on August 6, 2009~~in 2010.

We generally record franchise fee revenues upon the opening of the franchisee’s store, which is dependent on, among other factors, real estate availability, construction build-out, and financing. Thus, we experience variability in our initial franchise fee revenue from both our sales of new franchises and in the timing of the opening of the franchisee’s store. The quarter-over-quarter decrease in initial franchise fees reflects the difficulties we have experienced in selling new franchises in light of the challenged economic environment and the lack of ready credit to current and prospective franchisees who generally depend upon financing from banks or other financial institutions in order to construct and open new units.

The quarter-over-quarter decrease in our factory revenue is due to lower consumer sales of products from our Great American Cookies franchised stores, resulting in decreased demand for cookie dough from our franchisees.

The quarter-over-quarter increase in initial franchise fees is attributable to the timing of store openings, which allowed us to recognize the associated initial franchise fees in the third quarter. We generally recognize franchise fee revenues upon the opening of the franchisee’s store, which is dependent on, among other factors, real estate availability, construction build-out, and financing. Thus, we experience variability in our initial franchise fee revenue from both our sales of new franchises and in the timing of the opening of the franchisee’s store. We believe that the amount of initial franchise fees that we recognized in the third quarter of 2009, while greater than those recognized in the 2008 comparable quarter, nonetheless reflects the difficulties we have experienced in selling new franchises in light of the challenged economic environment and the lack of ready credit to current and prospective franchisees who generally depend upon financing from banks or other financial institutions in order to build out and open new units.

Because of lower mall traffic, lower consumer spending and tight credit market, trends which negatively affected our revenues for third quarter of 2009, have persisted for several quarters, we currently are unable to determine whether our revenues will stabilize or will continue to decline in the fourth quarter of 2009 and into 2010.

Cost of Sales

For the three months ended ~~September~~March 3031, ~~2009~~2010, ~~the~~we ~~Company~~incurred ~~recorded~~ $2.57 million in cost of sales, a decrease of ~~$0.~~6 ~~million, or 20~~%, from ~~$3.1 million from~~ the ~~2008~~ 2009 comparable quarter. Cost of sales is comprised of raw ingredients, labor and other direct manufacturing costs associated with our ~~Great American Cookies~~ manufacturing facility. Consistent with manufacturing revenues, the decrease is due to lower consumer sales of products from our Great American Cookies franchised stores, resulting in decreased demand for cookie dough from our franchisees and ultimately decreased manufacturing costs. The gross profit margin on the manufacture and supply of cookie dough and the supply of ancillary products sold through our Great American Cookies franchised stores ~~increased~~remained tosteady ~~38%~~at ~~for the three months ended September 30, 2009 from 33~~36% for the three months ended ~~September~~March 3031, ~~2008. The quarter-over-quarter~~2010 ~~increase~~and ~~in our gross profit margin reflects the fact that in 2008 we instituted price increases on our cookie dough to adjust for certain increases to our cost of sales~~2009.

Selling, General and Administrative Expenses (“SG&A”)

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

For the three months ended ~~September~~March 3031, ~~2009~~ 2010, ~~the~~we ~~Company~~ recorded ~~Corporate~~Franchising SG&A expenses of $12.79 million, a decrease of ~~$1.3 million, or 45~~ 6%, from ~~$3.0 million for~~ the ~~three~~2009 ~~months~~comparable ~~ended September 30, 2008~~quarter. ~~The~~This quarter-over-quarter decrease reflects isreductions ~~primarily~~in ~~the~~general ~~result~~office ofexpenses aas ~~reduction~~well inas ~~stock~~improved ~~compensation~~collections ~~expense~~and ~~of $0.7~~fewer ~~million,~~past ~~along with reductions in compensation expense~~ due tobalances ~~the~~resulting ~~Company’s corporate restructuring~~ in ~~2008~~lower ~~and~~bad ~~other~~debt ~~cost reduction efforts~~expense. ~~The~~We ~~Company~~ recorded ~~Franchising~~Corporate SG&A expenses of $31.04 million for the three months ended ~~September~~ 30March 31, ~~2009~~2010, a decrease of ~~$0.4 million, or 13~~32%, from ~~$3.4 million for~~ the ~~2008~~2009 comparable quarter. This quarter-over-quarter decrease ~~reflects~~is ~~reductions~~primarily the result of cost reduction measures, resulting in, ~~marketing~~among other things, ~~general~~lower ~~office~~rent ~~expenses~~and banking fees, and ~~contract~~the ~~labor~~Company’s corporate restructuring ~~expenses~~in 2009 which has resulted in lower payroll costs.

Professional Fees

~~For the~~Franchising ~~three~~professional ~~months~~fees ~~ended~~primarily ~~September~~consist ~~30,~~of ~~2009,~~legal ~~the~~and ~~Company~~accounting ~~incurred~~fees ~~$5,000~~associated inwith franchising activities and trademark maintenance. Corporate professional fees ~~related~~primarily ~~to special~~consist ~~investigations~~of aslegal ~~compared~~fees toassociated ~~$1.6~~with public ~~million~~reporting, ~~during~~compliance ~~the~~and ~~three~~litigation, ~~months~~and ~~ended~~accounting ~~September~~fees ~~30,~~related ~~2008~~to auditing and tax services.

For the three months ended September 30, 2009, the Company incurred corporate professional fees of $0.3 million, an increase of $0.2 million, or 383%, from $0.1 million for the three months ended September 30, 2008. Corporate professional fees primarily consist of legal fees associated with public reporting, compliance and litigation (including claims arising from the same events as the special investigations), and accounting fees related to auditing and tax services. The Company incurred professional fees related to franchising of $0.8 million for the three months ended September 30, 2009, an increase of $0.3 million, or 59%, from $0.5 million for the 2008 comparable quarter. Franchising professional fees primarily consist of legal and accounting fees associated with franchising activities and trademark maintenance. The total professional fees incurred in the third quarter of 2009 reflect a more normalized expense structure than the professional fees incurred in the third quarter of 2008, which were affected by the events of May 2008. In the third quarter of 2008, we redirected our resources to engage outside attorneys and outside consultants to assist the Company and the Board of Directors with respect to special investigations conducted at the direction of the Audit Committee of the Board of Directors, the Company and in response to information requested by the SEC.25

~~Impairment~~For the three months ended March 31, 2010, we incurred professional fees related to franchising of ~~Intangible~~$0.3 ~~Assets~~million, a decrease of 35% from the 2009 comparable quarter. We incurred corporate professional fees of $0.5 million for the three months ended March 31, 2010, a decrease of 36% from the 2009 comparable quarter. The quarter-over-quarter decrease in both franchising and corporate professional fees reflects negotiated reductions in fees and reduced need for outside professionals for reporting, compliance and litigation matters.

~~The~~Strategic ~~Company~~Initiative tests trademarks and other intangible assets for potential impairment annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the assets below its respective carrying amount.Expenses

~~The~~Strategic ~~Company~~initiative ~~did~~expenses ~~not~~of ~~record~~$0.1 ~~any~~million ~~impairment~~for ~~charges in~~ the three months ended ~~September~~ 30March 31, ~~2009.~~2010 represent ~~For~~legal ~~the~~costs, ~~three~~incremental ~~months~~board ~~ended~~fees ~~September~~and ~~30,~~other ~~2008,~~related wecosts ~~recorded~~associated ~~impairment~~with ~~charges~~identifying ~~totaling~~and ~~$28.1~~evaluating ~~million.~~alternatives ~~In May 2008, the Company disclosed issues related~~ to our debt ~~structure that materially~~ and ~~negatively affected the~~capital ~~Company~~structure.

Depreciation and Amortization

Depreciation expenses arise from property and equipment purchased for use in our ~~operations,~~ ~~including~~operations. We include depreciation relating to our factory operations in cost of sales. Amortization costs arise from amortizable ~~intangible~~ intangible assets acquired in acquisitions.

23For the three months ended March 31, 2010, we recorded depreciation and amortization expense of $0.3 million, a decrease of 65% from the 2009 comparable quarter. The quarter-over-quarter decrease is primarily the result of accelerated depreciation expense related to the New York headquarters office which ceased in August 2009.

For the three months ended September 30, 2009 and 2008, the Company recorded depreciation and amortization expenses of approximately $0.6 million and $0.9 million, respectively. The quarter-over-quarter decrease primarily reflects the depletion of corporate fixed assets that had been subject to accelerated depreciation beginning in the second quarter of 2008.

Restructuring Charges

In the three months ended September 30, 2009, the Company recorded $0.2 million in restructuring charges primarily related to employee separation benefits in connection with the reduction of staff in the New York corporate offices. In the three months ended September 30, 2008, the Company recorded $0.3 million in restructuring charges primarily related to employee separation benefits in connection with the reduction of staff in the New York corporate offices.

