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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

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

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934

|                                              |  |                                 
|--------------------------------------------- |  | --------------------------------
|For
  the fiscal year ended December 31, 2007 |  | Commission
  File Number 0-23702

STEVEN MADDEN, LTD.(Exact name of registrant as specified in its charter)

|                                  |  |                                       
|--------------------------------- |  | --------------------------------------
|Delaware                          |  | 13-3588231                            
|(State
  or other jurisdiction of |  | (I.R.S.
  employer identification no.)
|incorporation or organization)    |  |                                       

52-16
Barnett Avenue, Long Island City, New York 11104
(Address of principal executive offices) (Zip Code)

(718)
446-1800
(Registrants Telephone Number, Including Area Code)Securities Registered
Pursuant to Section 12(b) of the Act:

|                                           |  |                                            
|------------------------------------------ |  | -------------------------------------------
|Title
  of Each Class                      |  | Name of Each Exchange on
  Which Registered
|                                           |  |                                            
|Common Stock, par value
  $.0001 per share |  | The NASDAQ Stock Market
  LLC              
|Preferred Stock Purchase
  Rights          |  | The NASDAQ Stock Market
  LLC              

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o  No x

Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Act. Yes o No x

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

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

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.
(Check one):Large accelerated filer o
          Accelerated
filer x          Non-accelerated
filer o          Smaller
reporting company o

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

The aggregate market value of the common
equity held by non-affiliates of the registrant (assuming for these purposes,
but without conceding, that all executive officers and Directors are
affiliates of the registrant) as of June 30, 2007, the last business day
of the registrants most recently completed second fiscal quarter, was
approximately $626,540,000 (based on the closing sale price of the registrants
common stock on that date as reported on The NASDAQ Global Select Market).

The number of
outstanding shares of the registrants common stock as of March 6, 2008 was
20,120,983 shares.

DOCUMENTS
INCORPORATED BY REFERENCE:

PART III INCORPORATES
CERTAIN INFORMATION BY REFERENCE FROM THE REGISTRANTS DEFINITIVE PROXY
STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS SCHEDULED TO BE HELD ON OR
ABOUT MAY 23, 2008.

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TABLE
OF CONTENTS

|        |                                                                                                                  |   
|------- | ---------------------------------------------------------------------------------------------------------------- | --
|        | PART I                                                                                                           |   
|        |                                                                                                                  |   
|ITEM 1  | BUSINESS                                                                                                         | 1 
|ITEM 1A | RISK
  FACTORS                                                                                                   | 10
|ITEM 1B | UNRESOLVED
  STAFF COMMENTS                                                                                      | 14
|ITEM 2  | PROPERTIES                                                                                                       | 14
|ITEM 3  | LEGAL
  PROCEEDINGS                                                                                              | 15
|ITEM 4  | SUBMISSION
  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                            | 15
|        |                                                                                                                  |   
|        | PART II                                                                                                          |   
|        |                                                                                                                  |   
|ITEM 5  | MARKET
  FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
  PURCHASES OF EQUITY SECURITIES | 16
|ITEM 6  | SELECTED
  FINANCIAL DATA                                                                                        | 18
|ITEM 7  | MANAGEMENTS
  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                          | 19
|ITEM 7A | QUANTITATIVE
  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                     | 28
|ITEM 8  | FINANCIAL
  STATEMENTS AND SUPPLEMENTARY DATA                                                                    | 28
|ITEM 9  | CHANGES
  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                           | 28
|ITEM 9A | CONTROLS
  AND PROCEDURES                                                                                        | 29
|ITEM 9B | OTHER
  INFORMATION                                                                                              | 30
|        |                                                                                                                  |   
|        | PART III                                                                                                         |   
|        |                                                                                                                  |   
|ITEM 10 | DIRECTORS,
  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                         | 31
|ITEM 11 | EXECUTIVE
  COMPENSATION                                                                                         | 31
|ITEM 12 | SECURITY
  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
  MATTERS               | 31
|ITEM 13 | CERTAIN
  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                      | 31
|ITEM 14 | PRINCIPAL
  ACCOUNTANT FEES AND SERVICES                                                                         | 31
|        |                                                                                                                  |   
|        | PART IV                                                                                                          |   
|        |                                                                                                                  |   
|ITEM 15 | EXHIBITS
  AND FINANCIAL STATEMENT SCHEDULES                                                                     | 31

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PART I

|       |         
|------ | --------
|ITEM 1 | BUSINESS

Steven
Madden, Ltd. (and its subsidiaries) designs, sources, markets and retails
fashion-forward footwear for women, men and children. In addition, we design,
source, market and retail name brand and private label fashion handbags and
accessories through our Daniel M. Friedman Division. We distribute products
through our retail stores, our e-commerce website, department and specialty
stores throughout the United States and through special distribution
arrangements in Canada, Europe, Central and South America, Australia and Asia.
Our product line includes a broad range of updated styles which are designed to
establish or capitalize on market trends, complemented by core products. We
have established a reputation for our creative designs, popular styles and
quality products at affordable price points.

Our
business is comprised of three (3) distinct divisions (Wholesale, Retail and
First Cost). Our Wholesale Division includes eight (8) core segments: Steve
Madden Womens, Steve Madden Mens, Candies®,
Madden Girl, Steve Maddens Fix, Steven®, Stevies®and
Daniel M. Friedman. The Daniel M. Friedman Division, through license
agreements, includes the Daisy Fuentes, Betsey Johnson and Tracy Reese
accessories brands. Steven Madden Retail, Inc., our wholly-owned retail
subsidiary, operates Steve Madden® and Steven® retail
stores as well as our e-commerce website. Our wholly-owned subsidiary,
Adesso-Madden, Inc., acts as a buying agent for footwear products under private
labels for many of the countrys large mass merchandisers. We also license our
Steve Madden® and Steven® trademarks for several
accessory and apparel categories.

Steven
Madden, Ltd. was incorporated as a New York corporation on July 9, 1990 and reincorporated
under the same name in Delaware in November 1998. We completed our initial
public offering in December 1993 and our shares of common stock currently trade
on The NASDAQ Global Select Market under the symbol SHOO.

We
maintain our principal executive offices at 52-16 Barnett Avenue, Long Island
City, NY 11104, telephone number (718) 446-1800.

Our
website is http://www.stevemadden.com. We file our annual, quarterly and
current reports and other information with the Securities and Exchange
Commission. We make available, free of charge, on our website our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, any amendments to such reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and our
Proxy Statement for our Annual Meeting as soon as reasonably practicable after
such material is electronically filed with, or furnished to, the Securities and
Exchange Commission. We will provide paper copies of such filings free of
charge upon request. The public may read and copy any materials filed by us
with the Securities and Exchange Commission at the Securities and Exchange
Commissions Public Reference Room at 100 R Street, NE, Washington, DC, 20549.
The public may also obtain information on the operation of the Public Reference
Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. In
addition, the Securities and Exchange Commission maintains an Internet site
that contains reports, proxy and information statements and other information
regarding us, which is available at http://www.sec.gov.

1

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Wholesale Divisions

Steve Madden Womens Wholesale Division

The
Steve Madden® Womens Wholesale Division designs, sources and markets
our Steve Madden® brand to major department stores, better specialty
stores and independently owned boutiques throughout the United States. The
Steve Madden® brand has become a leading life-style brand in the
fashion conscious marketplace. To serve our customers (primarily women ages 16
to 35), Madden Womens creates and markets fashion forward footwear designed to
appeal to customers seeking exciting, new footwear designs at affordable
prices.

As
our largest division, Madden Womens generated net sales of $127.8 million for
the year ended December 31, 2007, or approximately 30% of our total net sales.
New products for Madden Womens are test marketed at our retail stores.
Typically, within a few days, we can determine if the test product appeals to
customers. This enables us to use our flexible sourcing model to rapidly
respond to changing trends which we believe is essential for success in the
fashion arena.

Steve Madden Mens Wholesale Division

The
Steve Madden Mens Wholesale Division designs, sources and markets a full
collection of directional mens shoes and fashion forward athletic shoes to
major department stores, better specialty stores and independent shoe stores
throughout the United States. Price points range from $70 to $100 at retail,
targeted at men ages 20 to 40 years old. Madden Mens generated net sales of
$51.2 million for the year ended December 31, 2007, or approximately 12% of our
total net sales. Madden Mens maintains open stock inventory positions in select
patterns to serve the replenishment programs of its wholesale customers.

Candies Wholesale Division

Pursuant
to our license agreement with Candies, Inc., we design, source and market
Candies® branded footwear for women and kids through our Candies
Wholesale Division. Our Candies Wholesale Division generated net sales of
$22.1 million for the year ended December 31, 2007, or approximately 5% of our
total net sales.

On
December 6, 2004, the license agreement with Candies was amended to reflect
Candies decision to name Kohls Corporation as the exclusive provider of a new
line of Candies apparel. Pursuant to the amendment, commencing on January 1,
2007, we no longer have the exclusive right to market Candies®
branded footwear and we are permitted to sell Candies® branded
footwear only to Kohls. Under the terms of the amendment, Candies has
guaranteed that we will achieve minimum sales levels with Kohls during the
term of the agreement, which runs through December 31, 2010. In the event such
minimum sales levels are not achieved, Candies is required to compensate us in
an amount based on a percentage of the sales shortfall. For the year ended
December 31, 2007, the minimum sales level was met.

Madden Girl - Wholesale Division

The
Madden Girl Wholesale Division designs, sources and markets a full collection
of directional young womens shoes. Madden Girl is geared for young women ages
13 to 20 and is an opening price point brand that is currently being sold at
department stores, mid-tier retailers and specialty stores. Madden Girl
generated net sales of $29.3 million for the year ended December 31, 2007, or
approximately 7% of our total net sales.

Steve Maddens Fix - Wholesale Division

We
introduced Steve Maddens Fix in the fourth quarter of 2007. The Fix Division
designs, sources and markets a line of fashion-forward athletic sneakers to
major department stores, better specialty stores and independently owned
boutiques throughout the United States. Fix is targeted at women ages 16 to 35
with average price points that range from $60 to $80 at retail. Fix generated
net sales of $0.4 million in the fourth quarter, as well as for the year ended
December 31, 2007.

2

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Diva Acquisition Corp. - Steven® Wholesale
Division

Diva
Acquisition Corp. designs, sources and markets womens fashion footwear under
the Steven® trademark through major department and better footwear
specialty stores throughout the United States. Priced a tier above the Steve Madden®
brand, Steven® products are designed to appeal principally to
fashion conscious women, ages 26 to 45, who shop at department stores and
footwear boutiques. Steven® generated net sales of $16.1 million for
the year ended December 31, 2007, or approximately 4% of our total net sales.

Stevies®Wholesale Division

Our
Stevies® Wholesale Division designs, sources and markets footwear
for young girls to major department stores, such as Nordstrom, specialty
stores, such as Limited Too, and independent boutiques throughout the United
States. Stevies® generated net sales of $8.9 million for the year
ended December 31, 2007 or approximately 2% of our total net sales.

Daniel M. Friedman Wholesale Division

Our
Daniel M. Friedman Wholesale Division designs, sources and markets name brand
and private label fashion handbags and accessories to major department stores, value price
retailers and better specialty stores throughout the United States. Daniel M.
Friedman generated net sales of $54.5 million for the year ended December 31,
2007, or approximately 13% of our total net sales.

Retail Division

Steven Madden Retail, Inc.

As
of December 31, 2007, we owned and operated one hundred (100) retail stores
including ninety-four (94) stores under the Steve Madden® name and
six (6) under the Steven® name. In addition, we operate one (1)
e-commerce website (through the www.stevemadden.com). In 2007, we opened seven
(7) new stores and closed two (2) underperforming stores. Steve Madden stores are
located in major shopping malls and in street locations across the United
States. In 2007, the retail stores generated annual sales in excess of $655 per
square foot. Sales are from our Steve Madden® and Steven®
products. Comparative store sales (sales of those stores, including the
e-commerce website, that were open for all of 2007 and 2006) decreased 7.6% in
2007 compared to 2006. The Retail Division generated net sales of $120.6
million for the year ended December 31, 2007, or approximately 28% of our total
net sales.

