FORWARD-LOOKING STATEMENTS

We make statements in the Quarterly Report that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. The words "anticipate," "believe," "estimate," "intend," "may," "will," "expect" and similar words 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. These risks, uncertainties and other factors include, but are not limited to:

· we may not be successful in implementing the our new IP strategy;

· we may not be able to acquire IP or IP centric companies or finance or exploit them on terms that are acceptable to us;

· we are likely to face substantial competition in seeking to acquire and market desirable IP and IP centric companies, and competitors may have substantially greater resources than we do;

· we may not be successful in operating or expanding our acquired businesses or integrating them into an overall IP business strategy;

· we may not be able to borrow desired amounts at desired times under our master loan agreement;

· we will be subject to risks associated with incurring indebtedness, including interest expense and the obligation to satisfy covenants contained in our master loan agreement, and these could have a negative impact on our business and results and could reduce our flexibility in some circumstances;

· risks associated with marketing and licensing our acquired trademarks and with successfully developing and marketing new products particularly in light of rapidly changing fashion and market trends;

· risks associated with the ability of licensees and franchisees to successfully market and sell branded products, competition;

· we may not be able to realize value from our accumulated tax loss carry forwards, because of a failure to generate sufficient taxable earnings, regulatory limits or both;

· general regional and national economic conditions; and

· loss or departure of one or more members of our senior management.

OVERVIEW

NexCen Brands is a company that engages in the acquisition and management of established consumer brands in intellectual property-centric industries. NexCen's goal is to be the world leader in brand management for the 21st century. Our business is focused on acquiring, managing and developing intellectual property, which we refer to as IP, and IP-centric businesses. IP-centric companies own, license or otherwise possess rights to trademarks, trade names, copyrights, patents, trade secrets and other intangible assets. IP that we have acquired and expect to acquire in the future includes trademarks, trade names, copyrights, franchise rights, patents, trade secrets, know-how and other similar, valuable property, primarily used in the retail and consumer branded products and franchise businesses. In building our IP business, we have focused on three vertical segments: retail franchising, consumer branded products and quick service restaurant franchising (which we refer to as "QSR" franchising).

We transitioned to this IP-centric business model in the second half of 2006, when we began to acquire IP-centric businesses (following our June 2006 acquisition of UCC Capital Corporation, which established the platform for our IP business strategy). When we acquired UCC, Robert W. D'Loren, who was the president and chief executive officer of UCC, became our president and chief executive officer and a member of our Board of Directors. Mr. D'Loren, together with the other members of our senior management team (some of whom formerly worked for UCC), implemented our IP business strategy.

Through May 7, 2007, we had acquired five businesses, as follows:

Retail Franchising

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

Consumer Branded Products

· Bill Blass (acquired February 15, 2007)

· Waverly (acquired May 2, 2007)

QSR franchising

· Maggie Moo's (acquired February 28, 2007)

· Marble Slab (acquired February 28, 2007)

Our three operating segments are discussed in Note 15 to our Unaudited Condensed Consolidated Financial Statements included in this Report.

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

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

Our IP business strategy is to generate revenue from licensing and other commercial arrangements with third parties who want to use the IP that we acquire and manage. These third parties pay us licensing and other contractual fees and royalties (including franchise fees) for the right to use our IP on either an exclusive or non-exclusive basis. Our contractual arrangements may apply to a specific product market, a specific geographic market, or to multiple markets..

Because of the changes in our business, our financial results have varied significantly from one period to the next. As we expand our IP strategy, our financial results are likely to continue to change significantly over the near term.

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

· Of the five IP brands we now own and operate, we owned only one -- The Athlete's Foot -- for the entire first quarter of 2007. Our first quarter results include Bill Blass for half of the quarter, and Maggie Moo's and Marble Slab for one-third of the quarter. We did not acquire Waverly until the second quarter, and so our first quarter results do not include the results of Waverly. Consequently, our first quarter results are not indicative of what we expect our results to be in future periods.

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

References in the Report to "we," "our" and "the Company" are to NexCen Brands and its subsidiaries, collectively. We discuss our business in detail in Item 1 of our 2006 Annual Report on Form 10-K, and we discuss the risks affecting our business in Item 1A of that Annual Report.