Total Operating Expenses

Total operating expenses for the three months ended September 30, 2009 were $9.1 million, a decrease of $32.0 million, or 78%, from $41.1 million for the 2008 comparable quarter. The results for the three months ended September 30, 2008 included impairment charges related to intangible assets of $28.1 million, $1.6 million in professional fees related to special investigations, and $0.3 million in restructuring costs. The results for the three months ended September 30, 2009 included restructuring costs of $0.2 million. Excluding these special items, the Company incurred operating expenses of $8.9 million for the three months ended September 30, 2009, a decrease of $2.1 million, or 19% from $11.0 million for the three months ended September 30, 2008. This decrease reflects the Company’s ongoing cost reduction measures that began in May 2008.

Operating Income (Loss)

~~The~~As a ~~Company~~result ~~generated~~of ~~operating~~the ~~income~~foregoing offactors, ~~$1.7~~operating ~~million~~income for the three months ended ~~September~~March 3031, ~~2009,~~2010 anwas ~~increase of~~ $301.67 million ~~from the operating loss of $28.9 million for the three months ended September 30~~, ~~2008.~~a ~~This quarter-over-quarter~~decrease ~~increase is primarily the result~~ of ~~the~~3% ~~Company’s~~from ~~cost reduction efforts, lack of impairment charges and~~ the ~~more~~2009 ~~normalized operating~~comparable ~~expenses of the Company without the expenses specific to events and circumstances of May 2008~~quarter.

Interest Income

~~The~~Interest ~~Company~~income ~~recognized~~primarily ~~interest~~reflects ~~income~~the ofinterest ~~$50,000~~earned ~~for~~on ~~the~~our ~~three~~average ~~months~~cash ~~ended~~balances. ~~September~~Interest ~~30,~~income ~~2009,~~also anincludes ~~increase~~interest ofearned ~~$6,000,~~from orthe ~~14%,~~loan ~~from~~agreement ~~$44,000~~with ~~for~~the TAF MSF. For the three months ended ~~September~~March 3031, ~~2008.~~2010, ~~Interest~~we ~~income primarily reflects the interest~~recognized ~~earned~~interest onincome ~~our~~of ~~average~~less ~~cash~~than ~~balances~~$0.1 ~~Interest~~million ~~income~~compared ~~also~~to ~~includes~~$0.1 ~~interest earned~~million ~~from~~for the ~~loan~~three months ~~agreement~~ended ~~with~~March ~~the~~31, ~~TAF MSF~~2009.

Interest Expense

~~The~~For the ~~Company~~three months ended March 31, 2010, we recorded interest expense of $2.~~7 million for the three months~~6 ~~ended September 30~~million, ~~2009,~~ a decrease of ~~$0.1 million, or 3~~9%, from ~~$2.8 million for~~ the ~~three~~2009 ~~months~~comparable ~~ended September 30, 2008~~quarter. Interest expense ~~consists~~ consists primarily of interest incurred in connection with our borrowings related to our continuing operations under the BTMUCC Credit Facility. Interest expense also includes, ~~all~~amortization ~~for~~of ~~the~~deferred ~~three~~loan ~~months~~costs ~~ended~~and ~~September~~debt ~~30,~~discount ~~2009~~of $0.3 million and ~~2008~~$0.4 million, respectively, ~~amortization~~for ofthe ~~deferred~~three ~~loan~~months ~~costs~~ended ~~of $237~~March 31,~~000~~ 2010 and ~~$280~~2009,~~000, amortization~~ ofand ~~debt~~imputed ~~discount~~interest of ~~$135,000,~~less ~~and~~than $~~132,000~~0.1 ~~and~~million ~~imputed~~for ~~interest~~both ofthe ~~approximately~~three ~~$46~~months ended March 31,~~000~~ 2010 and ~~$47~~2009,~~000~~ related to a long-term consulting ~~agreement~~ agreement liability assumed in the TAF acquisition, (which ~~liability~~ expires in 2028). The quarter-over-quarter decrease in interest expense is primarily due to decreased borrowings related to our continuing operations ~~after~~(including ~~the~~as $5a ~~million~~result ~~paydown~~ of ~~the Class B Franchise Note in August 2009~~additional, ~~the~~unscheduled ~~lower~~principal ~~interest~~payments ~~rates~~of ~~on the variable rate debt, offset by the interest accrued on the Deficiency Note~~$5.0 ~~We include~~million in ~~discontinued~~ ~~operations~~August ~~for~~2009 ~~the three months ended September 30,~~and ~~2008 interest expense of approximately~~ $1.04 million ~~related~~in toFebruary ~~the Waverly~~2010) and ~~Bill~~lower ~~Blass~~interest ~~businesses~~rates ~~that~~on weour ~~sold~~variable ~~during 2008~~rate debt. For additional details regarding the BTMUCC Credit Facility, see Note 7 – ~~Long-Term~~ Debt to our ~~Unaudited~~ Unaudited Condensed Consolidated Financial Statements contained in this report.

Financing Charges

The Company recorded $63,000 in financing charges during the three months ended September 30, 2009 as compared to $0.8 million during the three months ended September 30, 2008. Financing charges consist primarily of legal fees related to the amendments to the BTMUCC Credit Facility. In the third quarter of 2008, the Company incurred significant legal fees related to the restructuring of the BTMUCC Credit Facility, which was finalized in August 2008.

Other Income

~~The Company~~For ~~recognized other income of $139,000 for~~ the three months ended ~~September 30,~~March ~~2009~~31, ~~which~~2010 ~~included~~and ~~$18~~2009,~~000~~ ofwe ~~income~~recorded ~~from~~other ~~the~~income ~~Company’s~~of ~~investment in~~$0.1 ~~Shoebox~~million ~~New~~and ~~York~~$0.3 ~~For the three months ended September 30~~million, ~~2008,~~respectively. ~~the~~Other ~~Company recorded other~~ income ofconsists ~~$240,000,~~ primarily ~~reflecting~~of earnings ~~settlements~~from ofour ~~lease obligations~~equity ~~relating~~investment toin ~~MaggieMoo’s~~Shoebox ~~franchisees~~New York.

Loss From Continuing Operations Before Income Taxes

WeAs a ~~recognized~~result of the foregoing factors, loss from continuing operations before income taxes ~~of $0.9 million~~ for the three months ended ~~September~~March ~~30, 2009, a decrease of $~~31~~.3 million~~, ~~from~~ a2010 ~~loss~~was of $320.27 million ~~for the three months ended September 30~~, ~~2008.~~an ~~This~~improvement ~~quarter-over-quarter~~of ~~decrease~~1% infrom ~~loss reflects~~ the ~~changes~~2009 tocomparable ~~the Company’s business, the absence of the expenses specific to 2008, and our ongoing cost reduction measures that began in 2008~~quarter.

Income Taxes ~~– Continuing Operations~~

For ~~the~~both the three months ended ~~September~~March 3031, 2010 and 2009, ~~the~~we ~~Company~~ recorded a current provision for income taxes of $~~102~~0.1 million,~~000,~~ consisting ~~primarily~~ of ~~foreign~~state income taxes and foreign taxes withheld on franchise royalties received from foreign based franchisees in accordance with applicable tax treaties. ~~The~~We ~~Company~~ recorded no deferred income tax expense. ~~Income~~ We compute our current and deferred quarterly income tax expense ~~for~~or benefit ~~the~~based ~~three~~upon ~~months~~an ~~ended~~estimate ~~September~~of ~~30,~~the ~~2008~~annual ~~was~~effective tax rate from continuing ~~$72,000~~operations.

The Company computes our combined current and deferred quarterly income tax expense or benefit based upon an estimate of the annual effective tax rate from continuing operations. The Company’s effective tax rate from continuing operations was approximately 11.5% and 0.2% in the third quarter of 2009 and 2008, respectively.

For a further discussion of the Company’s income taxes , including deferred tax assets and liabilities, see Note 9 – Income Taxes to our Unaudited Consolidated Financial Statements.

Discontinued Operations

For the three months ended September 30, 2009, the Company recognized net loss from discontinued operations of approximately $22,000 resulting from administrative expenses associated with Consumer Branded Products. There was no income tax expense incurred in discontinued operations for the three months ended September 30, 2009. For the three months ended September 30, 2008, the Company recognized net loss from discontinued operations of $6.1 million, consisting primarily of net losses from Bill Blass and Waverly, which comprised our Consumer Branded Products business.

COMPARISON OF RESULTS FOR NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008

RESULTS OF CONTINUING OPERATIONS

Royalty, Franchise Fee, Factory, Licensing and Other Revenues

We recognized $34.6 million in revenues for the nine months ended September 30, 2009, an increase of $0.3 million, or 1%, from $34.3 million in revenues for the nine months ended September 30, 2008. Of the $34.6 million in revenues recognized for the nine months ended September 30, 2009, $17.9 million related to royalties, a decrease of $0.7 million, or 4%, from the 2008 comparable period; $12.8 million related to factory revenues, an increase of $0.5 million, or 4%, from the 2008 comparable period; $3.0 million related to franchise fees, an increase of $0.6 million, or 25%, from the 2008 comparable period; and $0.9 million related to licensing and other revenues, 13% below the 2008 comparable period. Other revenues consist primarily of management fees paid to the Company from the Shoebox New York joint venture and rebates earned from vendors with which the Company conducts business.