We
believe that the Retail Division will continue to enhance overall sales and
profitability while building equity in the Steve Madden brand. We plan to add
three new retail stores during 2008. The expansion of the Retail Division
enables us to test and react to new products and classifications which, in
turn, strengthens the product development efforts of the Steve Madden Wholesale
Division.

First Cost Division

Adesso-Madden, Inc.

In
September 1995, we incorporated Adesso-Madden, Inc (A-M). as a wholly owned
subsidiary. A-M was formed to serve as a buying agent to mass-market merchants,
shoe store chains and other value-priced retailers in connection with the
procurement of footwear. As a buying agent, A-M utilizes its expertise and its
relationships with shoe manufacturers to facilitate the production of private
label shoes to its customers specifications. We believe that by operating in
the private label, mass merchandising market, we are able to maximize additional
non-branded sales opportunities. This leverages our overall sourcing and design
capabilities. Currently, this division serves as a buying agent for the
procurement of womens, mens and childrens footwear for large retailers,
including Target, Wal-Mart, Mervyns, J.C. Penney and Sears. A-M receives buying
agents commissions from its customers. In addition, we have leveraged the
strength of our Steve Madden brands and product designs resulting in a partial
recovery of our design, product and development costs from our suppliers. The
First Cost Division generated operating income of $14.7 million for the year
ended December 31, 2007.

3

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Licensing

As
of December 31, 2007, we licensed our Steve Madden® and Steven®
trademarks for use in connection with the manufacturing, marketing and sale of
cold weather accessories, sunglasses, eyewear, hosiery, outerwear and girls
apparel. Most of the license agreements require the licensee pay to us a
royalty based on actual net sales, a minimum royalty in the event that
specified net sales targets are not achieved and a percentage of sales for
advertising the brand. Licensing income for the year ended December 31, 2007
was $3.7 million.

Design

We
have established a reputation for our creative designs, marketing and trendy
products at affordable price points. We believe that our future success will
substantially depend on our ability to continue to anticipate and react to
changing consumer demands in a timely manner. To meet this objective, we have
developed an unparalleled design process that allows us to recognize and act
quickly to changing consumer demands. Our design team strives to create designs
which it believes fit our image, reflect current or future trends and can be
manufactured in a timely and cost-effective manner. Once the initial design is
complete, a prototype is developed, which is reviewed and refined prior to the
commencement of initial production. Most new products are then tested in
selected Steve Madden® retail stores. Winners are then offered for
wholesale and retail distribution nationwide. We believe that our design and
testing process and flexible sourcing model is a significant competitive
advantage allowing us to mitigate the risk of production costs and the
distribution of less desirable designs.

Product Sourcing and Distribution

We
source each of our product lines separately based on the individual design,
styling and quality specifications of the products in such product lines. We do
not own or operate manufacturing facilities; rather, we source our branded
products through agents and our own sourcing office with independently owned
manufacturers in China, Brazil, Italy, Mexico, Spain and India. We have
established relationships with a number of manufacturers and agents in each of
these countries. Although we have not entered into any long-term manufacturing
or supply contracts, we believe that a sufficient number of alternative sources
exist for the manufacture of our products. We continually monitor the availability
of the principal materials used in our footwear, which are available from a
number of sources in various parts of the world. We track inventory flow on a
regular basis, monitor sell-through data and incorporate input on product
demand from wholesale customers. We use retailers feedback to adjust the
production or manufacture of new products on a timely basis, which minimizes
the close out of slow-moving products.

We
distribute our products from three (3) third-party distribution warehouse
centers located in California and New Jersey. By utilizing distribution
facilities that specialize in distributing products to certain wholesale
accounts, Steve Madden® retail stores and internet fulfillment, we
believe that our customers are better served.

Customers

Our
wholesale customers consist principally of department stores and specialty
stores, including independent boutiques. Approximately 86% of our wholesale
revenue is generated from department and specialty stores, including Macys,
Nordstrom, DSW, Kohls, Famous Footwear, and Dillards and catalog retailers,
including Victorias Secret. For the year ended December 31, 2007, Macys
accounted for approximately $51.2 million, or 17% of our wholesale net sales
and 12% of our total net sales.

4

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Distribution Channels

We
sell our products principally through department stores, specialty stores and
discount stores in the United States and through our company-owned retail
stores. For the year ended December 31, 2007, our Retail Division and our
Wholesale Division generated net sales of approximately $120.6 million and
$310.4 million, or 28% and 72% of our total net sales, respectively. Each of
these distribution channels are described below.

Steve Madden and Steven Retail Stores

As
of December 31, 2007, we operated ninety-four (94) company-owned retail stores
under the Steve Madden® name and six (6) under the Steven®
name and one (1) e-commerce website (through the www.stevemadden.com website).
We believe that our retail stores will continue to enhance overall sales,
profitability, and our ability to react to changing consumer trends. The stores
are also a marketing tool that allows us to strengthen brand recognition and to
showcase selected items from our full line of branded and licensed products.
Furthermore, the retail stores provide us with a venue to test and introduce
new products and merchandising strategies. Specifically, we often test new
designs at our Steve Madden® retail stores before scheduling them
for mass production and wholesale distribution. In addition to these test
marketing benefits, we have been able to leverage sales information gathered at
Steve Madden® retail stores to assist our wholesale customers in
order placement and inventory management.

A
typical Steve Madden® store is approximately 1,400 to 1,600 square
feet and is located in a mall or street location that we expect will attract
the highest concentration of our core demographic, style-conscious customer
base. The Steven® stores, which are generally the same size as our
Steve Madden stores, have a more sophisticated design and format styled to
appeal to their more mature target audience. In addition to carefully analyzing
mall demographics and locations, we also set profitability guidelines for each
potential store site. Specifically, we target well trafficked sites at which
the demographics fit our consumer profile and seek new locations where the
projected fixed annual rent expense stays within our guidelines. By setting these
guidelines, we seek to identify stores that will contribute to our overall
profitability both in the near and longer terms.

Department Stores

We
currently sell to over 3,414 doors of 20 department stores throughout the
United States. Our major accounts include Macys, Nordstrom, Dillards and Lord
& Taylor.

We
provide merchandising support to our department store customers which includes
in-store fixtures and signage, supervision of displays and merchandising of our
various product lines. Our wholesale merchandising effort includes the creation
of in-store concept shops, where a broader collection of our branded products
are showcased. These in-store concept shops create an environment that is
consistent with our image and are designed to enable the retailer to display
and sell a greater volume of our products per square foot of retail space. In
addition, these in-store concept shops encourage longer term commitment by the
retailer to our products and enhance consumer brand awareness.

In
addition to merchandising support, our key account executives maintain weekly
communications with their respective accounts to guide them in placing orders
and to assist them in managing inventory, assortment and retail sales. We
leverage our sell-through data gathered at our retail stores to assist
department stores in allocating their open-to-buy dollars to the most popular
styles in the product line and to phase out styles with weaker sell-throughs,
which minimizes markdown exposure at seasons end.

5

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Specialty Stores/Catalog Sales

We
currently sell to specialty store locations throughout the United States. Our
major specialty store accounts include DSW, Famous Footwear and Journeys. We
offer our specialty store accounts the same merchandising, sell-through and
inventory tracking support offered to our department store accounts. Sales of
our products are also made through various catalogs, such as Victorias Secret.

Internet Sales

We
operate an Internet website, www.stevemadden.com, where customers can purchase
numerous styles of our Steve Madden®, Steven® and Steve
Madden Mens footwear and accessory products.

Distribution Agreements

Steve
Madden® products are available in many countries and territories worldwide
via several retail selling and distribution agreements. Under the terms of the
agreements, the distributors and retailers are required to open a minimum
number of stores each year and to pay us a fee for each pair of footwear
purchased, and in many cases, an additional fixed amount per pair or an
additional amount based on a percentage of sales. Under the terms of the
distribution agreements, the distributor is required to purchase certain
minimum amounts of Steve Madden® shoes. These agreements, which
expire at various times through December 31, 2012 with renewal options at the
election of the distributors and retailers, are exclusive in their specific
territories which include Canada, Mexico, Israel, Turkey, China, Australia, New
Zealand, UAE, Kuwait, Egypt, Bahrain, Qatar, Oman, several countries in
southeast Asia, including Indonesia and Thailand, Morocco, South Africa and
several countries in Central and South America.

Competition

The
fashion footwear industry is highly competitive. We compete with specialty shoe
companies as well as companies with diversified footwear product lines. Many of
these competitors, including Nine West, Skechers, Kenneth Cole, Nike and Guess,
may have greater financial and other resources than us. We believe effective
advertising and marketing, fashionable styling, high quality, value and fast
manufacturing turnaround are the most important competitive factors and intend
to continue to employ these elements as we develop our products.

Marketing and Sales

We
have focused on creating an integrated brand building program to establish
Steve Madden as a leading designer of fashion footwear for style-conscious
young women and men. Principal marketing activities include product placements
in lifestyle and fashion magazines, personal appearances by Creative and Design
Chief, Steve Madden, and in-store promotions. In addition, we continue to
promote our website (www.stevemadden.com) where customers can purchase Steve
Madden®, Steven® and Steven Maddens Fix®
products, as well as view exclusive content, participate in contests and live
chat with customer service representatives.

Management Information Systems (MIS) Operations

Sophisticated
information systems are essential to our ability to maintain our competitive
position and to support continued growth. We operate on a dual AS/400 system
which provides system support for all aspects of our business including
manufacturing purchase orders, customer purchase orders, order allocations,
invoicing, accounts receivable management, quick response replenishment,
point-of-sale support and financial and management reporting functions. We have
a PKMS bar coded warehousing system that is integrated with the wholesale
system in order to provide accurate inventory positions and quick response size
replenishment for our customers. In addition, we have installed an EDI system
which provides a computer link between us and certain wholesale customers that
enables both the customer and us to monitor purchases, shipments and invoicing.
The EDI system also improves our ability to respond to customer inventory
requirements on a weekly basis.

6

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Receivables Financing; Line of Credit

Under
the terms of our factoring agreement with GMAC Commercial Finance LLC, as
amended, we may request advances from the factor of up to 80% of aggregate
receivables purchased by the factor at an interest rate equal to the lower of
the prime rate less 0.875% or the 30-day London Interbank Offered Rate plus
1.375%. The agreement, which has no specific expiration date and can be
terminated by either party with sixty (60) days written notice after June 30,
2007, provides us with a $50 million credit facility with a $25 million
sub-limit on the aggregate face amount of Letters of Credit. We also pay a fee
that varies depending on the customer of between 0.15% and 0.25% of the gross
invoice amount of each receivable purchased. We sell and assign a substantial
portion of our receivables, principally without recourse, to the factor. As of
December 31, 2007 and 2006, $272 and $260 of factored receivables,
respectively, were sold by us with recourse. GMAC maintains a lien on all of
our receivables and assumes the credit risk for all assigned accounts approved
by them with certain restrictions.

Our
Daniel M. Friedman Division had a factoring agreement with Wells Fargo Century
that expired on June 30, 2007. Under the terms of the agreement, we were
eligible to draw down 85% of our invoiced receivables at an interest rate equal
to the prime rate. We paid a fee equal to 0.45% of the gross invoice amount of
each receivable purchased. Wells Fargo Century maintained a lien on all of
Daniel M. Friedmans receivables and assumed the credit risk for all assigned
accounts approved by them with certain restrictions. As of July 1, 2007, Daniel
M. Friedman has been incorporated into the GMAC agreement.