We own the proprietary rights to a number of trademarks used in this Report which are important to our business, including The Athlete's Foot, Bill Blass, MaggieMoo's, Marble Slab and Waverly. We have omitted the "®" and "TM" trademark designations for such trademarks in this Report. Nevertheless, all rights to such trademarks named in this Report are reserved.

TAX CONSIDERATIONS

An important aspect of our business strategy is to realize value, in the form of tax savings, from our accumulated tax loss carryforwards. Under federal and state tax laws, we may use these carryforwards to substantially reduce the income taxes we otherwise would have to pay on future taxable income. As a result, we could have little or no income tax liability for a period of time. Our ability to realize value from these tax loss carryforwards is subject to various risks and uncertainties, including regulations that, under certain circumstances, may limit our ability to use these carryforwards to reduce future taxes that we might otherwise owe. These risks and uncertainties are discussed at length in our 2006 Annual Report on Form 10-K, in item 1 under the heading "Tax Loss Carry Forwards" and in Item 1A under the heading "Risks of Our Tax Loss Carry Forwards." Additionally, see Note 5 to the Unaudited Condensed Consolidated Financial Statements, for discussion of the differences between book and tax expense for the period.

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 and impairment of goodwill and intangible assets. These critical accounting policies are discussed in detail in our 2006 Annual Report on Form 10-K in Item 7 under the heading "Critical Accounting Policies." We also discuss our significant accounting policies in Note 1 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 2006 Annual Report on Form 10-K.

New accounting pronouncements are discussed in Note 1 to the Unaudited Condensed Consolidated Financial Statements contained in this Report.

COMPARISON OF RESULTS FOR THREE MONTH PERIODS ENDED MARCH 31, 2007 AND MARCH 31,
2006

RESULTS OF CONTINUING OPERATIONS

RESULTS OF CONTINUING OPERATIONS

Loss From Continuing Operations

Loss from continuing operations of $645,000 for the three months ended March 31, 2007 increased $93,000, or 17% in 2007 from a loss of $552,000 in 2006. The loss reflects the increase in corporate expenses for the IP business and the fact that only a portion of the revenues from acquired businesses are reflected in this period due to the acquisitions occurring during the quarter.

We recognized $3.9 million in revenues for three months ended March 31, 2007 a result of owning four brands, three of which were acquired during the quarter. Of the $3.9 million in revenues, $2.2 million related to royalties, $1.6 million related to licensing, and $103,000 related to franchise fees, compared to $0 in 2006. Royalty and licensing revenues are recorded as they are earned and become receivable from franchisees. Franchise fee revenue is recognized when all initial services are performed, which is generally considered to be upon the opening of the applicable franchisee store.

Total Operating Expenses

Operating expenses of approximately $5.2 million for the three months ended March 31, 2007 increased $4.3 million, or 478% in 2007 from approximately $900,000 in the first quarter of 2006. The increase primarily reflects an increase in selling, general and administrative costs and stock based compensation following the acquisitions of UCC, The Athlete's Foot, Bill Blass, Marble Slab and MaggieMoo's.

Operating expenses that have been reclassified to discontinued operations are directly attributable to businesses that have been sold. All other costs are corporate expenses that would have been incurred regardless of our business operations, and therefore remain included as part of continuing operations.

Selling, General and Administrative Expenses

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

SG&A expenses of $3.5 million for the three months ended March 31, 2007 increased $2.8 million, or 400% in 2007 from $700,000 in 2006. The increase primarily reflects additional costs resulting from our acquisitions. Of the $3.5 million recorded for the period ended March 31, 2007, $1.8 million related to corporate and unallocated expenses, $900,000 related to our retail franchising segment, $700,000 related to our QSR segment, and the remainder related to the consumer branded products segment .

Professional Fees

Professional fees of $789,000 and $49,000 for March 31, 2007 and March 31, 2006, respectively, consist of the costs of outside professionals, primarily related to legal expense associated with our public reporting, compliance and corporate finance activities and accounting fees related to auditing and tax services.

Depreciation and Amortization

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

Depreciation and amortization of $189,000 for the three months ended March 31, 2007 increased $166,000, or 722% in 2007 from $23,000 in 2006. The increase primarily reflects the amortization of intangible assets related to a non-compete agreement with our chief executive officer, and amortization of intangibles of franchise agreements, license agreements, and master development agreements related to TAF, Blass, Marble Slab, and MaggieMoo's acquisitions.