On a pro forma basis, assuming that we had acquired Great American Cookies on January 1, 2008, the Company’s royalty revenues for the nine months ended September 30, 2009 declined approximately $1.2 million, or 6%, and factory revenues declined $1.1 million, or 8%, from the 2008 comparable period. We believe this decrease is attributed to the period-over-period lower store count and lower consumer spending that have affected all of our brands, as well as a decline in TAF revenue as a result of the TAFA licensing transaction whereby we ceased receiving royalties from franchised stores in Australia and New Zealand.

The period-over-period increase in initial franchise fees is attributable to our recognition of significant initial franchise fees for Great American Cookies and the timing of certain store openings, which allowed us to recognize the associated initial franchise fees. We recognized a significantly smaller amount of initial franchise fees for Great American Cookies in the 2008 comparable quarter due to our inability to sell new franchises while we prepared, and in some states registered, our franchise offering documents for Great American Cookies after we acquired the brand in January 2008. We generally record franchise fee revenues upon the opening of the franchisee’s store, which is dependent on, among other factors, real estate availability, construction build-out, and financing. Thus, we experience variability in our initial franchise fee revenue from both our sales of new franchises and in the timing of the opening of the franchisee’s store. We believe that the amount of initial franchise fees that we recognized in the nine months ended September 30, 2009, while greater than those recognized in the 2008 comparable period, nonetheless reflects the difficulties we have experienced in selling new franchises in light of the challenged economic environment and the lack of ready credit to current and prospective franchisees who generally depend upon financing from banks or other financial institutions in order to construct and open new units.

Cost of Sales

For the nine months ended September 30, 2009, the Company incurred $8.0 million in cost of sales, a decrease of $0.4 million, or 5%, from $8.4 million for the 2008 comparable period. Cost of sales is comprised of raw ingredients, labor and other manufacturing costs associated with our Great American Cookies manufacturing facility. Consistent with manufacturing revenues, the decrease is due to lower consumer sales of products from our Great American Cookies franchised stores, resulting in decreased demand for cookie dough from our franchisees and ultimately decreased manufacturing costs. The gross profit margin on the manufacture and supply of cookie dough and the supply of ancillary products sold through our Great American Cookies franchised stores increased to 38% for the nine months ended September 30, 2009 from 32% for the nine months ended September 30, 2008. In 2008, we instituted price increases on our cookie dough to adjust for certain increases to our raw materials costs and we instituted certain expense reductions. In addition, we recorded cost of sales of $234,000 in the first quarter of 2008 resulting from purchase accounting adjustments related to inventory acquired. Together, these factors resulted in period-over-period increase in the gross profit margin.

Selling, General and Administrative Expenses

For the nine months ended September 30, 2009, the Company recorded Corporate SG&A expenses of $5.6 million, a decrease of $5.2 million, or 48%, from $10.8 million for the 2008 comparable period. This period-over-period decrease is the result of a reduction in stock compensation expense of $2.7 million, along with reductions in compensation expense as a result of the Company’s corporate restructuring in 2008 and other cost reduction efforts. The Company recorded Franchising SG&A of $9.6 million for the nine months ended September 30, 2009, a decrease of $2.6 million, or 21%, from $12.2 million for the 2008 comparable period. The period-over-period decrease reflects reductions in travel, entertainment, and general office expenses, partially offset by increased compensation expenses.

Professional Fees

For the nine months ended September 30, 2009, the Company incurred $90,000 in professional fees related to special investigations as compared to $3.6 million during the nine months ended September 30, 2008.

For the nine months ended September 30, 2009, the Company incurred corporate professional fees of $1.8 million, a decrease of $0.3 million, or 12%, from $2.1 million for the nine months ended September 30, 2008. Corporate professional fees primarily consist of legal fees associated with public reporting, compliance and litigation (including claims arising from the same events as the special investigations), and accounting fees related to auditing and tax services. The Company incurred professional fees related to franchising of $1.8 million for the nine months ended September 30, 2009, an increase of $0.7 million, or 56%, from $1.1 million for the 2008 comparable period. Franchising professional fees primarily consist of legal and accounting fees associated with franchising activities and trademark maintenance. The total professional fees incurred in the nine months ended September 30, 2009 reflect a more normalized expense structure than the professional fees incurred in the 2008 comparable period. In the second and third quarter of 2008, we redirected our resources to engage outside attorneys and outside consultants to assist the Company and the Board of Directors with respect to special investigations conducted at the direction of the Audit Committee of the Board of Directors, the Company and in response to information requested by the SEC.

Impairment of Intangible Assets

The Company tests trademarks and other intangible assets for potential impairment annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the assets below its respective carrying amount.

The Company did not record any impairment charges in the nine months ended September 30, 2009. We recorded impairment charges totaling $137.9 million during the nine months ended September 30, 2008, specifically in the second and third quarter of 2008. In May 2008, the Company disclosed issues related to our debt structure that materially and negatively affected the Company.

~~Depreciation~~For a further discussion of the Company’s income taxes, including deferred tax assets and ~~Amortization~~liabilities, see Note 9 – Income Taxes to our Unaudited Consolidated Financial Statements contained in this report.

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

For the nine months ended September 30, 2009 and 2008, the Company recorded depreciation and amortization expenses of approximately $2.4 million and $2.0 million, respectively. The period-over-period increase primarily reflects accelerated depreciation of corporate assets following the Company’s May 2008 corporate restructuring.

Restructuring Charges

In the nine months ended September 30, 2009, the Company recorded $0.2 million in restructuring charges primarily related to employee separation benefits in connection with the reduction of staff in the New York corporate offices. In the nine months ended September 30, 2008, the Company recorded $1.1 million in restructuring charges primarily related to employee separation benefits in connection with the reduction of staff in the New York corporate offices.

Total Operating Expenses

Total operating expenses for the nine months ended September 30, 2009 were $29.5 million, a decrease of $149.7 million, or 84%, from $179.2 million for the 2008 comparable period. The results for the nine months ended September 30, 2008 included impairment charges related to intangible assets of $137.9 million, $3.6 million in professional fees related to special investigations, and $1.1 million in restructuring costs. The results for the nine months ended September 30, 2009 included $0.1 million in professional fees related to special investigations and restructuring costs of $0.2 million. Excluding these special items, the Company incurred operating expenses of $29.2 million for the nine months ended September 30, 2009, a decrease of $7.4 million, or 20% from $36.6 million for the nine months ended September 30, 2008. This decrease reflects the Company’s ongoing cost reduction measures that began in May 2008.

Operating Income (Loss)

The Company generated operating income of $5.1 million for the nine months ended September 30, 2009, an increase of $150.0 million from an operating loss of $144.8 million for the nine months ended September 30, 2008. This period-over-period increase is primarily the result of the Company’s cost reduction efforts, the lack of impairment and other special charges in 2009 and the more normalized operating expenses of the Company without the expenses specific to events and circumstances of 2008.

Interest Income

The Company recognized interest income of $153,000 for the nine months ended September 30, 2009, a decrease of $225,000, or 60%, from $378,000 for the nine months ended September 30, 2008. Interest income primarily reflects the interest earned on our average cash balances, which decreased between the respective periods, along with interest rates. Interest income also includes interest earned on the loan agreement with the TAF MSF.

Interest Expense

The Company recorded interest expense of $8.3 million for the nine months ended September 30, 2009, an increase of $0.8 million, or 10%, from $7.5 million for the nine months ended September 30, 2008. Interest expense consists primarily of interest incurred in connection with our borrowings related to our continuing operations under the BTMUCC Credit Facility. Interest expense also includes amortization of deferred loan costs of $721,000 and $951,000, amortization of debt discount of $410,000 and $355,000 and imputed interest of approximately $137,000 and $140,000 (related to a long-term consulting agreement liability assumed in the TAF acquisition, which liability expires in 2028) for the nine months ended September 30, 2009 and 2008, respectively. The period-over-period increase in interest expense is primarily due to increased borrowings related to our continuing operations after the acquisition of Great American Cookies in January 2008, as well as interest accrued on the Deficiency Note, partially offset by lower interest rates on the variable rate debt. We include in discontinued operations for the nine months ended September 30, 2008 interest expense of approximately $2.8 million related to the Waverly and Bill Blass businesses that we sold in 2008. For additional details regarding the BTMUCC Credit Facility, see Note 7 – Long-Term Debt to our Unaudited Condensed Consolidated Financial Statements.

Financing Charges

The Company incurred approximately $66,000 in net financing charges in the nine months ended September 30, 2009 as compared to $1.7 million during the nine months ended September 30, 2008. Financing charges consist primarily of legal fees related to the amendments to the BTMUCC Credit Facility. In second and third quarters of 2008, the Company incurred significant legal fees related to the restructuring of the BTMUCC Credit Facility, which was finalized in August 2008.