Trademarks and Service Marks

The
STEVE MADDEN and/or STEVE MADDEN plus Design trademarks and service marks have
been registered in numerous International Classes in the United States (Intl
Cl. 25 for clothing and footwear; Intl Cl. 18 for leather goods, such as
handbags and wallets; Intl Cl. 9 for eyewear; Intl Cl. 14 for jewelry; Intl
Cl. 3 for cosmetics and fragrances; Intl Cl. 20 for picture frames; Intl Cl.
16 for paper goods; and Intl Cl. 35 for retail store services). We also have
pending trademark applications in the United States for the mark STEVE MADDEN
and/or STEVE MADDEN (design) in numerous international classes (Class 14 for
watches, Class 18 for bags and leather goods, and Class 26 for hair
accessories).

We
also have trademark registrations in the United States for the marks EYESHADOWS
BY STEVE MADDEN (Intl Cl. 9 for eyewear), ICE TEE (Intl Cl. 25 for clothing
and footwear), SHOE BIZ BY STEVE MADDEN (Intl Cl. 25 for clothing and
footwear; and Intl Cl. 35 for retail store services) STEVEN M. (Intl Class 25
for clothing and footwear); and STEVEN (Intl Cl. 25 for clothing and footwear,
Class 3 for cosmetics and fragrances, Class 14 for jewelry, Class 18 for
leather goods, Class 26 for hair accessories, Class 35 for retail store
services, and Class 9 for eyewear). We also own a registration for the mark
SOHO COBBLER and SOHO COBBLER (design) in the U.S. in Class 25 for clothing.

We
also have several pending applications in the U.S. for MADDEN in Class 18 for
bags, Class 14 for jewelry, and Class 25 for clothing and footwear. We also
have a registration in the U.S. for STEVEN BY STEVE MADDEN in Class 25 (belts),
and pending applications in the U.S. for STEVEN BY STEVE MADDEN or STEVEN BY
STEVE MADDEN (design) in Classes 9 (cd cases and cell phone cases), 14 (watches
and clocks), 18 (bags and small leather goods) 24 (bedding), and 25 (clothing
and footwear), 28 (video game cases), and for MADDEN BY STEVE MADDEN in Class
14 for jewelry and watches, and Class 18 for bags.

7

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Additionally,
we have trademark and service mark registrations and applications in the United
States for various marks, including STEVE MADDEN LUXE registered in Class 25
for clothing and footwear and pending in Class 14 for watches and clocks; RULE
STEVE MADDEN pending (in Class 3 for perfume and cosmetics, Class 4 for
candles, Class 6 for key rings and key chains, Class 9 for eyewear and CDs,
Class 11 for lamps, Class 14 for jewelry, Class 16 for stationery and
notebooks, Class 18 for bags, Class 20 for furniture, Class 21 for housewares,
Class 24 for bedding, Class 25 for clothing and footwear, Class 26 for hair accessories,
Class 27 for carpets and rugs, Class 28 for toys and games, Class 32 for light
beverages, and Class 35 for retail store services); FIX, FIX (design), and
STEVE MADDENS FIX pending in Class 25 (clothing and footwear); LITTLE MISS
COMFORT pending in Class 18 (bags) and 25 (clothing); MADDEN ACTIVE, MADDEN
BOYZ, MADDEN GIRL, MADDEN GIRLZ, MADDEN KIDZ, MADDEN NEW YORK, and MADDEN SPORT
all pending in Class 25 (clothing and footwear); and NATURAL COMFORT registered
in Class 25 (footwear).

We
further own registrations for the STEVE MADDEN and/or STEVE MADDEN plus Design
trademarks and service marks in various International Classes in Argentina,
Armenia, Aruba, Australia, Bahrain, Belize, Brazil, Canada, Chile, China,
Colombia, El Salvador, Guatemala, Hong Kong, Israel, Italy, Japan, Korea,
Lebanon, Mexico, Netherland Antilles, New Zealand, the Netherlands, Nicaragua,
Norway, Oman, Panama, the Philippines, Qatar, Russia, Saudi Arabia, Singapore,
South Africa, Taiwan, Thailand, Turkey, the United Arab Emirates, Uzbekistan,
the European Union, and the Benelux countries and have pending applications for
registration of the STEVE MADDEN and/or STEVE MADDEN plus Design trademarks and
service marks in Aruba, Azerbaijan, Bahamas, Belarus, Canada, China, Costa
Rica, Ecuador, Egypt, Estonia, Georgia, Guatemala, Honduras, India, Indonesia,
Jordan, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Latvia, Lithuania, Moldova,
Oman, Paraguay, Peru, the Philippines, Saudi Arabia, Tajikistan, Turkmenistan,
Ukraine, Venezuela, and the United Arab Emirates.

Additionally,
we own registrations for the STEVEN trademark and service mark in various
International Classes in Australia, Bahrain, Belize, China, the Dominican
Republic, El Salvador, Hong Kong, Israel, Japan, Lebanon, Malaysia, New
Zealand, Netherland Antilles, Norway, the Philippines, Qatar, Russia, Saudi
Arabia, South Africa, Thailand, Taiwan, Turkey, and the United Arab Emirates
and have pending applications for registration of the STEVEN trademark and service
mark in China, Columbia, Costa Rica, Ecuador, Egypt, the European Union,
Guatemala, India, Indonesia, Israel, Italy, Jordan, Korea, Kuwait, Malaysia,
Nicaragua, Oman, Philippines, Taiwan, Thailand, Turkey, Taiwan, and Venezuela.

We
further own registrations for the torch stripe design in Class 25 in the
European Union and Panama, and China.

We
further own registrations for the mark STEVEN BY STEVE MADDEN in various
international classes in the European Union, Hong Kong, Panama, and Taiwan, and
have pending applications for the mark STEVEN BY STEVE MADDEN in various
international classes in Aruba, Canada, China, Egypt, India, Israel, Korea, and
Venezuela.

We
further have pending applications for the mark STEVE MADDENS FIX* in
international class 25 in China, the European Union, Mexico, and Turkey.

We
further have pending applications for the mark MADDEN GIRL in international
class 25 in Egypt, India, Kuwait, and Saudi Arabia.

8

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We
further have pending applications for the mark NATURAL COMFORT in various
international classes in Egypt, India, Kuwait, and Saudi Arabia.

We
further own registrations for the mark SM NEW YORK and/or SM NEW YORK in
International Class 25 (clothing and footwear) in Aruba, Belize, the Dominican
Republic, Ecuador, El Salvador, Hong Kong, Guatemala, India, Netherland
Antilles, and New Zealand, Nicaragua, Panama, and has pending applications for
registration of the SM NEW YORK mark in International Class 25 (clothing and
footwear) in Australia, Columbia, Costa Rica, Indonesia, Saudi Arabia, South
Africa, and Venezuela.

Additionally,
we, through our Diva Acquisition Corp. and Diva International, Inc.
subsidiaries, own registrations for the DAVID AARON trademark in the United
States in Class 25 for clothing Class 18 for handbags and wallets, and Class 35
for retail store services, and in Australia, Canada, the European Union, Hong
Kong, Japan, Panama and South Africa in some or all of Classes 3, 18, and 25,
and for our D. AARON trademark in Class 25 in Spain. Also, we own registrations
for our DAVID AARON trademark in International Class 3 for perfume and
cosmetics; International Class 9 for eyewear; International Class 14 for
jewelry; International Class 16 for paper goods; International Class 18 for
bags; International Class 24 for bed and bath products; International Class 25
for clothing and footwear and International Class 26 hair accessories in Korea.

We,
through our Stevies, Inc. subsidiary, also own various registrations for the
STEVIES and /or STEVIES plus Design trademark and service mark in a number of
International Classes in the United States (Intl Class 25 for clothing and
footwear; Intl Class 18 for leather goods, such as handbags and wallets;
International Class 35 for retail store services; International Class 14 for
jewelry; International Class 28 for toys; Intl Class 16 for magazines; Intl
Class 3 for perfume and cosmetics, Intl Class 9 for CDs and eyewear; Intl Cl.
27 for rugs and carpets; and Intl Class 26 for hair accessories), and for
STEVIES BY STEVE MADDEN in Class 14 for jewelry, Class 9 for eyewear, Class 3
for perfume and cosmetics, Class 25 for clothing and footwear, Class 28 for
toys and games, Class 35 for retail services, Class 16 for magazines, Class 18
for bags.

Additionally,
Stevies, Inc. has pending trademark and service mark applications and/or
existing registrations for the STEVIES and STEVIES plus Design marks in various
International Classes in Aruba, Argentina, Australia, Bahrain, Brazil, Canada,
China, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, El
Salvador, European Union, Guatemala, Hong Kong, Honduras, Indonesia, India,
Israel, Japan, Korea, Kuwait, Lebanon, Malaysia, Mexico, Netherland Antilles,
Nicaragua, New Zealand, Oman, Panama, Peru, Qatar, Saudi Arabia, Singapore,
South Africa, Taiwan, Thailand, Turkey, the United Arab Emirates and Venezuela.

We
believe that our trademarks have a significant value and are important to the
marketing of our products. There can be no assurance, however, that we will be
able to effectively obtain rights to our marks throughout all of the countries
of the world. Moreover, no assurance can be given that others will not assert
rights in, or ownership of, our trademarks and other proprietary rights or that
we will be able to successfully resolve such conflicts. Our failure to protect
such rights from unlawful and improper appropriation may have a material
adverse effect on our business and financial condition, results of operations
and liquidity.

Employees

On
February 5, 2008, we employed approximately one thousand five hundred and ten
(1,510) employees, of whom approximately seven hundred forty (740) work on a
full-time basis and approximately seven hundred seventy (770) work on a
part-time basis, most of whom work in the Retail Division. Our management
considers relations with our employees to be good.

9

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Seasonality

Historically,
our merchandising businesses have experienced holiday retail seasonality. In
addition to seasonal fluctuations, our operating results fluctuate quarter to
quarter as a result of the timing of holidays, weather, the timing of larger
shipments of footwear, market acceptance of our products, the mix, pricing and
presentation of the products offered and sold, the hiring and training of
additional personnel, inventory write downs for obsolescence, the cost of
materials, the product mix between wholesale, retail and licensing businesses,
the incurrence of other operating costs and factors beyond our control, such as
general economic conditions and actions of competitors.

Backlog

We
had unfilled wholesale customer orders of $113.8 million and $103.7 million, as
of February 21, 2008 and 2007, respectively. Our backlog at a particular time
is affected by a number of factors, including seasonality, timing of market
weeks and wholesale customer purchases of our core basic products through our
open stock program. Accordingly, a comparison of backlog from period to period
may not be indicative of eventual shipments.

|        |             
|------- | ------------
|ITEM 1A | RISK FACTORS

You
should carefully consider the risks and uncertainties we describe below and the
other information in this Annual Report or Form 10-K incorporated by reference
herein before deciding to invest in, sell or retain shares of our common stock.
These are not the only risks and uncertainties that we face. Additional risks
and uncertainties that we do not currently know about or that we currently
believe are immaterial, or that we have not predicted, may also harm our
business operations or adversely affect us. If any of these risks or
uncertainties actually occurs, our business, financial condition, results of
operations and liquidity could be materially harmed.

Fashion Industry Risks. Our success will
depend in significant part
upon our ability to anticipate and respond to product and fashion trends as
well as to anticipate, gauge and react to changing consumer demands in a timely
manner. There can be no assurance that our products will correspond to the
changes in taste and demand or that we will be able to successfully market
products that respond to such trends. If we misjudge the market for our
products, we may be faced with significant excess inventories for some products
and missed opportunities for others. In addition, misjudgments in merchandise
selection could adversely affect our image with our customers resulting in
lower sales and increased markdown allowances for customers which could have a
material adverse effect on our business, financial condition, results of
operations and liquidity.