Stock Compensation Expense

We adopted SFAS No. 123R, "Share-Based Payment" in the first quarter of 2006. At that time we began to recognize compensation expense over the service period for the fair value of all equity based award grants issued after January 1, 2006, as well as expense attributable to the remaining service period for all prior grants that had not fully vested by that date.

Stock compensation expense of $640,000 for the three months ended March 31, 2007, increased $569,000, or 801% in 2007 from $71,000 in 2006. The increase primarily reflects the granting of approximately 5,366,000 and 190,000 options and warrants in 2006 and 2007, respectively. These options and warrants were issued to provide long-term incentive packages to new key executives and other senior managers that we hired in 2006 and 2007, including individuals who were employed by UCC, The Athlete's Foot, and Bill Blass prior to their acquisition by us (See Note 4 to the Condensed Consolidated Financial Statements).

Interest Income

Interest income of $763,000 for the three months ended March 31, 2007 increased $503,000, or 193% in 2007 from $260,000 in 2006. The higher amounts in 2007 primarily reflect interest earned on our cash balances. In the first quarter of 2006, most of our available cash was invested in MBS, and earnings on such investments are reported as part of the results of discontinued operations.

Interest expense of $160,000 for the three months ended March 31, 2007 primarily reflects interest payable of $100,000 on the borrowings under the BTMU agreement (See Note 14 to the Condensed Consolidated Financial Statements), and $46,000 of imputed interest related to a long-term consulting agreement liability, assumed with The Athlete's Foot acquisition, which expires in 2028.

Other Income (Expense)

Other income of $81,000 in 2007 primarily reflects payments of $49,000 received from a venture capital investment, which we had written off in 2002. We record these payments when we receive them as the extent of future payments, if any, cannot be readily determined. We also recorded $28,000 of loan servicing revenue received by UCC in 2007. We expect the loan servicing activity to decrease throughout 2007 and beyond as the underlying loans are paid-off. Other income of $60,000 in 2006 also relates to the venture capital investment.

Minority Interest

Minority interest of $53,000 for the three months ended March 31, 2007 represents the 10% ownership in Bill Blass Jeans by DEHC, an affiliate of DLH.

Income Taxes

The Company's effective tax rate from continuing operations is 0% in the first quarter of 2007 and 2006. The Company computes its quarterly income tax expense or benefit based upon an estimate of the annual effective tax rate from continuing operations. For the first quarter, the Company reported a loss from continuing operations with no tax benefit. The tax benefit was not recorded due to the Company's historical accumulated losses which are subject to a valuation allowance through March 31, 2007. This tax benefit will be realized in subsequent quarters based upon the realization of fiscal year 2007 financial forecasts. We expect the components of our estimated annual effective tax rate to be primarily current state income tax expense and deferred income tax expense. The deferred income tax expense is attributable to the difference in accounting for the Company's Athlete's Foot, MaggieMoo's, Marble Slab and Waverly trademarks, which are amortized over 15 years for tax purposes but not amortized for book purposes. This net deferred tax liability cannot be offset against the company's deferred tax assets under U.S. generally accepted accounting principles since it relates to an indefinite-lived asset and is not anticipated to reverse in the same period.

Discontinued Operations

During 2007, discontinued operations of $447,000 reflects the reversal of $627,000 in sales tax liabilities where the statue of limitations has expired, and tax settlements with three states related to income tax and voluntary disclosure events, offset by legal fees of $180,000 incurred in connection with litigation related to the Transportation business sale (See Note 8 to the Unaudited Condensed Consolidated Financial Statements). Discontinued operations in the first quarter of 2006 includes $431,000 of profit, or $0.01 per share, related to operations of our MBS business that have been reclassified to discontinued operations.

FINANCIAL CONDITION

During the first quarter of 2007, our total assets increased by $81.1 million, while our total liabilities increased by $59.5 million. These changes primarily reflect the additional trademarks and goodwill related to the acquisitions of Bill Blass, MaggieMoo's, and Marble Slab during the three months ended March 31, 2007, offset by a decrease in cash which was utilized for the acquisitions. In addition, we borrowed $26.5 million in March 2007 secured by the assets of The Athlete's Foot under our credit facility with BTMU, which is described in Note 14 to the Unaudited Condensed Consolidated Financial Statements. These borrowings increased both our cash balance on hand and our indebtedness.