Other Income (Expense)

The Company recorded other income of $0.8 million for the nine months ended September 30, 2009, which included $0.4 million in settlements of lease obligations relating to MaggieMoo’s franchisees and $0.3 million of income from the Company’s joint venture investment in Shoebox New York. The Company recorded other expense of $0.4 million for the nine months ended September 30, 2008, primarily reflecting certain non-operating expenses attributable to the Company’s brands and a loss of $0.2 million related to the Company’s joint venture in Shoebox New York.

Loss From Continuing Operations Before Income Taxes

We recognized loss from continuing operations before income taxes of $2.2 million for the nine months ended September 30, 2009, an improvement of $152.0 million from a loss of $154.2 million for the nine months ended September 30, 2008. This period-over-period decrease in loss reflects the changes to the Company’s business, the lack of impairment and other special charges in 2009, the absence of expenses specific to 2008 and our ongoing cost reduction measures that began in 2008.

Income Taxes – Continuing Operations

For the nine months ended September 30, 2009, the Company recorded a current provision for income taxes of $0.3 million, consisting primarily of foreign taxes withheld on franchise royalties received from foreign based franchisees in accordance with applicable tax treaties. The Company recorded no deferred income tax expense. Income tax benefit for the nine months ended September 30, 2008 was $2.6 million, comprised of a current provision of $0.3 million and deferred tax benefit of $2.9 million resulting from impairment charges recorded for book purposes related to intangible assets and the related reversal of deferred tax liabilities.

We compute our combined current and deferred quarterly income tax expense or benefit based upon an estimate of the annual effective tax rate from continuing operations. The Company’s effective tax rate from continuing operations was approximately 11.4% and 1.7% in the nine months ended September 30, 2009 and 2008, respectively. In 2008, the Company was subject to annual combined federal and state deferred tax expense of approximately $2.9 million, resulting primarily from timing differences relating to the Company’s trademarks, goodwill and other intangibles, which are amortized over fifteen years for tax purposes but not amortized for book purposes. The deferred tax liability resulting from these timing differences reversed by year end 2008 due to impairment charges recorded related to the Company’s intangible assets.

For a further discussion of the Company’s income taxes, including deferred tax assets and liabilities, see Note 9 – Income Taxes to the Unaudited Condensed Consolidated Financial Statements.

Discontinued Operations

For the nine months ended September 30, 2009, the Company recognized net income from discontinued operations of approximately $0.2 million, resulting primarily from the reversal of a reserve for litigation. See Note 12(a) – Legal Proceedings for further information. There was no income tax expense incurred in discontinued operations for the nine months ended September 30, 2009. For the nine months ended September 30, 2008, the Company incurred net loss from discontinued operations of $88.0 million, consisting primarily of losses related to the Bill Blass and Waverly businesses, which comprised our Consumer Branded Products business.

FINANCIAL CONDITION

~~During~~Our financial condition and liquidity as of March 31, 2010 raise substantial doubt about our ability to continue as a going concern. We remain highly leveraged; we have no additional borrowing capacity under the ~~nine~~BTMUCC ~~months~~Credit ~~ended~~Facility; ~~September~~and 30the BTMUCC Credit Facility imposes restrictions on our ability to freely access the capital markets. The BTMUCC Credit Facility also imposes various restrictions on our use of cash generated from operations. See Note 1(c) – Liquidity and Going Concern to our Unaudited Condensed Consolidated Financial Statements contained in this report. We are subject to numerous prevailing economic conditions and to financial, ~~2009~~business, and other factors beyond our ~~total~~control. ~~assets~~In ~~decreased~~addition, bythe BTMUCC Credit Facility obligates us to make a scheduled principal payment of $1034.9 5 million on our Class B Franchise Note in July 2011. We currently do not expect that we will be able to meet this obligation. To date, we have received waivers or amendments from BTMUCC, including reduction of interest rates, deferral of scheduled principal payment obligations and ~~our~~certain ~~total~~interest payments, ~~liabilities~~waiver ~~decreased~~and extension of time related to the obligations to issue dilutive warrants, allowance of certain payments to be excluded from debt service obligations, as well as relief from debt coverage ratio requirements, certain capital and operating expenditure limits, certain loan-to-value ratio requirements, certain free cash flow margin requirements and the requirement to provide financial statements by ~~$11~~certain deadlines.9 ~~million~~We anticipate that, absent further waivers and amendments, we will breach certain covenants under the BTMUCC Credit Facility in 2010. Accordingly, we have classified all of the debt outstanding under the BTMUCC Credit Facility as a current liability as of March 31, 2010 and December 31, 2009.

AsIf ofwe ~~September~~fail ~~30,~~to ~~2009,~~meet wedebt ~~had~~service aobligations ~~total~~or ofotherwise ~~approximately~~fail ~~$8.3~~to ~~million~~comply ofwith ~~cash on~~the ~~hand.~~financial Asand ofother ~~September~~restrictive 30covenants, ~~2009,~~ we ~~also~~would ~~had~~default ~~long-term~~under ~~restricted~~our ~~cash of $1.9~~BTMUCC ~~million.~~Credit ~~Long-term~~Facility, ~~restricted~~which ~~cash~~could ~~included~~then ~~$1.2~~trigger, ~~million~~among ~~consisting~~other ~~of a portion of the one-time~~things, ~~non-refundable~~BTMUCC’s ~~licensing~~right ~~fees that we received from the~~to ~~licenses~~accelerate ofall ~~The~~payment ~~Athlete’s~~obligations, ~~Foot~~foreclose ~~trademarks~~on ~~and~~virtually ~~trade~~all ~~dress~~of ~~for~~ the ~~territories~~assets of ~~Australia~~the ~~and~~Company ~~New Zealand (See Note 4 – Trademarks~~ and ~~Other~~take ~~Intangible Assets).~~control ~~We plan to use the $1.2 million~~ of ~~long-term~~all ~~restricted cash over the fourth quarter~~ of ~~2009 and~~ the ~~first~~Company’s ~~quarter~~cash offlow ~~2010~~from ~~to expand~~operations. ~~production~~(See ~~capabilities~~Note of7 ~~our~~–Debt ~~manufacturing facility~~ to ~~produce pretzel mix for~~ ~~our~~the ~~pretzel~~Unaudited ~~franchisees.~~Condensed ~~Long-term~~Consolidated ~~restricted~~Financial ~~cash~~Statements ~~also~~contained ~~included~~in ~~$0.7 million~~this ~~that~~report wefor ~~used~~details toregarding ~~secure~~the ~~letters of credit issued as~~ security ~~deposits~~structure onof the ~~Company’s~~ ~~leased facilities~~debt.)

28In the wake of our efforts to stabilize the Company, we have evaluated our business and concluded that for long-term growth and viability of our business, we must address the Company’s debt and capital structure. In November 2009, we retained an investment bank to assist us in identifying and evaluating alternatives to the Company’s current debt and capital structure, including recapitalization of the Company, restructuring of our debt and/or sale of some or substantially all of our assets.

~~Our~~On May ~~financial~~13, ~~condition~~2010, ~~and~~in ~~liquidity~~connection aswith ofNexCen’s ~~September~~agreement ~~30,~~to ~~2009~~sell ~~raise substantial~~our ~~doubt~~franchise business ~~about our ability~~ to ~~continue~~an asaffiliate aof ~~going~~LLCP ~~concern~~for $112.5 Wemillion, ~~are~~subject ~~highly leveraged;~~to wecertain ~~have~~closing noadjustments, ~~additional~~NexCen ~~borrowing~~and ~~capacity~~certain ~~under~~of ~~the~~our ~~BTMUCC~~subsidiaries ~~Credit~~entered ~~Facility; and~~into ~~the~~agreements with BTMUCC ~~Credit~~that ~~Facility~~are ~~imposes~~intended ~~restrictions~~to onfacilitate ~~our~~and ~~ability~~support tothe completion ~~freely~~of ~~access~~ the ~~capital~~sale ~~markets~~transaction. The Inagreements ~~addition,~~provide for the satisfaction ~~BTMUCC~~of ~~Credit~~the ~~Facility imposes various~~debt ~~restrictions~~owed onto BTMUCC and the ~~cash~~release ~~generated~~of byliens ~~operations.~~in ~~Certain~~favor of ~~non-ordinary~~BTMUCC, ~~course~~upon ~~expenses~~payment ~~and~~to ~~expenses~~BTMUCC ~~beyond~~of a ~~certain~~portion ~~total~~of ~~limit~~the sale proceeds (~~which~~in no event ~~limit~~less ~~does~~than ~~not~~$98 ~~apply~~million), toas ~~cost~~well as certain limited waivers of ~~goods~~covenants ~~for~~and obligations ~~our~~in ~~manufacturing~~the ~~facility)~~BTMUCC ~~are~~Credit ~~not permitted~~Facility to befacilitate ~~paid~~the ~~out~~completion of, ~~cash~~and assist ~~generated~~NexCen ~~from~~in ~~operations~~remaining ~~under~~in ~~the~~compliance ~~terms~~with of the BTMUCC Credit Facility pending completion of, ~~but~~the ~~instead~~sale ~~must~~transaction. As beof ~~paid~~April ~~out~~30, 2010, the outstanding amount of ~~cash~~indebtedness onowed ~~hand.~~to ~~(See~~BTMUCC was $136.4 million. See Note ~~1(c)~~13 – ~~Liquidity~~Subsequent ~~and~~Events to our ~~Going~~Unaudited ~~Concern~~Condensed Consolidated Financial Statements contained in this report for additional information about the agreements with LLCP and BTMUCC.)