The
industry in which we operate is cyclical, with purchases tending to decline
during recessionary periods when disposable income is low. Purchases of
contemporary shoes and accessories tend to decline during recessionary periods
and also may decline at other times. There can be no assurance that we will be
able to grow or even maintain our current level of revenues and earnings, or
remain profitable in the future. A recession in the national or regional
economies or uncertainties regarding future economic prospects, among other
things, could affect consumer-spending habits and have a material adverse
effect on our business, financial condition, results of operations and
liquidity.

In
recent years, the retail industry has experienced consolidation and other
ownership changes. In the future, retailers in the United States and in foreign
markets may further consolidate, undergo restructurings or reorganizations, or
realign their affiliations, any of which could decrease the number of storesthat carry our products or increase the ownership concentration within the
retail industry. While such changes in the retail industry to date have not had
a material adverse effect on our business or financial condition, results of
operations and liquidity, there can be no assurance as to the future effect of
any such changes.

10

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Inventory Management. The fashion-oriented
nature of our products
and the rapid changes in customer preferences leave us vulnerable to an
increased risk of inventory obsolescence. Thus, our ability to manage our
inventories properly is an important factor in our operations. Inventory
shortages can adversely affect the timing of shipments to customers and
diminish sales and brand loyalty. Conversely, excess inventories can result in
lower gross margins due to the excessive discounts and markdowns that might be
necessary to reduce inventory levels. Our inability to effectively manage our
inventory could have a material adverse effect on our business, financial
condition, results of operations and liquidity.

Dependence upon Customers and Risks Related to
Extending Credit to Customers. Our customers consist principally of
department stores and specialty stores, including shoe boutiques. Certain of
our department store customers, including some under common ownership, account
for significant portions of our wholesale business.

We
generally enter into a number of purchase order commitments with our customers
for each of our lines every season and do not enter into long-term agreements
with any of our customers. Therefore, a decision by a significant customer of
ours, whether motivated by competitive conditions, financial difficulties or
otherwise, to decrease the amount of merchandise purchased from us or to change
its manner of doing business could have a material adverse effect on our
business, financial condition, results of operations and liquidity. We sell our
products primarily to retail stores across the United States and extend credit
based on an evaluation of each customers financial condition, usually without
collateral. While various retailers, including some of our customers, have
experienced financial difficulties in the past few years which increased the
risk of extending credit to such retailers, our losses due to bad debts have
been limited. Pursuant to the terms of our factoring agreement, GMAC currently
assumes the credit risk related to approximately 84% of our accounts
receivable. However, financial difficulties of a customer could cause us to
curtail business with such customer or require us to assume more credit risk
relating to such customers accounts receivable.

Impact of Foreign Manufacturers. During the
year ended December 31, 2007,
approximately 99% of our products were purchased through arrangements with a
number of foreign manufacturers, primarily from China, Brazil, Italy and Spain.

Risks
inherent in foreign operations include work stoppages, transportation delays
and interruptions, changes in social, political and economic conditions which
could result in the disruption of trade from the countries in which our
manufacturers or suppliers are located, the imposition of additional
regulations relating to imports, the imposition of additional duties, taxes and
other charges on imports, significant fluctuations of the value of the dollar
against foreign currencies, or restrictions on the transfer of funds, any of
which could have a material adverse effect on our business, financial
condition, results of operations and liquidity. We do not believe that any such
economic or political condition will materially affect our ability to purchase products,
since a variety of materials and alternative sources are available. We cannot
be certain, however, that we will be able to identify such alternative sources
without delay (if ever) or without greater cost to us. Our inability to
identify and secure alternative sources of supply in this situation could have
a material adverse effect on our business, financial condition, results of
operations and liquidity.

Our
imported products are also subject to United States custom duties. The United
States and the countries in which our products are produced or sold, from time
to time, impose new quotas, duties, tariffs, or other restrictions, or may
adversely adjust prevailing quota, duty or tariff levels, any of which could
have a material adverse effect on our business, financial condition, results of
operations and liquidity.

11

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Possible Adverse Impact of Unaffiliated
Manufacturers
Inability to Manufacture in a Timely Manner, Meet Quality Standards or to Use
Acceptable Labor Practices. As is common in the footwear industry, we contract for the
manufacture of 99% of our products to our specifications through foreign
manufacturers. We do not own or operate any manufacturing facilities and we are
therefore dependent upon independent third parties for the manufacture of all
of our products. Our products are manufactured to our specifications by both
domestic and international manufacturers. The inability of a manufacturer to
ship orders of our products in a timely manner or to meet our quality standards
could cause us to miss the delivery date requirements of our customers for
those items, which could result in cancellation of orders, refusal to accept
deliveries or a reduction in purchase prices, any of which could have a
material adverse effect on our business, financial condition, results of
operations and liquidity.

Although
we enter into a number of purchase order commitments each season specifying a
time frame for delivery, method of payment, design and quality specifications and
other standard industry provisions, we do not have long-term contracts with any
manufacturer. As a consequence, any of these manufacturing relationships may be
terminated, by either party, at any time. Although we believe that other
facilities are available for the manufacture of our products, both within and
outside of the United States, there can be no assurance that such facilities
would be available to us on an immediate basis, if at all, or that the costs
charged to us by such manufacturers would not be greater than those presently
paid.

We
do not control our licensing partners or independent manufacturers or their
labor practices. The violation of labor or other laws by an independent
manufacturer of ours or by one of our licensing partners, or the divergence of
an independent manufacturers or licensing partners labor practices from those
generally accepted as ethical in the United States, could have a material
adverse effect on our business, financial condition, results of operations and
liquidity.

Intense Industry Competition. The fashion
footwear industry is highly
competitive and barriers to entry are low. Our competitors include specialty
companies as well as companies with diversified product lines. The recent
market growth in the sales of fashion footwear has encouraged the entry of many
new competitors and increased competition from established companies. Most of
these competitors, including Nine West, Skechers, Kenneth Cole, Nike and Guess
may have significantly greater financial and other resources than us and there
can be no assurance that we will be able to compete successfully with other
fashion footwear companies. Increased competition could result in pricing
pressures, increased marketing expenditures and loss of market share, and could
have a material adverse effect on our business, financial condition, results of
operations and liquidity. We believe effective advertising and marketing,
branding of the Steve Madden name, fashionable styling, high quality and value are
the most important competitive factors and we plan to continually employ these
elements as we develop our products. Our inability to effectively advertise and
market our products could have a material adverse effect on our business,
financial condition, results of operations and liquidity.

Expansion of Retail Business. Our continued
growth depends to a
significant degree on further developing the Steve Madden®, Stevies®,
Steven®, Madden Girl, Steve Madden Mens, Natural Comfort and
Candies® brands, creating new product categories and businesses and
operating company-owned Steve Madden® and Steven® stores
on a profitable basis. During the year ended December 31, 2007, we opened seven
(7) Steve Madden® retail stores and have plans to open three (3)
additional stores in the year ending December 31, 2008. Our expansion plan
includes the opening of stores in new geographic markets as well as
strengthening existing markets. New markets have in the past presented, and
will continue to present, competitive and merchandising challenges that are
different from those faced by us in our existing markets. There can be no
assurance that we will be able to open new stores, and if opened, that such new
stores will be able to achieve sales and profitability levels consistent with
managements expectations. Our retail expansion is dependent on a number of
factors, including our ability to locate and obtain favorable store sites, the
performance of our wholesale and retail operations, and our ability to manage
such expansion and hire and train personnel. Past comparable store sales
results may not be indicative of future results, and there can be no assurance
that our comparable store sales results can be maintained or will increase in
the future. In addition, there can be no assurance that our strategies to
increase other sources of revenue, which may include expansion of our licensing
activities, will be successful or that our overall sales or profitability will
increase or not be adversely affected as a result of the implementation of such
retail strategies.

12

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Management of Growth. Our operations have
increased and will
continue to increase demand on our managerial, operational and administrative
resources. We have recently invested significant resources in, amongst other
things, our management information systems and hiring and training new
personnel. However, in order to manage currently anticipated levels of future
demand, we may be required to, among other things, expand our distribution
facilities, establish relationships with new manufacturers to produce our
product, and continue to expand and improve our financial, management and
operating systems. There can be no assurance that we will be able to manage
future growth effectively and a failure to do so could have a material adverse
effect on our business, financial condition, results of operations and
liquidity.

Seasonal and Quarterly Fluctuations. Our
results may fluctuate quarter to
quarter as a result of the timing of holidays, weather, the timing of larger
shipments of footwear, market acceptance of our products, the mix, pricing and
presentation of the products offered and sold, the hiring and training of
additional personnel, inventory write downs for obsolescence, the cost of materials,
the product mix between wholesale, retail and licensing businesses, the
incurrence of other operating costs and factors beyond our control, such as
general economic conditions and actions of competitors. In addition, we expect
that our sales and operating results may be significantly impacted by the
opening of new retail stores and the introduction of new products. Accordingly,
the results of operations in any quarter will not necessarily be indicative of
the results that may be achieved for a full fiscal year or any future quarter.

Trademark and Service Mark Protection. We
believe that our trademarks and service
marks and other proprietary rights are important to our success and our
competitive position. Accordingly, we devote substantial resources to the
establishment and protection of our trademarks on a worldwide basis.
Nevertheless, there can be no assurance that the actions taken by us to
establish and protect our trademarks and other proprietary rights will be
adequate to prevent imitation of our products by others or to prevent others
from seeking to block sales of our products on the basis that they violate the
trademarks and proprietary rights of others. Moreover, no assurance can be
given that others will not assert rights in, or ownership of, trademarks and
other proprietary rights of ours or that we will be able to successfully
resolve such conflicts. In addition, the laws of certain foreign countries may
not protect proprietary rights to the same extent as do the laws of the United
States. Our failure to establish and then protect such proprietary rights from
unlawful and improper utilization could have a material adverse effect on our
business, financial condition, results of operations and liquidity.

Foreign Currency Fluctuations. We make
approximately 99% of our purchases
in U.S. dollars. However, we source substantially all of our products overseas
and, as such, the cost of these products may be affected by changes in the
value of the relevant currencies. Changes in currency exchange rates may also
affect the relative prices at which we and our foreign competitors sell
products in the same market. There can be no assurance that foreign currency
fluctuations will not have a material adverse effect on our business, financial
condition, results of operations and liquidity.

13

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Outstanding Options. As of March 6, 2008,
there were outstanding
options to purchase an aggregate of approximately 559,000 shares of our common
stock. Holders of such options are likely to exercise them when, in all
likelihood, the market price of our stock is significantly higher than the
exercise price of the options. Further, while options are outstanding, they may
adversely affect the terms on which we could obtain additional capital, if
required.

Economic and Political Risks. The present
economic condition in the
United States and concern about uncertainties could significantly reduce the
disposable income available to our customers for the purchase of our products.
In addition, current unstable political conditions, including the potential or
actual conflicts in Iraq, North Korea or elsewhere, or the continuation or
escalation of terrorism, could have a material adverse effect on our business,
financial condition, results of operations and liquidity.

|        |                          
|------- | -------------------------
|ITEM 1B | UNRESOLVED STAFF COMMENTS

None.

|       |           
|------ | ----------
|ITEM 2 | PROPERTIES

We
maintain approximately 40,000 square feet for our executive offices and sample
production facilities at 52-16 Barnett Avenue, Long Island City, NY 11104. The
lease for our headquarters expires on June 30, 2013.

The
Steve Madden showroom is located at 1370 Avenue of the Americas, New York, NY.
All of our brands are displayed for sale from this 9,917 square foot space. The
lease for our showroom expires on February 28, 2013.

Daniel
M. Friedman maintains approximately 20,000 square feet for its offices and
showroom space at 10 West 33rd Street, New York, NY. The lease expires on
December 31, 2014.