In May 2007, we borrowed an additional $27.3 million under the BTMU facility secured by the assets of Bill Blass. On May 2, 2007, we acquired Waverly for $36.8 million in cash and the issuance of warrants to acquire shares of our common stock (See Note 16 to the Unaudited Condensed Consolidated Financial Statements). We intend to finance 50% of this acquisition with borrowings under the BTMU facility. As of May 4, 2007, our total outstanding indebtedness under the BTMU facility was approximately $54 million and our cash balance (excluding restricted cash) was approximately $30 million.

Liquidity and Capital Resources

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

Although we had more than $83 million of cash on hand at December 31, 2006, we concluded that securing an additional source of liquidity was important to ensure our continued ability to fund acquisitions and the expansion of our business. Accordingly, on March 12, 2007 we entered into a new $150 million bank credit facility, the terms of which are discussed in Note14 to the Unaudited Condensed Consolidated Financial Statements. We believe that the combination of cash on hand and available borrowings under this new credit facility will provide us with sufficient liquidity to meet current operations and planned business growth for at least the next twelve months.

Additional sources of liquidity, if needed, may be available through additional bank borrowings and market sales or private placements of debt or equity securities. We cannot assure that any such additional borrowings or sales of securities will be available to us (should they be needed in the future) on favorable terms and conditions or at all. Such sources of additional liquidity are subject to many risks and uncertainties that are not within our control, such as changes in the condition of the capital markets and prevailing bank loan terms, as well as the trading price of our common stock. In addition, as discussed in Item 1A of our 2006 Annual Report on From 10-K under the heading "Risks of Our Tax Loss Carry Forwards," issuing significant amounts of additional shares of our capital stock can result in limitations on our ability to use our tax loss carry forwards in the future. The market price of our common stock has been, and may continue to be, volatile, which could reduce the market price of our common stock and, among other things, make it more expensive for us to complete acquisitions using our stock as consideration. Our ability to grow through the acquisition of additional IP assets and businesses will depend on the availability of capital to complete acquisitions.

On March 12, 2007, NexCen Acquisition Corp. ("the Issuer") entered into a master loan agreement with BTMU Capital Corporation (See Note 14 of the Condensed Consolidated Financial Statements).

The following table reflects use of net cash for operations, investing, and financing activities for the three-month periods ending March 31,

(IN THOUSANDS)                                           2007         2006
Net cash (used in) provided by operating activities    $    (370 ) $      650
Net cash (used in) provided by investing activities      (74,730 )    157,806
Net cash provided by (used in) financing activities       29,544     (133,924 )
Net (decrease) increase in cash and cash equivalents   $ (45,556 ) $   24,532

Net cash used in operating activities was $370,000 compared to net cash provided by operating activities of $650,000 in 2007 and 2006, respectively. The cash used in operating activities in 2007 is primarily a result of the increase in accounts receivable and prepaid expenses reflecting the growth in the businesses we acquired. The cash provided from operations in 2006 was a result of the MBS activity. Historically, our operations have not been profitable. As discussed above under the heading "Overview," our IP business did not generate any royalty and franchise fee revenue until November 2006, when we acquired The Athlete's Foot. However, we incurred operating expenses throughout all of 2006, as we transitioned out of the MBS business and into our IP business.

Net cash used in investing activities was $74.7 million in 2007, primarily resulting from the acquisitions of Bill Blass, Marble Slab, and MaggieMoo's during the three months ended March 31, 2007. Cash provided by investing activities of $157.8 million for 2006, related to approximately $139.0 million in proceeds from the sale of certain MBS investments and $18.8 million of principal repayments on our MBS investments.

Net cash provided by financing activities in 2007 of $29.5 million primarily reflects the funds received by The Athlete's Foot from the BTMU facility which is discussed in Note 14 to the Unaudited Condensed Consolidated Financial Statements, as well as, the funds received by the Company from the sale of minority interest in Bill Blass Jeans as discussed in Note 11 to the Unaudited Condensed Consolidated Financial Statements. Net cash used in financing activities in 2006 of $133.9 million primarily related to the repayment of all of the Company's remaining outstanding short-term borrowings under repurchase agreements that were used to fund MBS investments. These borrowings were repaid out of the proceeds from sales of, and principal payments on, MBS investments.

CONTRACTUAL OBLIGATIONS

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

                                              Payments due by period
                                        Less than       1-3         3-5       More than
Contractual Obligations
. . .