~~Our~~During ~~current projections indicate that, although cash generated from operations will provide us with sufficient liquidity to meet our debt service obligations for at least~~ the ~~next~~three ~~twelve~~ months, weended ~~will~~March ~~exceed the total annual expense limit for 2009 in December prior to year-end. Once we exceed the limit~~31, ~~we will not be able to use the cash in the lockbox accounts to pay expenses. Instead~~2010, ~~we must use~~ our ~~cash~~total onassets ~~hand~~decreased ~~until~~by ~~the expense limit resets in January 2010~~$2. ~~We are in~~6 ~~discussions with BTMUCC to increase the annual expense limit. However~~million, if our lender declines to do so, we may be required to defer payment of some 2009 expenses until the expense limit resets in January 2010, defer, reduce or eliminate certain expenditures going forward, and~~/or~~ ~~use some or all of~~ our ~~available~~ ~~cash~~total onliabilities ~~hand~~decreased toby ~~cover expenses, any and all of which may negatively impact our operations~~$2.0 In addition, if we ultimately are not able to pay our debt service obligations and our necessary operating expenses, we would seek to restructure or refinance our debt, but there can be no guarantee that BTMUCC would agree to any further restructuring or refinancing plansmillion.

~~Our BTMUCC~~As ~~Credit Facility also contains numerous affirmative and negative~~of ~~covenants,~~March ~~including~~31, ~~among other things~~2010, ~~restrictions~~we onhad ~~indebtedness,~~a ~~liens, fundamental~~total ~~changes,~~of ~~asset~~approximately ~~sales,~~$7.7 ~~acquisitions,~~million ~~capital~~of cash and ~~other expenditures,~~cash ~~dividends~~equivalents ~~and~~including ~~other~~$3.7 ~~payments~~million ~~affecting~~of ~~subsidiaries.~~cash ~~The~~received ~~Company’s~~from ~~failure~~franchisees toand ~~comply~~licensees ~~with~~that ~~the~~is ~~financial~~being ~~and~~held ~~other~~in ~~restrictive~~lockbox ~~covenants~~accounts ~~could~~established ~~result~~with inour acommercial ~~default~~bank ~~under~~in ~~our~~connection with the BTMUCC Credit Facility, ~~which~~to ~~could~~perfect ~~then~~the ~~trigger, among other things, BTMUCC~~lender’s ~~right to accelerate all payment obligations, foreclose on~~ ~~virtually~~security ~~all~~interest ofin ~~the~~such ~~assets~~cash ofreceipts. ~~the~~Cash ~~Company~~ and ~~take control of all of the Company’s~~ cash ~~flow~~equivalents ~~from~~also ~~operations~~includes $0.6 ~~(See~~million ~~Note~~of 7cash –previously ~~Long-Term~~restricted ~~Debt~~ to ~~the Unaudited~~secure ~~Condensed~~a ~~Consolidated~~letter ~~Financial~~of ~~Statements~~credit for ~~details regarding the~~our ~~security~~New ~~structure~~York ofoffice ~~the debt~~lease.) InOn ~~addition~~April 29, ~~our~~2010, ~~BTMUCC~~we ~~Credit~~entered ~~Facility contains~~into ~~provisions~~an ~~whereby~~amendment ~~our lender has the right~~ to ~~accelerate all principal~~the ~~payment~~lease ~~obligations~~for ~~upon~~the aCompany’s ~~“material~~New ~~adverse~~York ~~change,”~~office which isreduced ~~broadly defined as~~ the ~~occurrence~~rent ofby ~~any event or condition that, individually or in the~~approximately ~~aggregate~~$50,000 ~~has~~per ~~had,~~month iseffective ~~having~~as ~~or could reasonably be expected to have a material adverse effect on (i) the collectability~~ of ~~interest~~January ~~and principal on the debt~~15, ~~(ii)~~ ~~the~~2010. ~~value~~In orconnection ~~collectability~~with of the ~~assets securing the debt, (iii) the~~ ~~business,~~execution ~~financial condition, or operations~~ of ~~the~~this ~~Company or our subsidiaries~~amendment, ~~individually~~ orwe ~~taken~~replaced ~~as a whole, (iv)~~ the ~~ability~~letter of ~~the~~credit ~~Company or our subsidiaries~~ to ~~perform~~secure ~~its respective obligations under~~ the ~~loan agreements,~~ ~~(v)~~lease. ~~the~~See ~~validity~~Note or13 ~~enforceability~~– ofSubsequent ~~any~~Events ofto ~~the loan documents, and (vi) the~~our ~~lender’s~~Unaudited ~~ability~~Condensed toConsolidated ~~foreclose~~Financial orStatements ~~otherwise~~contained ~~enforce its interest~~ in ~~any of the~~this ~~assets securitizing the debt~~report. ~~To date, BTMUCC has not invoked the “material adverse change” provision or otherwise sought acceleration of our principal payment obligations.~~

The Company has received waivers and/or amendments from BTMUCC (without concessions from the Company), including reduction of interest rates, deferral of scheduled principal payment obligations and certain interest payments, waiver and extension of time related to the obligations to issue dilutive warrants, allowance of certain payments to be excluded from debt service obligations, as well as relief from debt coverage ratio requirements, certain capital and operating expenditure limits, certain loan-to-value ratio requirements, certain free cash flow margin requirements and the requirement to provide financial statements by certain deadlines. In light of these amendments and waivers and the Company’s projected ability to meet our debt service obligations for at least the next twelve months, we believe it is unlikely that the Company will need to seek additional material waivers or amendments of, or otherwise default on, the covenants of our BTMUCC Credit Facility through June 30, 2010. However, as noted above, the Company is in discussions with BTMUCC to increase the total annual expense limit for 2009, which would be an amendment of a non-covenant term of the BTMUCC Credit Facility.27

As of March 31, 2010, we had no short-term restricted cash. As of December 31, 2009, we had short-term restricted cash of $1.4 million representing the cash held in lockbox accounts that we expected would not be released to the Company but instead would be applied to pay down principal of our debt. In December 2009, we exceeded the total annual expense limit for 2009 established by the BTMUCC Credit Facility (which limit does not apply to cost of goods for our manufacturing facility). Under the BTMUCC Credit Facility, we are not reimbursed out of the cash in the lockbox accounts for any expenses paid in excess of our annual expense limit. Instead those amounts are released to BTMUCC to pay down principal in excess of scheduled principal payments. In order to manage our cash balance, we deferred payment of certain expenses incurred in excess of our 2009 expense limit until the expense limit reset for 2010. On January 14, 2010, we entered into an amendment of the BTMUCC Credit Facility that, among other things, essentially allowed the Company to increase its expense limit retroactively for 2009 by $0.5 million by decreasing its expense limit for 2010 by the same amount. (See Note 7 – Debt to our Unaudited Condensed Consolidated Financial Statements contained in this report.) We may exceed our expense limit in 2010, and we can provide no guarantees that our current cash on hand and cash from operations after debt service will continue to satisfy our working capital requirements in the future. In February 2010, the $1.4 million of short-term restricted cash was applied as additional principal payments on our debt.

~~The~~As of ~~following~~March ~~table~~31, ~~reflects~~2010, ~~the~~we ~~use~~had long-term restricted cash of ~~net~~$0.4 million. Approximately $0.1 million of the long-term restricted cash ~~from~~is ~~operations,~~used ~~investing~~for a security deposit on our NFM lease, and ~~financing~~ ~~activities~~the ~~for~~remainder consists of a portion of the ~~nine~~fees ~~month~~that ~~periods~~we received ~~ended~~from ~~September~~the 30TAFA Licenses, ~~2009~~which we are permitted under the BTMUCC Credit Facility to use to fund the capital improvements to expand the production capabilities of our manufacturing facility to enable us to produce and sell ~~September~~pretzel ~~30,~~mix ~~2008~~to ~~(in~~our ~~thousands)~~pretzel franchisees. We plan to utilize this $0.3 million of restricted cash during the second quarter of 2010 to fund the balance of the capital improvements.

	For the nine months ended September 30,
	2009			2008
Net income (loss) adjusted for non-cash activities	$	2,810		$	(9,124	)
Working capital changes		(1,762	)		902
Discontinued operations		207			(1,143	)
Net cash provided by (used in) operating activities		1,255			(9,365	)
Net cash provided by (used in) investing activities		4,802			(91,004	)
Net cash (used in) provided by financing activities		(6,060	)		62,438
Net decrease in cash and cash equivalents	$	(3	)	$	(37,931	)

The following table reflects the use of net cash from operations, investing, and financing activities for the three month periods ended March 31, 2010 and 2009 (in thousands).