We
maintain approximately 7,200 square feet as a storage facility at 25-15 Borough
Place, Woodside, NY. The lease for this space expires on October 31, 2008 and
can be extended, at our option, through October 31, 2010.

We
maintain approximately 1,400 square feet as a design facility in Boston,
Massachusetts. The lease for this space expires on February 28, 2010.

We
also maintain an 807 square foot showroom located at Fashion Center Dallas in
the World Trade Center, Dallas, Texas. The lease for this showroom expires on
April 30, 2010. We also currently engage three independent distributors to
warehouse and distribute our products.

All
of our retail stores are leased pursuant to leases that, under their original
term, extend for an average of ten years in length. A majority of the leases
include clauses that provide for contingent rental payments if gross sales
exceed certain targets. In addition, a majority of the leases enable us and/or
the landlord to terminate the lease in the event that our gross sales do not
achieve certain minimum levels during a prescribed period. Many of the leases
contain rent escalation clauses to compensate for increases in operating costs
and real estate taxes.

14

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The
current terms of our retail store leases expire as follows:

|                           |  |                    |  | 
|-------------------------- |  | ------------------ |  | 
|Years
  Lease Terms Expire |  | Number
  of Stores | 
|                           |  |                    | 
|2008                       |  | 6                  |  | 
|2009                       |  | 9                  |  | 
|2010                       |  | 7                  |  | 
|2011                       |  | 13                 |  | 
|2012                       |  | 9                  |  | 
|2013                       |  | 11                 |  | 
|2014                       |  | 7                  |  | 
|2015                       |  | 11                 |  | 
|2016                       |  | 6                  |  | 
|2017                       |  | 14                 |  | 
|2018                       |  | 7                  |  | 
|2019                       |  | 1                  |  | 

|       |                  
|------ | -----------------
|ITEM 3 | LEGAL PROCEEDINGS

Except
as set forth below, no material legal proceedings are pending to which we or
any of our property is subject.

On
August 10, 2005, the U.S. Customs Department (Customs) issued a report that
asserts that certain commissions that we treated as buying agents
commissions (which are non-dutiable) should be treated as selling agents
commissions and hence are dutiable. In the report, Customs estimates that we
had underpaid duties during the calendar years of 1998 through 2004 in the
amount of $1million. As of June 30, 2006, based on discussions with legal
counsel, we believed that the liability in this case, including interest, was
not likely to exceed $1.5 million. Accordingly, as of December 31, 2006, we
recorded a reserve of $1.5 million. In September of 2007, Customs notified us
that it had finalized its assessment of the underpaid duties to be $1.4
million. Pursuant to this assessment, management, with the advice of legal
counsel, has re-evaluated the liability in the case, including interest and
penalties, and believes that it is not likely to exceed $2.7 million. We
increased our reserve by $1.2 million in the third quarter of 2007. Such
reserve is subject to change to reflect the status of this matter.

We have been named as a defendant in certain other lawsuits in the normal
course of business. In the opinion of management, after consulting with legal
counsel, the liabilities, if any, resulting from these matters should not have
a material effect on our financial position or results of operations. It is the
policy of management to disclose the amount or range of reasonably possible
losses in excess of recorded amounts.

|       |                                                    
|------ | ---------------------------------------------------
|ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No
matters were submitted to a vote of the holders of our common stock during the
last quarter of our fiscal year ended December 31, 2007.

15

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PART II

|       |                                                                                                               
|------ | --------------------------------------------------------------------------------------------------------------
|ITEM 5 | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
  AND ISSUER PURCHASES OF EQUITY SECURITIES

Our
shares of common stock have traded on The NASDAQ Global Select Market since
August 1, 2006 and were traded on The NASDAQ National Market prior to that
date. The following table sets forth the range of high and low closing sales
prices for our common stock during each fiscal quarter during the two-year
period ended December 31, 2007 as reported by The NASDAQ Global Select and The
NASDAQ National Market. The trading volume of our securities fluctuates and may
be limited during certain periods. As a result, the liquidity of an investment
in our securities may be adversely affected.

|                                 |  |      |       |     |  |       |  |  |                                  |  |     |       |  |  |       | 
|-------------------------------- |  | ---- | ----- | --- |  | ----- |  |  | -------------------------------- |  | --- | ----- |  |  | ----- | 
|Common Stock                    
|                                
|                                 |  | High |       | Low |  |       |  |  | High                             |  | Low |      
|                                 |  |      |       |     |  |       |  |  |                                  |  |     |      
|2007                             |  |      |       |     |  |       |  |  | 2006                             |  |     |       |  |  |       | 
|Quarter ended March 31, 2007     |  |      | 37.00 |     |  | 28.12 |  |  | Quarter ended March 31, 2006     |  |     | 24.53 |  |  | 18.63 | 
|Quarter ended June 30, 2007      |  |      | 33.51 |     |  | 29.49 |  |  | Quarter ended June 30, 2006      |  |     | 37.17 |  |  | 23.20 | 
|Quarter ended September 30, 2007 |  |      | 32.96 |     |  | 18.11 |  |  | Quarter ended September 30, 2006 |  |     | 40.69 |  |  | 26.59 | 
|Quarter ended December 31, 2007  |  |      | 24.01 |     |  | 17.50 |  |  | Quarter ended December 31, 2006  |  |     | 44.70 |  |  | 33.99 | 

As
of March 6, 2008, there were 20,120,983 shares of common stock outstanding and
86 holders of record.

Equity
Compensation Plans.
Information regarding our equity compensation plans as of December 31, 2007 is
disclosed in Item 12, Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.

Issuer
Repurchases of Equity Securities.We did not repurchase any shares of common stock during the fourth
quarter of fiscal 2007. In February and August of 2007, our Board of Directors
authorized increases of our previously announced share repurchase program of
$30 million and $37 million, respectively. At December 31, 2007, an aggregate
of $46 million remained authorized to repurchase our Common Stock. The program has no set expiration or termination
date.

Pursuant
to an agreement reached on February 2, 2005 with an 8% shareholder, we agreed
to commit $25 million during the twelve months ended January 31, 2006 and $10
million during the twelve months ended January 31, 2007 to a combination of
share repurchases and/or dividends, such programs to be implemented at such
time and such manner as determined by the board of directors in its sole
discretion. As of January 31, 2007, we satisfied this agreement by the
repurchase of 909,000 shares for $14.7 million and the payment of dividends in
the amount of $34.9 million.

16

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Performance
Graph. The following
graph compares the yearly percentage change in the cumulative total stockholder
return on our common stock during the period beginning on December 31, 2002 and
ending on December 31, 2007 with the cumulative total return on the Russell
2000 Index and the S&P 500 Footwear Index. The comparison assumes that $100
was invested on December 31, 2002 in our common stock and in the foregoing
indices and assumes the reinvestment of dividends.

(LINE GRAPH)

|                         |  |            |        |            |   |            |  |            |        |            |   |            |  |   |        |  |   |        | 
|------------------------ |  | ---------- | ------ | ---------- | - | ---------- |  | ---------- | ------ | ---------- | - | ---------- |  | - | ------ |  | - | ------ | 
|                         |  | 12/31/2002 |        | 12/31/2003 |   | 12/31/2004 |  | 12/31/2005 |        | 12/31/2006 |   | 12/31/2007 | 
|                         |  |            |        |            |   |            |  |            |        |            |   |            | 
|Steven
  Madden, Ltd.    |  | $          | 100.00 |            | $ | 112.89     |  | $          | 104.37 |            | $ | 161.76     |  | $ | 291.28 |  | $ | 166.02 | 
|Russell 2000
  Index     |  | $          | 100.00 |            | $ | 145.37     |  | $          | 170.08 |            | $ | 175.73     |  | $ | 205.61 |  | $ | 199.96 | 
|S&P 500
  Footwear Index |  | $          | 100.00 |            | $ | 151.33     |  | $          | 196.87 |            | $ | 195.74     |  | $ | 226.36 |  | $ | 293.67 | 
|                         |  |            |        |            |   |            |  |            |        |            |   |            |  |   |        |  |   |        | 

17

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|       |                        
|------ | -----------------------
|ITEM 6 | SELECTED FINANCIAL DATA

The
following selected financial data has been derived from our audited
Consolidated Financial Statements. The Income Statement Data relating to 2007,
2006 and 2005, and the Balance Sheet Data as of December 31, 2007 and 2006
should be read in conjunction with our audited Consolidated Financial
Statements and notes thereto appearing elsewhere herein.

|                                                                      |  |                         |              |      |   |              |   |      |              |      |   |              |   |   |             |  
|--------------------------------------------------------------------- |  | ----------------------- | ------------ | ---- | - | ------------ | - | ---- | ------------ | ---- | - | ------------ | - | - | ----------- | -
|                                                                      |  | Year Ended December 31, |             
|                                                                      |  |                         |             
|                                                                      |  | 2007                    |              | 2006 |   | 2005         |   | 2004 |              | 2003 |  
|                                                                      |  |                         |              |      |   |              |   |      |              |      |  
|INCOME STATEMENT DATA:                                                |  |                         |              |      |   |              |   |      |              |      |   |              |   |   |             |  
|Net sales                                                             |  | $                       | 431,050,000  |      | $ | 475,163,000  |   | $    | 375,786,000  |      | $ | 338,144,000  |   | $ | 324,204,000 |  
|Cost of sales                                                         |  |                         | 257,646,000  |      |   | 276,734,000  |   |      | 236,631,000  |      |   | 218,601,000  |   |   | 201,487,000 |  
|Gross profit                                                          |  |                         | 173,404,000  |      |   | 198,429,000  |   |      | 139,155,000  |      |   | 119,543,000  |   |   | 122,717,000 |  
|Commissions and licensing fee - net                                   |  |                         | 18,351,000   |      |   | 14,246,000   |   |      | 7,119,000    |      |   | 4,588,000    |   |   | 5,742,000   |  
|Operating expenses                                                    |  |                         | (138,841,000 | )    |   | (134,377,000 | ) |      | (114,185,000 | )    |   | (105,150,000 | ) |   | (94,833,000 | )
|Impairment of goodwill                                                |  |                         |             |      |   |             |   |      | (519,000     | )    |   |             |   |   |            |  
|Income from operations                                                |  |                         | 52,914,000   |      |   | 78,298,000   |   |      | 31,570,000   |      |   | 18,981,000   |   |   | 33,626,000  |  
|Interest income                                                       |  |                         | 3,876,000    |      |   | 3,703,000    |   |      | 2,554,000    |      |   | 2,009,000    |   |   | 1,611,000   |  
|Interest expense                                                      |  |                         | (65,000      | )    |   | (100,000     | ) |      | (164,000     | )    |   | (68,000      | ) |   | (54,000     | )
|Gain (loss) on sale of marketable
  securities                        |  |                         | (589,000     | )    |   | (967,000     | ) |      | (500,000     | )    |   | 32,000       |   |   | 136,000     |  
|Income before provision for income taxes                              |  |                         | 56,136,000   |      |   | 80,934,000   |   |      | 33,460,000   |      |   | 20,954,000   |   |   | 35,319,000  |  
|Provision for income taxes                                            |  |                         | 20,446,000   |      |   | 34,684,000   |   |      | 14,260,000   |      |   | 8,679,000    |   |   | 14,865,000  |  
|Net Income                                                            |  | $                       | 35,690,000   |      | $ | 46,250,000   |   | $    | 19,200,000   |      | $ | 12,275,000   |   | $ | 20,454,000  |  
|Basic income per share                                                |  | $                       | 1.73         |      | $ | 2.21         |   | $    | 0.95         |      | $ | 0.62         |   | $ | 1.05        |  
|Diluted income per share                                              |  | $                       | 1.68         |      | $ | 2.09         |   | $    | 0.92         |      | $ | 0.58         |   | $ | 0.96        |  
|Basic weighted average shares of common
  stock                       |  |                         | 20,647,181   |      |   | 20,905,673   |   |      | 20,111,576   |      |   | 19,723,304   |   |   | 19,477,898  |  
|Effect of potential shares of common stock
  from exercise of options |  |                         | 645,010      |      |   | 1,195,394    |   |      | 806,487      |      |   | 1,611,120    |   |   | 1,729,869   |  
|Diluted weighted average shares of common
  stock outstanding         |  |                         | 21,292,191   |      |   | 22,101,067   |   |      | 20,918,063   |      |   | 21,334,424   |   |   | 21,207,767  |  
|                                                                      |  |                         |              |      |   |              |   |      |              |      |   |              |   |   |             |  
|                                                                      |  | At December 31,         |             
|                                                                      |  |                         |             
|                                                                      |  | 2007                    |              | 2006 |   | 2005         |   | 2004 |              | 2003 |  
|                                                                      |  |                         |              |      |   |              |   |      |              |      |  
|BALANCE SHEET DATA:                                                   |  |                         |              |      |   |              |   |      |              |      |   |              |   |   |             |  
|Total assets                                                          |  | $                       | 266,521,000  |      | $ | 251,392,000  |   | $    | 211,728,000  |      | $ | 186,430,000  |   | $ | 177,870,000 |  
|Working capital                                                       |  |                         | 121,138,000  |      |   | 151,711,000  |   |      | 114,066,000  |      |   | 101,417,000  |   |   | 105,140,000 |  
|Noncurrent liabilities                                                |  |                         | 3,470,000    |      |   | 3,136,000    |   |      | 2,757,000    |      |   | 2,088,000    |   |   | 1,828,000   |  
|Stockholders equity                                                  |  | $                       | 215,334,000  |      | $ | 211,924,000  |   | $    | 182,065,000  |      | $ | 164,665,000  |   | $ | 159,187,000 |  

18

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|       |                                                                                        
|------ | ---------------------------------------------------------------------------------------
|ITEM 7 | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS

The
following discussion of our financial condition and results of operations
should be read in conjunction with the audited Consolidated Financial
Statements and Notes thereto appearing elsewhere in this document.

Statements
in this Managements Discussion and
Analysis of Financial Condition and Results of Operations and
elsewhere in this document as well as statements made in press releases and
oral statements that may be made by us or our officers, directors or employees
acting on our behalf that are not statements of historical or current fact
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other unknown factors that
could cause our actual results to be materially different from the historical
results or from any future results expressed or implied by such forward-looking
statements. In addition to statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled with the terms
believes, belief, expects, intends, anticipates, projects or
plans and statements in the future tense to be uncertain forward-looking
statements. The forward-looking statements contained herein are also subject
generally to risks set forth in Item 1A-A Risk Factors and to other risks and
uncertainties that are described from time to time in our reports and
registration statements filed with the Securities and Exchange Commission.

Overview
($ in thousands, except retail sales data per square foot, share and earnings per
share data)

Steven Madden,
Ltd. (and its subsidiaries) designs, sources, markets and retails
fashion-forward footwear for women, men and children. In addition, we design,
source, market and retail name brand and private label fashion handbags and
accessories through our Daniel M. Friedman Division. We distribute products through
our retail stores, our e-commerce website, department and specialty stores
throughout the United States and through special distribution arrangements in
Canada, Europe, Central and South America, Australia and Asia. Our product line
includes a broad range of updated styles which are designed to establish or
capitalize on market trends, complemented by core products. We have established
a reputation for our creative designs, popular styles and quality products at
affordable price points.

The year 2007
proved to be a challenging year for the Company. The absence of fashion trends
in the marketplace and the lack of big items that would drive significant sales
volume resulted in a decrease in sales across several of our divisions. The
weakening economy also adversely affected sales volume. In addition, net sales
for the year ended December 31, 2006 included approximately $15,251 in net
sales from Rule, l.e.i. and Jump, three brands that were discontinued late in
2006. For the year ended December 31, 2007, consolidated net sales decreased to
$431,050 compared to $475,163 in the prior year. Gross margin in 2007 decreased
to 40.2% compared to 41.8% in 2006. Including a one-time benefit of $2,498
resulting from tax savings related to prior periods and a one-time charge of
$1,208 ($737 net of tax effect) related to the provision for prior years
custom duties, net income for the year was $35,690 compared to $46,250 last
year. Including a one-time benefit of $0.12 per share resulting from the above
mentioned tax savings offset by a one-time charge of $0.03 per share related to
the provision for prior years customs duties, diluted EPS for 2007 was $1.68
per share on 21,292,000 diluted weighted average shares outstanding compared to
$2.09 per share on 22,101,000 diluted weighted average shares outstanding last
year.

The recent
expansion and growth of our international business, as well as the increase in
private label business, resulted in an increase in the commission and licensing
income. For the year ended December 31, 2007, income from operations in this
segment increased to $14,674 from $11,321 in the prior year.

We have
pursued a number of initiatives to enhance gross margins such as reducing
freight costs, closeouts, store-to-store transfers and inventory shrinkage combined
with better inventory controls. As a result, the gross margin in the Retail
Division has increased to 56.8% in 2007 from 54.0% in 2006. This increase in
gross margin was achieved despite the decrease in comparative sales results.
Same store sales (sales of those stores, including the e-commerce website, that
were in operation throughout all of 2007 and 2006) decreased 7.6%. Sales per
square foot declined to $655 in 2007 compared to sales per square foot of $719
achieved in 2006.

19

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A recent
growth in our New York based income, combined with revisions in state and local
tax law, prompted us to re-evaluate our tax filing strategies. We have elected
to file our New York State and New York City tax returns on a combined basis
which maximized the tax benefits provided by recent changes in New York State
allocation regulations. We filed combined returns in 2006 and we were able to
file amended New York State and New York City returns for 2003 through 2005
resulting in an additional one-time tax benefit in 2007. The election to file
combined New York State and City returns in concert with the one-time benefit
of filing past years amended returns has reduced our effective tax rate to
36.4% in 2007 from 42.9% in 2006. We anticipate that our effective tax rate in
2008 will be approximately 39%.

Pursuant to
developments in the case with U.S. Customs, we have, in conjunction with
legal counsels advice, increased the provision for the liability in
the case from the $1,500 previously recorded to $2,700. Accordingly, an
additional provision of $1,208 was made during the year ended December 31,
2007.

Our inventory
turnover increased to 7.4 times in 2007 from 7.2 in 2006, because of our
ability to manage inventory levels during a period of decreasing sales volume.
Our accounts receivable average collection days improved to 58 days as of
December 31, 2007 from 59 days on December 31, 2006. As of December 31, 2007,
we had $109,857 in cash, cash equivalents and marketable securities, no short-
or long-term debt, and total stockholders equity of $215,334. Working capital
decreased to $121,138 as of December 31, 2007, compared to $151,711 on December
31, 2006, primarily due to our purchase during 2007 of $50,094 of our common
stock for treasury. During the year ended December 31, 2007, net cash provided
by operating activities increased to $59,907 as compared to $43,408 in the same
period last year.

In line with
prior commitments to enhance shareholders value, on February 19, 2008, we
 announced a tender offer to purchase up to 2,600,000 shares of our
common stock at a price not greater than $20.00 nor less than $16.50 per share.
As of December 31, 2007, there were 20,117,983 shares of our common stock
issued and outstanding, not including 5,662,055 of our issued shares held in
treasury. The 2,600,000 shares that we are offering to purchase represent
approximately 13% of the total number of issued shares. We anticipate that we
will pay for the shares tendered in the offer from our available cash.

20

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The
following tables set forth information on operations for the periods indicated:

|                                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|----------------------------------------- |  | -------------------------------------------- | ------- | ---- | --- | ---- |  | - | ------- |  | --- | - |  | - | ------- |  | --- | - | 
|                                          |  | Years Ended
  December 31
  ($ in thousands) |        
|                                          |  | 2007                                         |         | 2006 |     | 2005 | 
|                                          |  |                                              |         |      |     |      | 
|CONSOLIDATED:                             |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|                                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|Net sales                                 |  | $                                            | 431,050 |      | 100 | %    |  | $ | 475,163 |  | 100 | % |  | $ | 375,786 |  | 100 | % | 
|Cost of sales                             |  |                                              | 257,646 |      | 60  |      |  |   | 276,734 |  | 58  |   |  |   | 236,631 |  | 63  |   | 
|Gross profit                              |  |                                              | 173,404 |      | 40  |      |  |   | 198,429 |  | 42  |   |  |   | 139,155 |  | 37  |   | 
|Other operating income  net of expenses  |  |                                              | 18,351  |      | 4   |      |  |   | 14,246  |  | 3   |   |  |   | 7,119   |  | 2   |   | 
|Operating expenses                        |  |                                              | 138,841 |      | 32  |      |  |   | 134,377 |  | 28  |   |  |   | 114,185 |  | 31  |   | 
|Impairment of goodwill                    |  |                                              |        |      |    |      |  |   |        |  |    |   |  |   | 519     |  | 0   |   | 
|Income from operations                    |  |                                              | 52,914  |      | 12  |      |  |   | 78,298  |  | 16  |   |  |   | 31,570  |  | 8   |   | 
|Interest and other income- net            |  |                                              | 3,222   |      | 1   |      |  |   | 2,636   |  | 1   |   |  |   | 1,890   |  | 1   |   | 
|Income before income taxes                |  |                                              | 56,136  |      | 13  |      |  |   | 80,934  |  | 17  |   |  |   | 33,460  |  | 9   |   | 
|Net income                                |  |                                              | 35,690  |      | 8   |      |  |   | 46,250  |  | 10  |   |  |   | 19,200  |  | 5   |   | 
|                                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|By Segment:                               |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|                                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|WHOLESALE DIVISION:                       |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|                                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|Net sales                                 |  | $                                            | 310,405 |      | 100 | %    |  | $ | 347,509 |  | 100 | % |  | $ | 254,275 |  | 100 | % | 
|Cost of sales                             |  |                                              | 205,584 |      | 66  |      |  |   | 218,014 |  | 63  |   |  |   | 175,292 |  | 69  |   | 
|Gross profit                              |  |                                              | 104,821 |      | 34  |      |  |   | 129,495 |  | 37  |   |  |   | 78,983  |  | 31  |   | 
|Other operating income                    |  |                                              | 3,677   |      | 1   |      |  |   | 2,925   |  | 1   |   |  |   | 2,286   |  | 1   |   | 
|Operating expenses                        |  |                                              | 73,362  |      | 24  |      |  |   | 75,328  |  | 22  |   |  |   | 59,958  |  | 24  |   | 
|Income from operations                    |  |                                              | 35,136  |      | 11  |      |  |   | 57,092  |  | 16  |   |  |   | 21,311  |  | 8   |   | 
|                                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|RETAIL DIVISION:                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|                                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|Net sales                                 |  | $                                            | 120,645 |      | 100 | %    |  | $ | 127,654 |  | 100 | % |  | $ | 121,511 |  | 100 | % | 
|Cost of sales                             |  |                                              | 52,062  |      | 43  |      |  |   | 58,720  |  | 46  |   |  |   | 61,339  |  | 50  |   | 
|Gross profit                              |  |                                              | 68,583  |      | 57  |      |  |   | 68,934  |  | 54  |   |  |   | 60,172  |  | 50  |   | 
|Operating expenses                        |  |                                              | 65,479  |      | 54  |      |  |   | 59,049  |  | 46  |   |  |   | 54,227  |  | 45  |   | 
|Impairment of goodwill                    |  |                                              |        |      |    |      |  |   |        |  |    |   |  |   | 519     |  | 0   |   | 
|Income from operations                    |  |                                              | 3,104   |      | 3   |      |  |   | 9,885   |  | 8   |   |  |   | 5,426   |  | 5   |   | 
|Number of stores                          |  |                                              | 101     |      |     |      |  |   | 96      |  |     |   |  |   | 98      |  |     |   | 
|                                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|FIRST COST DIVISION:                      |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|                                          |  |                                              |         |      |     |      |  |   |         |  |     |   |  |   |         |  |     |   | 
|Other commission income - net of expenses |  | $                                            | 14,674  |      | 100 | %    |  | $ | 11,321  |  | 100 | % |  | $ | 4,833   |  | 100 | % | 