	March 31,
	2010			2009
Net income adjusted for non-cash activities	$	596		$	1,126
Working capital changes		583			(636	)
Discontinued operations		17			(133	)
Net cash provided by operating activities		1,196			357
Net cash provided by (used in) investing activities		1,190			(1,061	)
Net cash used in financing activities		(2,489	)		(296	)
Net decrease in cash and cash equivalents	$	(103	)	$	(1,000	)

Cash flow from operating activities consists of (i) net income adjusted for depreciation, amortization, impairment charges and certain other non-cash items; (ii) changes in working capital; and (iii) cash flows from discontinued operations. We generated $21.82 million in ~~net~~cash ~~income~~provided ~~adjusted~~by ~~for~~operating ~~non-cash~~activities ~~items~~during in the ~~nine~~ three months ended ~~September~~March 3031, ~~2009~~2010, an increase of $110.98 million from ~~the~~ $90.~~1 million~~4 ~~use of cash~~ million in the same period of ~~2008~~2009. The year-over-year improvement is aprimarily ~~result of~~ the ~~Company’s successful efforts to reduce costs and manage~~ ~~expenses.~~result ~~Partially offsetting this improvement was a use~~ of increased cash offrom ~~$1.8 million for~~ working capital purposes ~~in 2009 compared to a source of cash of $0.9 million in the 2008 period. This change primarily reflects our efforts to reduce our accounts payable and accrued expenses in the 2009 period~~, partially offset by declines ~~improved~~in ~~collections~~net onincome ~~accounts~~adjusted ~~receivable~~for innon-cash ~~2009~~activities.

Net cash provided by investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2009 was~~2010 was $41.82 million., Onincluding ~~August~~a 6,$2.0 ~~2009,~~million wedecrease ~~entered~~in ~~into long~~short-term ~~license agreements~~restricted ~~with RCG Corporation Ltd. and The Athlete’s Foot Australia Pty Ltd.~~cash ~~through~~used ~~our~~to ~~wholly~~pay ~~owned~~down ~~subsidiary~~debt ~~TAFA. In consideration~~ for ~~these~~capital ~~license agreements,~~improvements ~~The~~to ~~Athlete’s~~expand ~~Foot~~production ~~Australia Pty Ltd. paid one-time, non-refundable~~capabilities ~~licensing~~of ~~fees~~our ofmanufacturing ~~$6.2~~facility ~~million.~~to ~~The~~enable ~~Company~~us ~~used~~to ~~$5.0~~produce ~~million~~and ofsell ~~the~~pretzel ~~licensing proceeds~~mix to our ~~pay~~pretzel ~~down~~franchisees aas ~~portion~~permitted ofunder the ~~Class~~BTMUCC BCredit ~~Franchise~~Facility, ~~Note. The Company~~partially ~~retained~~offset ~~the~~by ~~remaining~~ $10.28 million of ~~net~~purchases ~~proceeds as long-term restricted cash. We plan to use this restricted cash over the fourth quarter~~ of ~~2009~~property and ~~first quarter of 2010 to expand production capabilities of our manufacturing facility to produce pretzel mix for our pretzel franchisees~~equipment. Net cash used in investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2008~~2009 was $911.01 million, which ~~and~~was ~~related~~ primarily to the ~~acquisition~~result of ~~Great~~the ~~American~~temporary ~~Cookies.~~use Inof ~~the~~$1.0 ~~2008~~million ~~period,~~as ~~the~~cash ~~Company~~collateral ~~also~~pending ~~used~~the ~~$0.7~~transfer ~~million~~of ~~for~~a ~~the~~letter ~~acquisition~~ of ~~equity~~credit ~~interest~~that insupported ~~Shoe~~certain ~~Box~~lockbox ~~Holdings,~~arrangements ~~LLC~~with our lender.

Net cash used in financing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 ~~was~~and 2009 was $62.15 million and $0.3 million, respectively, consisting of principal payments ofon debt~~. Net~~ ~~cash provided~~and bypayments ~~financing~~of ~~activities~~contingent ~~for~~consideration ~~the~~related ~~nine~~to ~~months ended September 30, 2008~~a ~~was~~settlement ~~$62.4~~agreement ~~million,~~with ~~which~~the ~~primarily~~former ~~reflects~~owners ~~the~~of ~~funds~~MaggieMoo’s. ~~received~~In ~~from~~February ~~BTMUCC~~2010, towe ~~finance~~made ~~the~~a ~~Great~~$1.4 ~~American~~million ~~Cookie~~additional ~~acquisition,~~principal ~~net~~payment ofgiven ~~loan~~that ~~costs~~we asexceeded ~~well~~our as2009 ~~greater~~expense ~~principal~~limit ~~payments~~under onthe ~~debt~~BTMUCC ~~and~~Credit ~~cash used in discontinued operations for financing activities~~Facility.

CONTRACTUAL OBLIGATIONS

We ~~provided~~ ~~tabular~~are ~~information~~a smaller ~~regarding~~reporting ~~our~~company ~~contractual~~as ~~obligations~~defined inby ~~our~~Rule ~~2008 10~~12b-K2 inof ~~Part II, Item 7, under~~ the ~~caption,~~Exchange ~~“Contractual~~Act ~~Obligations.”~~and are ~~Significant~~not ~~changes~~required to ~~our~~provide ~~obligations~~the ~~through~~information ~~September~~required ~~30,~~under ~~2009~~this ~~are as follows:~~item.

· We assigned the lease for our Bill Blass showroom in New York City to a third party on June 11, 2009, reducing our net obligation by $2.5 million from the amount of our Operating Lease Obligations as of December 31, 2008.

· We subleased our Waverly showroom in New York City through the lease expiration for approximately the same amounts as we pay under the lease, reducing our net obligation by $3.6 million from the amount of our Operating Lease Obligations as of December 31, 2008.

· We satisfied four of the fifteen remaining guaranteed lease obligations that we assumed in connection with our acquisition of MaggieMoo’s, reducing the expected net present value of these obligations by $0.4 million from the amount of Other Long-Term Liabilities as of December 31, 2008. We remain obligated under eleven such leases.

· On October 22, 2009, we received a letter stating that we have breached the lease agreement related to our corporate offices in New York City based on our failure to maintain a letter of credit as a security deposit on the lease. The letter further stated that under the lease agreement the Company has ten business days to cure this breach. As part of our efforts to renegotiate the lease and occupy a space more appropriate to the needs and expense structure of the Company, we declined to provide a new letter of credit when the existing letter of credit was not renewed. As of the date of this Report, the cure period specified by the letter has expired, but we continue to discuss with the landlord a resolution of this matter.

Off Balance Sheet Arrangements

~~The~~We ~~Company~~maintain ~~maintains~~ advertising funds in connection with our franchised brands (“Marketing Funds”). Franchisees fund the Marketing Funds pursuant to franchise agreements. We consider these Marketing Funds to be separate legal entities from the Company and use them exclusively for marketing of the respective franchised brands. TAF MSF is a Marketing Fund for the TAF brand. Historically, on an as needed basis, we ~~the Company~~ advanced funds to the TAF MSF under a loan agreement. The terms of the loan agreement include a borrowing rate of prime plus 2%, and repayment by the TAF MSF with no penalty, at any time. As of ~~September~~March 3031, ~~2009~~2010, ~~the~~ ~~Company~~we had a receivable balance of $1.31 million from the TAF MSF. ~~The Company~~We ~~does~~do not consolidate ~~this or other~~ Marketing Funds. For further discussion of Marketing Funds, see Note 2(iq) to our ~~Unaudited~~ Unaudited Condensed Consolidated Financial Statements contained in this report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

Our primary exposure to market risk is to changes in interest rates on our long-term debt. As of ~~September~~March 3031, ~~2009~~2010, the Company had outstanding borrowings of $~~137~~136.95 million under the BTMUCC Credit Facility in three separate tranches: (1) approximately $8583.68 million of Class A Franchise Notes, (2) approximately $3635.45 million of a Class B Franchise Note and (3) $1517.92 million of a Deficiency Note. The Class B Franchise Note and the Deficiency Note both bear a fixed interest rate. ~~However,~~The ~~the~~ Class A Franchise Notes, representing 6261% of the outstanding debt as of ~~September~~March 3031, ~~2009~~2010, bear interest at 30-day LIBOR plus 3.75% per year ~~through~~ through July 31, 2011 and then LIBOR plus 5% per year thereafter until maturity on July 31, 2013. Although LIBOR rates fluctuate on a daily basis, our LIBOR rate resets monthly on the 15th day of each month.

We are subject to interest rate risk on our rate-sensitive financing to the extent interest rates change. Our fixed and variable rate debt as of ~~September~~March 3031, ~~2009 is~~2010 is shown in the following table (in ~~thousands~~millions).