21

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RESULTS OF OPERATIONS
($ in thousands)

Year Ended December 31, 2007 vs. Year Ended
December 31, 2006

Consolidated:

Total net
sales for the year ended December 31, 2007 decreased by 9% to $431,050 from
$475,163 for the comparable period of 2006. Net sales generated by the Retail
Division decreased by 5% while net sales generated by the Wholesale Division
decreased by 11%. Overall gross profit margin decreased to 40% for the year
ended December 31, 2007 from 42% for the prior year. A decrease in the
Wholesale gross profit margin to 34% in 2007 compared to 37% in the same period
in the prior year was partially offset by an increase in the Retail gross
profit margin to 57% in 2007 from 54% in the same period last year. Operating
expenses increased in 2007 to $138,841, or 32% of net sales, from $134,377, or
28% of net sales, in 2006, primarily due to the incremental costs associated
with the new retail stores opened this year. Commission and licensing fee
income was $18,351 for the year ended December 31, 2007 compared to $14,246 for
the prior year. Including a one-time charge of $1,208 related to the provision
for prior years custom duties, operating income for the year ended December 31,
2007 was $52,914, compared to $78,298 in the prior year. Our effective tax rate
decreased to 36.4% in 2007 compared to 42.9% in the prior year due to a
reduction in the effective tax rate and a one-time tax benefit related to prior
periods, connected to our election to file combined tax returns for both New
York State and New York City and certain recent changes in tax law. Including
the above-mentioned one-time tax benefit of $2,498 and the one-time charge of
$1,208 ($737 net of tax effect) related to prior years custom duties, net
income for the year ended December 31, 2007 was $33,929, compared to $46,250 in
2006. The decrease in income was primarily due to the decrease in net sales and
gross profit margins.

Wholesale Division:

Net sales
generated by the Wholesale Division was $310,405, or 72%, and $347,509, or 73%,
of our total net sales for the years ended December 31, 2007 and 2006,
respectively. The decrease in sales was driven primarily by declines in four of
our wholesale brands. In the Steve Madden Womens Division and the Steven
Division, the decrease in sales was due primarily to an absence of fashion
trends in the marketplace and the lack of big items that would drive
significant sales volume. In the Steve Madden Mens Division, the continued
weakness in the sport casual business resulted in disappointing net sales. Net
sales in the Candies Division decreased due to a significant increase in
markdown allowances to Kohls. In addition, net sales for the year ended
December 31, 2006 included approximately $15,251 in net sales from Rule, l.e.i.
and Jump, three brands that were discontinued late in 2006. These decreases
were partially offset by the double-digit net sales increases achieved in both
the Madden Girl and the Stevies Divisions and a 6% net sales increase in the
Daniel M. Friedman Division.

Gross profit
margin decreased to 34% in the year ended December 31, 2007 from 37% in the
prior year, due primarily to a significant increase in markdown allowances in
the Candies and Steven Divisions. Our remaining wholesale divisions also experienced
increases in markdown activities as well as an increase in promotional selling
reflective of the difficult retail environment in 2007. Operating expenses
decreased in 2007 to $73,362 compared to $75,328 in the prior year due to a
decrease in variable selling expenses that were partially offset by an increase
in non-cash stock based compensation. Income from operations for the Wholesale
Division decreased to $35,136 for the year ended December 31, 2007 compared to
$57,092 for the year ended December 31, 2006.

Retail
Division:

Net Sales
generated by the Retail Division accounted for $120,645, or 28%, and $127,654,
or 27%, of total Company net sales for the years ended December 31, 2007 and
2006, respectively. We opened seven new stores and closed two under-performing
stores during the year ended December 31, 2007. As a result, we had
101 retail stores as of December 31, 2007 compared to 96 stores as of December
31, 2006. The 101 stores currently in operation include 94 under the Steve
Madden brand, six under the Steven brand and one e-commerce website. Comparable
store sales (sales of those stores, including the e-commerce website, that were
open for all of 2007 and 2006) decreased 8% for the year ended December 31,
2007 due primarily to the lack of any significant fashion trends and the
softening retail environment in the second half of the year. We have pursued a
number of initiatives to enhance gross margins such as reducing freight costs,
closeouts, store-to-store transfers and inventory shrinkage combined with better
inventory controls. As a result, the gross margin in the Retail Division has
increased to 57% for the year ended December 31, 2007 from 54% in the
comparable period of 2006. Income from operations for the Retail Division was
$3,104 for the current year compared to $9,885 for the same period of 2006.

22

---



First Cost Division:

The First Cost
Division generated net commission income and design fees of $14,674 for the
year ended December 31, 2007, compared to $11,321 for the comparable period of 2006. The increase was
the result of the continued growth in our private label business as well as the
recent expansion of our international business.

Year Ended December 31, 2006 vs. Year Ended
December 31, 2005

Consolidated:

Total net
sales for the year ended December 31, 2006 increased by 26% to $475,163 from
$375,786 for the comparable period of 2005. The total increase resulted from a
37% growth in the Wholesale Division combined with a 5% growth in the Retail
Division.

Gross profit
margin increased to 42% for the year ended December 31, 2006 from 37% for the
prior year. Both the Wholesale and the Retail Divisions achieved significant
increases in their gross profit margins. The gross profit margin for the
Wholesale Division increased to 37% for the year ended December 31, 2006 from 31%
for the comparable period of 2005, and in the Retail Division, the gross profit
margin increased to 54% as compared to 50% for the comparable period of 2005. A
portion of the increased gross margin was the result of improved inventory
management which resulted in fewer markdowns.

Operating
expenses increased to $134,377 in the year ended December 31, 2006 from
$114,185 in the same period of 2005. The increase in dollars was primarily
caused by the incremental costs associated with the acquisition of Daniel M.
Friedman and the addition of the SMNY/Madden Girl Division, an increase in
sales growth related variable expenses such as warehouse and distribution
costs, and an increase in incentive based employee compensation. As a
percentage of net sales, operating expenses decreased to 28% for the year ended
December 31, 2006 from 31% in the same period of 2005, reflecting our ability
to leverage our expense structure against the increase in sales.

Income from
operations was $78,298 for the year ended December 31, 2006 compared to $31,570
for the comparable period of 2005. Net income increased by 141% to $46,250 for
the year ended December 31, 2006 compared to $19,200 for the year ended
December 31, 2005. This increase in income was primarily due to the increase in
net sales, the higher gross profit margin, a substantial increase in commission
income and the contribution of the Daniel M. Friedman Division.

Wholesale Division:

Net sales from
the Wholesale Division accounted for $347,509, or 73%, and $254,275, or 68%, of
total net sales for the years ended December 31, 2006 and 2005, respectively.
This increase resulted from the incremental sales contributed by the recently
acquired Daniel M. Friedman and significant sales growth in Madden Womens,
Madden Mens, Candies and Steven as well as the contribution of the new brands,
SMNY/Madden Girl and Natural Comfort. Gross profit margin increased to 37% of
net sales for the year ended December 31, 2006 from 31% in the prior year,
primarily due to a significant decrease in off-price sales and lower inventory
markdowns and allowances. Operating expenses increased to $75,328 for the year
ended December 31, 2006 from $59,958 in the comparable period of 2005. This
increase is primarily due to an increase in direct selling expenses reflective
of the 37% growth in sales, incentive bonuses and the incremental costs
associated with the new brands SMNY/Madden Girl and Natural Comfort, as well as
the acquisition of Daniel M. Friedman. As a percentage of net sales, operating
expenses decreased to 22% for the year ended December 31, 2006 from 24% for the
prior year, reflecting our ability to leverage our expense structure against
the increase in sales. Income from operations for the Wholesale Division
increased to $57,092 for the year ended December 31, 2006 compared to $21,311
for the year ended December 31, 2005.

23

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Retail Division:

Net sales from
the Retail Division accounted for $127,654, or 27%, and $121,511, or 32%, of
total net sales for the years ended December 31, 2006 and 2005, respectively.
We opened four new stores and closed six under-performing stores during the
current year. As a result, we had 96 retail stores as of December 31, 2006
compared to 98 stores as of December 31, 2005. The 96 stores in operation
include 93 under the Steve Madden name, two under the Steven name and one
e-commerce website. Comparable store sales (sales of those stores, including
the internet store, that were open for all of 2006 and 2005) for the year ended
December 31, 2006 increased 4% over the same period of 2005. Gross profit as a
percentage of net sales increased to 54% for the year ended December 31, 2006
from 50% in the comparable period of 2005, primarily due to a significant
decrease in promotional sales, improved inventory controls and freight savings.
Operating expenses for the Retail Division were $59,049 for the year ended
December 31, 2006 and $54,227 for the comparable period of 2005. This increase
was primarily due to the non-cash write off of unamortized assets associated with
the remodeling of nine stores and the closing of six stores in the current
period that accounted for $1,858. Income from operations for the Retail
Division was $9,885 for the year ended December 31, 2006 compared to $5,426 for
the same period in 2005.

First Cost Division:

The First Cost
Division generated net commission income and design fees of $11,321 for year
ended December 31, 2006, compared to $4,833 for the comparable period of 2005.
The increase was the result of growth in the private label business and, in
addition, our ability to leverage the strength of our Steve Madden brands and
product designs resulting in a partial recovery of its design, product and
development costs through its suppliers.

LIQUIDITY AND CAPITAL RESOURCES
($ in thousands)

Working
capital was $121,138 at December 31, 2007 compared to $151,711 at December 31,
2006. The decrease was primarily due to the repurchase of approximately 1,962,000 shares of
our common stock at a total cost of $50,094.

Under the
terms of a factoring agreement with GMAC, we are eligible to borrow 80%
against its receivables at an interest rate equal to the lower of the prime
rate less 0.875% or the 30-day London Interbank Offered Rate plus 1.375%. This
agreement, which has no specific expiration date and can be terminated by
either party with 60 days written notice after June 30, 2009, provides us with
a $50 million credit facility with a $25 million sub-limit on the aggregate
face amount of Letters of Credit with some other stipulations.

As of December
31, 2007, we held marketable securities valued at $80,411, consisting primarily
of corporate and municipal bonds, U.S. Treasury notes, auction rate securities,
certificates of deposit and equities.

At December
31, 2007, we held $37,325 in auction rate securities. The contractual
maturities of the investments underlying the auction rate securities mature at
various dates through 2046, however, all our auction rate securities, or ARSs,
have a reset period of less than 30 days. Through March 7, 2008, we
had reduced our total holdings in ARSs to $16,300, principally by investing in
other short-term investments as individual ARS reset periods came due and the
securities were once again subject to the auction process. Through March 7,
2008, auctions for $8,800 of these securities were not successful, resulting in
our continuing to hold these securities and the issuers paying interest at the
maximum contractual rate. Based on current market conditions, it is likely that
auctions related to more of these securities will be unsuccessful in the near
term. Unsuccessful auctions could result in our holding securities beyond their
next scheduled auction reset dates if a secondary market does not develop,
therefore limiting the short-term liquidity of these investments. Accordingly,
$16,300 of auction rate securities are classified as long term as of December
31, 2007. While these failures in the auction process have affected our
 ability to access these funds in the near term, we do not believe
that the underlying securities or collateral have been affected. We believe
 that the higher reset rates on failed auctions provide sufficient
incentive for the security issuers to address this lack of liquidity. If the
credit rating of the security issuers deteriorates, we may be required
to adjust the carrying value of these investments through an impairment charge.
We expect to continue to earn interest at the prevailing rates on the
ASRs that we hold.