	As of September 30, 2009		% of Total
	Balance		% of Total
Fixed Rate Debt	$	52~~,312~~.7		3839	%
Variable Rate Debt	$	~~85,596~~83.8		6261	%
Total long-term debt	$	~~137,908~~136.5		100	%

The estimated fair value of the Company’s debt as of ~~September~~March 3031, ~~2009~~2010 was approximately $95.96 million.

A change in LIBOR can have a material impact on our interest expense and cash flows. Under our BTMUCC Credit Facility and based upon the principal balance as of ~~September~~March 3031, ~~2009~~2010, a 1% increase in 30-day LIBOR would result in additional $0.9 8 million in interest expense per year, while a 1% decrease in LIBOR would ~~reduce~~ reduce interest expense by $0.98 million per year. We did not as of ~~September~~March 3031, ~~2009~~2010, and do not currently, utilize any type of derivative instruments to manage interest rate risk. If our lender requests it, however, we will be obligated to hedge the interest rate exposure on our outstanding debt if 30-day LIBOR exceeds 3.5%.

Foreign Exchange Rate Risk

The Company is exposed to fluctuations in foreign currency on a limited basis due to our international franchisees that transact business in currencies other than the U.S. dollar. However, we do not expect the overall exposure to foreign exchange gains and losses to have a material impact on the consolidated results of operations. Because we collect international development fees and store opening fees in U.S. dollars, our ~~primary~~ foreign currency exchange exposure primarily involves continuing royalty ~~revenue~~revenues from our international franchisees. International revenues, ~~which for~~including ~~the~~royalty, ~~three~~franchise ~~months~~fee and ~~ended~~factory ~~September~~revenues ~~30,~~were ~~2009 was~~ approximately $10.18 million or 10 8.42% of our total revenues.

ITEM 4(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of ~~September~~March 3031, ~~2009~~2010. Disclosure controls and procedures refer to controls and procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. ~~Based on this evaluation, management concluded that our disclosure controls and procedures were not effective as of September 30, 2009.~~

~~While~~Based weon ~~timely~~their ~~filed~~evaluation, ~~this~~the ~~Report~~Chief ~~and~~Executive ~~have~~Officer ~~made~~and ~~progress~~the inChief ~~improving~~Financial ~~our~~Officer ~~disclosure~~of ~~controls~~the ~~and~~Company ~~procedures,~~have ~~management~~concluded ~~believes~~ that ~~material~~the ~~weaknesses~~Company’s ~~related to our~~ disclosure controls and procedures ~~still exist. We will not be able to~~ ~~confirm~~were ~~that~~effective weas ~~have fully remediated all material weakness until we are able to consistently file required reports with the SEC on a timely basis and we complete our assessment~~ of ~~the~~March ~~control~~31, ~~procedures that we recently implemented~~2010.

31Changes in Internal Control Over Financial Reporting

ToThere ~~address~~were ~~the~~no ~~material~~changes ~~weaknesses,~~in wethe ~~performed~~Company’s ~~additional~~internal ~~analyses~~control ~~and~~over ~~procedures~~financial reporting, as such term is defined in ~~order~~Rule ~~for~~13a-15(f) ~~management~~and toRule ~~conclude~~15d-15(f) ~~that~~under the ~~financial~~Exchange Act, ~~information~~that ~~for~~occurred during the ~~periods~~ period covered by this ~~Report~~quarterly ~~and~~report ~~the~~that ~~accompanying Unaudited Condensed~~have ~~Consolidated~~materially ~~Financial~~affected, ~~Statements~~or are ~~fairly~~reasonably ~~stated~~likely into ~~all~~materially ~~material~~affect, the ~~respects~~Company’s internal control over financial reporting.

Changes in Internal Control over Financial Reporting and Disclosure Controls and Procedures

Since the filing of our Amendment No. 2 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2007 on August 11, 2009, in which we discussed the changes in internal control over financial reporting in 2008 and through June 2009, we have continued to make changes to the Company’s internal control over financial reporting, which have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. We have supplemented our NFM accounting staff with additional accounting personnel with appropriate level of technical expertise in GAAP and public reporting in order to transition all corporate accounting functions currently in the New York headquarters to the Company’s NFM offices, our principal operating facility in Norcross, Georgia. Newly hired NFM accounting personnel include a Chief Accounting Officer hired in September 2009 and a Director of Financial Reporting hired in October 2009. However, as noted above, the Company has been unable to fully remediate all material weaknesses, and our internal control over financial reporting may be materially affected in the future by our continued remediation efforts.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 1211 to the Unaudited Condensed Consolidated Financial Statements contained in this report.

ITEM 1A. RISK FACTORS

Information regarding risk factors appears in “Forward-Looking Statements,” in the Part I, Item 2 of this Report and in Part I - Item 1A of ~~our~~the ~~2008~~2009 10-K. As of the date of this filing, ~~there~~the ~~have~~following ~~been~~are no material changes in the risk factors previously disclosed in Part I - Item 1A of ~~our~~the ~~2008~~2009 10-K.

The transaction with an affiliate of LLCP may not be completed, which could materially and adversely impact our business, financial condition and results of operations.

To complete the sale of NexCen’s franchise business to an affiliate of LLCP, NexCen stockholders must approve the transaction because it will be considered a sale of substantially all of the Company’s assets. In addition, the sale agreement contains additional closing conditions that may not be satisfied or waived. If we are unable to complete the transaction, NexCen would be subject to a number of risks, including the following:

We may not be able to identify an alternate sale transaction or otherwise complete a recapitalization of the Company or restructuring of our debt to address our current debt and capital structure. If an alternate sale transaction is identified, such alternate sale transaction may not result in an equivalent amount of consideration to that proposed in this transaction;

The trading price of our common stock may decline to the extent that the current market price reflects a market assumption that the transaction will be completed;

Under the agreement with BTMUCC, we have received waivers of certain anticipated breaches of the BTMUCC Credit Facility through the close of the proposed transaction. We have not reached any agreement with BTMUCC regarding waivers of breaches should we be unable to close the transaction. Without such waivers, we anticipate that we will breach certain covenants in 2010 and fail to make a required scheduled principal payment of $34.5 million in July 2011. If we fail to meet debt service obligations or otherwise fail to comply with the financial and other restrictive covenants, we would default under our BTMUCC Credit Facility, which could then trigger, among other things, BTMUCC’s right to accelerate all payment obligations, foreclose on virtually all of the assets of the Company and take control of all of the Company’s cash flow from operations; and

The Company will incur significant transaction, compliance and other transaction related fees and costs (including, in many circumstances, an obligation to reimburse LLCP’s affiliate for its transaction costs up to $500,000 plus, in most cases (and particularly if we complete an alternate transaction), to pay a termination fee to LLCP’s affiliate of $4.5 million) which will need to be paid out of current cash on hand and cash from operations after debt service. The terms of the BTMUCC Credit Facility limit the amount of cash flow from operations that may be used for operating expenses and other general corporate purposes. We anticipate that payment of any such amounts would adversely affect the Company’s cash balance, its ability to comply with the 2010 expense limit under the BTMUCC Credit Facility, and our ability to satisfy our working capital requirements in the future.

The occurrence of any of these events individually or in combination could have a material adverse effect on our business, financial condition and results of operation.

The fact that there is a transaction pending could have a material and adverse effect on our business, financial condition and results of operations.

While the transaction is pending, it creates uncertainty about our future. As a result of this uncertainty, franchisees and other business partners may decide to delay, defer or cancel entering into new franchising or other business arrangements with us pending completion or termination of the transaction.

In addition, while the transaction is pending, we are subject to a number of risks, including:

The diversion of management and employee attention from the day-to-day business of the Company;

The potential disruption to our franchisees, business partners, vendors and other service providers;

The loss of employees who may depart due to their concern about losing their jobs following the transaction; and

We may be unable to respond effectively to competitive pressures, industry developments and future opportunities.

The occurrence of any of these events individually or in combination could have a material adverse effect on our business, financial condition and results of operation.

The sale agreement limits our ability to pursue alternatives to the transaction.

The acquisition agreement contains provisions that make it more difficult for us to sell our franchising business to a party other than LLCP. These provisions include a general prohibition on the Company from soliciting, initiating or knowingly encouraging any acquisition proposal for a competing transaction, the requirement that the Company pay a termination fee of $4.5 million if the sale agreement is terminated in specified circumstances, and subject to certain exceptions, the requirement that the Company submit the principal terms of the proposed transaction to a vote of the Company’s stockholders, even if the Company’s Board of Directors decides not to recommend that stockholders vote in favor of the transaction.

These provisions could discourage a third party that might have an interest in acquiring all of or a significant part of the Company from considering or proposing any acquisition, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by LLCP. Furthermore, the payment of the termination fee could also have an adverse effect on our financial condition.

Additionally, LLCP has a right to be advised of and to submit a new offer not less favorable to the Company than any unsolicited third-party acquisition offer, as set forth in the acquisition agreement, which could make it more difficult for the Company to complete an alternative transaction or discourage a third party from making an unsolicited offer.

If the pending sale transaction is completed, the Company will not have an active business or assets to generate revenue.

If the transaction is completed, the Company will have sold substantially all of its assets. Currently, all of the Company’s revenue from operations is generated from its franchise business and the subsidiaries being transferred in the pending sale transaction. If the transaction closes, we will have no active business left to operate, we will have no assets with which to generate revenue, and we will have transferred as part of the transaction substantially all of our employees (other than employees at our corporate headquarters in New York). Nevertheless, we will have cash on hand, certain liabilities and continuing obligations.

In connection with the sale transaction, and as contemplated by the sale agreement, our Board of Directors expects to approve, and recommend to stockholders the adoption of a plan of dissolution that, absent the emergence of a higher value alternative, would be implemented after the closing of the sale transaction. If the plan of dissolution is not approved or implemented, and if an alternative is not identified and we are required to continue for an extended period without a source of revenue, the proceeds from the sale transaction that we retain will be depleted, which will reduce (and could over time eliminate) amounts that otherwise are expected to be available for distribution to stockholders.

If we complete the pending sale transaction and proceed with a dissolution of the Company, the amount or timing of any distributions to our stockholders is difficult to estimate, because there are many factors, some of which are outside of our control, that could affect our ability to make such distributions.

If we complete the pending sale transaction and proceed with dissolution of the Company, the timing and amount of any distributions to our stockholders is difficult to estimate and is subject to variation, including because of matters beyond our control. The timing and amount of any such distributions will depend upon a variety of factors, including but not limited to, whether the pending sale transaction closes on the current terms, the timing of the closing of that transaction, the impact of any negative adjustments to the purchase price for our business (pursuant to the terms of the existing sale agreement), the amount we are required to pay to satisfy our known liabilities and obligations, the amount of liabilities and obligations that we incur in the future, our future operating costs, potential limitations on the use of our tax loss carry-forwards to offset any taxable gain arising out of completion of the pending sale transaction, the resolution of currently known contingent liabilities, the amount of any unknown or contingent liabilities of which we become aware in the future, general business and economic conditions, and other similar matters. We will continue to incur claims, liabilities and expenses from operations (such as operating costs, salaries, directors’ and officers’ insurance, payroll and local taxes, legal and accounting fees, compliance costs, and miscellaneous office expenses) as we seek to close the sale transaction and then as we wind down the business. As a result, if the dissolution process takes longer, we are likely to have less money available to distribute to our stockholders. For all of these reasons, any estimates regarding our anticipated expense levels and the amount we would expect to have available to distribute to our stockholders may be inaccurate.

The pending sale transaction may limit our ability to utilize our tax loss carry-forwards.

If the Company does not maintain involvement in an active trade or business following the closing of the pending sale transaction, it may be deemed to constitute a constructive liquidation of the Company or a constructive liquidation of certain subsidiaries of the Company, for income tax purposes. If the completion of the pending sale transaction is deemed a constructive liquidation of the Company or a constructive liquidation of certain of the subsidiaries, the Company or certain of its subsidiaries may lose, permanently, the ability to utilize their tax loss carry-forwards following completion of the transaction.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4. ~~SUBMISSION~~(REMOVED OFAND ~~MATTERS TO A VOTE OF SECURITY HOLDERS~~RESERVED)

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibits

*2.1		Acquisition Agreement, dated as of May 13, 2010, by and between NexCen Brands, Inc. and Global Franchise Group, LLC. (Designated as Exhibit 2.1 to the Form 8-K filed on May 17, 2010)
*3.1		Certificate of Incorporation of NexCen Brands, Inc. (Designated as Exhibit 3.1 to the Form 10-Q filed on August 5, 2005)
*3.2		Certificate of Amendment of Certificate of Incorporation of NexCen Brands, Inc. (Designated as Exhibit 3.1 to the Form 8-K filed on November 1, 2006)
*3.3		Amended and Restated By-laws of NexCen Brands, Inc. (Designated as Exhibit 3.1 to the Form 8-K filed on March 7, 2008)
*10.1		Waiver and Sixth Amendment dated January 14, 2010, by and among NexCen Brands, Inc., NexCen Holding Corporation, the Subsidiary Borrowers parties thereto, and BTMU Corporation. (Designated as Exhibit 10.1 to the Form 8-K filed on January 15, 2010)
*10.2		Waiver and Seventh Amendment dated February 10, 2010, by and among NexCen Brands, Inc., NexCen Holding Corporation, the Subsidiary Borrowers parties thereto, and BTMU Corporation. (Designated as Exhibit 10.1 to the Form 8-K filed on February 12, 2010)
*10.3		Waiver and Eighth Amendment dated March 12, 2010, by and among NexCen Brands, Inc., NexCen Holding Corporation, the Subsidiary Borrowers parties thereto, and BTMU Corporation. (Designated as Exhibit 10.1 to the Form 8-K filed on March 17, 2010)
*10.4		Ninth Amendment dated March 30, 2010, by and among NexCen Brands, Inc., NexCen Holding Corporation, the Subsidiary Borrowers parties thereto, and BTMU Corporation. (Designated as Exhibit 10.1 to the Form 8-K filed on March 31, 2010)
*10.5		Waiver and Tenth Amendment dated April 20, 2010, by and among NexCen Brands, Inc., NexCen Holding Corporation, the Subsidiary Borrowers parties thereto, and BTMU Corporation. (Designated as Exhibit 10.1 to the Form 8-K filed on April 20, 2010)
10.6		Lease between Deka First Real Estate USA L.P. and Aether Holdings, Inc., dated September 29, 2006
10.7		First Amendment of Lease between NexCen Brands, Inc. and 1330 Acquisition Co. LLC, dated April 29, 2010
*10.8		Accord and Satisfaction Agreement, dated as of May 13, 2010, by and among NexCen Brands, Inc., NexCen Holding Corporation, the Subsidiary Borrowers parties thereto, the Managers parties thereto, BTMU Capital Corporation, as Agent for the Noteholders, and the Noteholders (as defined in the agreement). (Designated as Exhibit 10.1 to the Form 8-K filed on May 17, 2010)
*10.9		Waiver and Omnibus Amendment, dated as of May 13, 2010, by and among BTMU Capital Corporation as Agent and as Noteholder, NexCen Holding Corporation as Issuer, NexCen Brands, Inc., and the Subsidiary Borrowers parties thereto. (Designated as Exhibit 10.2 to the Form 8-K filed on May 17, 2010)
31.1		Certification pursuant to 17 C.F.R § 240.15d−14 (a), as adopted pursuant to Section 302 of the Sarbanes−Oxley Act of 2002 for Kenneth J. Hall.
31.2		Certification pursuant to 17 C.F.R § 240.15d−14 (a), as adopted pursuant to Section 302 of the Sarbanes−Oxley Act of 2002 for Mark E. Stanko.
**32.1		Certifications pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002 for Kenneth J. Hall and Mark E. Stanko.

3233

*10.1		Waiver and Omnibus Amendment dated July 15, 2009 by and among NexCen Brands, Inc., NexCen Holding Corporation, the Subsidiary Borrowers parties thereto, the Managers parties thereto, and BTMU Capital Corporation. (Designated as Exhibit 10.1 to the Form 8-K filed on July 20, 2009)
*10.2		Omnibus Amendment dated August 6, 2009 by and among NexCen Brands, Inc., NexCen Holding Corporation, the Subsidiary Borrowers parties thereto, the Managers parties thereto, and BTMU Capital Corporation. (Designated as Exhibit 10.3 to the Form 8-K filed on August 6, 2009)
*10.3		Australia License Agreement dated August 6, 2009, by and among TAF Australia, LLC, The Athlete’s Foot Australia Pty Ltd. and RCG Corporation Ltd. (Designated as Exhibit 10.1 to the Form 8-K filed on August 6, 2009)
*10.4		New Zealand License Agreement dated August 6, 2009, by and among TAF Australia, LLC, The Athlete’s Foot Australia Pty Ltd. and RCG Corporation Ltd. (Designated as Exhibit 10.2 to the Form 8-K filed on August 6, 2009)
+*10.5		Offer Letter dated September 14, 2009 by and between NexCen Brands, Inc. and Brian Lane (Designated as Exhibit 10.1 to the Form 8-K filed on October 8, 2009)
31.1		Certification pursuant to 17 C.F.R § 240.15d−14 (a), as adopted pursuant to Section 302 of the Sarbanes−Oxley Act of 2002 for Kenneth J. Hall.
31.2		Certification pursuant to 17 C.F.R § 240.15d−14 (a), as adopted pursuant to Section 302 of the Sarbanes−Oxley Act of 2002 for Mark E. Stanko.
**32.1		Certifications pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002 for Kenneth J. Hall and Mark E. Stanko.

* Incorporated by reference.

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

~~+ Management contract or compensatory plan or arrangement.~~34

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized on ~~November 16,~~May ~~2009~~17, 2010.

	NEXCEN BRANDS, INC.

	By:	/s/ Kenneth J. Hall
		KENNETH J. HALL
		Chief Executive Officer

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Filing Compare · NexCen Brands, Inc.