24

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On February
19, 2008, we announced a tender offer to purchase up to 2,600,000 shares of our
common stock at a price not greater than $20.00 nor less than $16.50 per share.
As of December 31, 2007, there were 20,117,983 shares of our common stock
issued and outstanding, not including 5,662,055 of our issued shares held in
treasury. The 2,600,000 shares that we are offering to purchase represent
approximately 13% of the total number of issued shares. We anticipate that we
will pay for the shares tendered in the offer from our available cash.

Management
believes that, based upon our current financial position and available cash,
cash equivalents and marketable securities, we will meet all of our financial
commitments and operating needs, including the tender offer, for at least the
next twelve months.

OPERATING ACTIVITIES
($ in thousands)

During the
year ended December 31, 2007, net cash provided by operating activities was
$59,907. The primary sources of cash were net income of $35,690, increases in
accounts payable and accrued expenses of $9,443, decrease in inventories of
$6,463, and decreases in the amount due from factor of $5,409. The primary uses
of cash were increases in prepaid expenses, prepaid taxes, deposits and other
assets of $3,189, a decrease in accrued incentive compensation of $3,359 and an
increase in note receivable of $3,126.

INVESTING ACTIVITIES
($ in thousands)

During the
year ended December 31, 2007, we invested $66,505 in marketable securities and
received $76,192 from the maturities and sales of securities. Also, we invested
$9,080 in the acquisition of privately held Compo Enhancements, LLC, which
served as a third party provider of e-commerce solutions for us since
late in 2005. The acquisition enables us to fully integrate our
e-commerce business into our Retail Division and operate its online
business internally. Additionally, we made capital expenditures of $12,965,
principally for the seven new stores opened in the current period, the
construction of two new stores scheduled to open in the early part of 2008, and
the remodeling of ten existing stores, additional office space and upgrades to
the telephone and management information systems.

FINANCING ACTIVITIES($ in thousands)

During the
year ended December 31, 2007, we repurchased approximately 1,962,000 shares of our common
stock at an average price of $25.53 for a total cost of $50,094. We received
$5,607 in cash and also realized a tax benefit of $7,180 in connection with the
exercise of stock options.

25

---



CONTRACTUAL OBLIGATIONS
($ in thousands)

Our
contractual obligations as of December 31, 2007 were as follows:

|                                                                |  |       |         |      |                       |           |  |           |        |                  |   |        |  |   |        | 
|--------------------------------------------------------------- |  | ----- | ------- | ---- | --------------------- | --------- |  | --------- | ------ | ---------------- | - | ------ |  | - | ------ | 
|                                                                |  |       |         |      | Payment due by period |          
|Contractual Obligations                                         |  | Total |         | 2008 |                       | 2009-2010 |  | 2011-2012 |        | 2013 and
  after |  
|                                                                |  |       |         |      |                       |           |  |           |        |                  |  
|                                                                |  |       |         |      |                       |           |  |           |        |                  |  
|Operating lease obligations                                     |  | $     | 126,172 |      | $                     | 16,560    |  | $         | 32,765 |                  | $ | 29,997 |  | $ | 46,850 | 
|                                                                |  |      
|Purchase obligations                                            |  |       | 48,558  |      |                       | 48,558    |  |           | 0      |                  |   | 0      |  |   | 0      | 
|                                                                |  |      
|Other long-term liabilities (future minimum
  royalty payments) |  |       | 1,936   |      |                       | 522       |  |           | 1,414  |                  |   | 0      |  |   | 0      | 
|                                                                |  |       |         |      |                       |           |  |           |        |                  |  
|                                                               
|Total                                                           |  | $     | 176,666 |      | $                     | 65,640    |  | $         | 34,179 |                  | $ | 29,997 |  | $ | 46,850 | 
|                                                                |  |       |         |      |                       |           |  |           |        |                  |  

At December
31, 2007, we had un-negotiated open letters of credit for the purchase of
inventory of approximately $1,974.

We have an employment agreement with Steven Madden, our Creative and Design Chief,
which provides for an annual base salary of $600 subject to certain specified
adjustments through June 30, 2015. The agreement also provides for annual bonuses
based on EBITDA, revenue of any new business, and royalty income over $2 million,
plus an equity grant and a non-accountable expense allowance.

On May 16,
2007, we acquired all of the outstanding equity interest of privately held
Compo. The acquisition was completed for a consideration of $9,679, including
transaction costs.

On February 7,
2006 we acquired all of the equity interest of Daniel M. Friedman. The
acquisition was completed for a consideration of $18,710 including transaction
costs. In addition, the purchase agreement includes certain earn-out provisions
based on financial performance through 2008. The 2007 earn-out provision of
$3,956 was charged to goodwill and increased the total acquisition cost to
$22,666.

We have
employment agreements with certain executive officers, which provide for the
payment of compensation aggregating approximately $2,372 in 2008 and $1,080 in
2009. In addition, some of the employment agreements provide for a
discretionary bonus and some provide for incentive compensation based on various
performance criteria as well as other benefits including stock options. Our
Chief Operating Officer is entitled to deferred compensation calculated as a
percentage of his base salary.

Ninety-nine
percent (99%) of our products are produced at overseas locations, the majority
of which are located in China, with a small percentage located in Brazil,
Italy, India and Spain. We have not entered into any long-term manufacturing or
supply contracts with any of these foreign companies. We believe that a sufficient
number of alternative sources exist outside of the United States for the
manufacture of our products. We currently make approximately 99% of our
purchases in U.S. dollars.

INFLATION

We do not
believe that the relatively low rates of inflation experienced over the last
few years in the United States, where we primarily compete, have had a
significant effect on sales, expenses or profitability.

26

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CRITICAL ACCOUNTING POLICIES AND THE USE OF
ESTIMATES

Managements
Discussion and Analysis of Financial Condition and Results of Operations is
based upon our Consolidated Financial Statements which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets,
liabilities, sales and expenses, and related disclosure of contingent assets
and liabilities. Estimates by their nature are based on judgments and available
information. Estimates are made based upon historical factors, current
circumstances and the experience and judgment of management. Assumptions and
estimates are evaluated on an ongoing basis and we may employ outside experts
to assist in evaluations. Therefore, actual results could materially differ
from those estimates under different assumptions and conditions. Management
believes the following critical accounting estimates are more significantly
affected by judgments and estimates used in the preparation of our Condensed
Consolidated Financial Statements: allowance for bad debts, returns and
customer chargebacks; inventory reserves; valuation of intangible assets;
litigation reserves and cost of sales.

Allowances for bad debts, returns and
customer chargebacks. We provide reserves against our
trade accounts receivables for future customer chargebacks, co-op advertising
allowances, discounts, returns and other miscellaneous deductions that relate
to the current period. The reserve against our non-factored trade receivables
also includes estimated losses that may result from customers inability to
pay. The amount of the reserve for bad debts, returns, discounts and compliance
chargebacks are determined by analyzing aged receivables, current economic
conditions, the prevailing retail environment and historical dilution levels
for customers. As a result of a reevaluation of the retail environment, we
revised our method for evaluating our allowance for customer markdowns and
advertising chargebacks in the fourth quarter of 2005. In the past, we would
look at historical dilution levels for customers to determine the allowance
amount. Under the new methodology, we evaluate anticipated chargebacks by
reviewing several performance indicators for our major customers. These performance
indicators (which include inventory levels at the retail floors, sell through
rates and gross margin levels) are analyzed by key account executives and the
Vice President of Wholesale Sales to estimate the amount of the anticipated
customer allowance. Failure to correctly estimate the amount of the reserve
could materially impact our results of operations and financial position.

Inventory reserves.
Inventories are stated at lower of cost or market, on a first-in, first-out
basis. We review inventory on a regular basis for excess and slow moving
inventory. The review is based on an analysis of inventory on hand, prior sales
and expected net realizable value through future sales. The analysis includes a
review of inventory quantities on hand at period-end in relation to
year-to-date sales and projections for sales in the foreseeable future as well
as subsequent sales. We consider quantities on hand in excess of estimated
future sales to be at risk for market impairment. The net realizable value, or
market value, is determined based on the estimate of sales prices of such
inventory through off-price or discount store channels. The likelihood of any
material inventory write-down is dependent primarily on the expectation of
future consumer demand for our product. A misinterpretation or misunderstanding
of future consumer demand for our product, the economy, or other failure to
estimate correctly, in addition to abnormal weather patterns, could result in
inventory valuation changes, either favorably or unfavorably, compared to the
valuation determined to be appropriate as of the balance sheet date.

Valuation of intangible assets.
SFAS No. 142, Goodwill and Other Intangible Assets, which was adopted by us
on January 1, 2002, requires that goodwill and intangible assets with
indefinite lives no longer be amortized, but rather be tested for impairment at
least annually. This pronouncement also requires that intangible assets with
finite lives be amortized over their respective lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144,
Accounting for Impairment or Disposal of Long-lived Assets. In accordance
with SFAS No. 144, long-lived assets, such as property, equipment, leasehold
improvements and goodwill subject to amortization, are reviewed for impairment
annually or whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the asset.

Litigation reserves.
Estimated amounts for litigation claims that are probable and can be reasonably
estimated are recorded as liabilities in our Consolidated Financial Statements.
The likelihood of a material change in these estimated reserves would be
dependent on new claims as they may arise and the favorable or unfavorable
events of a particular litigation. As additional information becomes available,
management will assess the potential liability related to the pending
litigation and revise its estimates. Such revisions in managements estimates
of the contingent liability could materially impact our results of operation
and financial position.

27

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Cost of sales.All
costs incurred to bring finished products to our distribution center and, in
the Retail Division, the costs to bring products to our stores, are included in
the cost of sales line item on our Consolidated Statement of Income. These
include the cost of finished products, purchase commissions, letter of credit
fees, brokerage fees, material and labor and related items, sample expenses,
custom duty, inbound freight, royalty payments on licensed products, labels and
product packaging. All warehouse and distribution costs are included in the
operating expenses line item of our Consolidated Statement of Income. We
classify shipping costs, if any, to customers as operating expenses. Our gross
profit margins may not be comparable to other companies in the industry because
some companies may include warehouse and distribution as a component of cost of
sales, while other companies report on the same basis as we do and include them
in operating expenses.

|        |                                                                              
|------- | -----------------------------------------------------------------------------
|ITEM 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  ($ in thousands)

We do not
engage in the trading of market risk sensitive instruments in the normal course
of business. Our financing arrangements are subject to variable interest rates
primarily based on the prime rate and LIBOR. An analysis of our credit
agreement with GMAC and Wells Fargo Century can be found in Note C, Due From
Factors to the Consolidated Financial Statements included in this Annual
Report on Form 10-K.

As of December
31, 2007, we held marketable securities valued at $80,411, which consist
primarily of corporate and municipal bonds, U.S. treasury notes, certificates
of deposit and auction rate securities that have various maturities through
December 2046, as well as marketable equity securities. These securities are
subject to interest rate risk and will decrease in value if interest rates
increase. We currently have the ability to hold these securities until
maturity. In addition, any decline in interest rates would be expected to
reduce our interest income.

At December
31, 2007, we held $37,325 in auction rate securities. The contractual
maturities of the investments underlying the auction rate securities mature at
various dates through 2046, however, all our auction rate securities, or ARSs,
have a reset period of less than 30 days. Through March 7, 2008, we
had reduced our total holdings in ARSs to $16,300, principally by investing in
other short-term investments as individual ARS reset periods came due and the
securities were once again subject to the auction process. Through March 7, 2008,
auctions for $8,800 of these securities were not successful, resulting in our
continuing to hold these securities and the issuers paying interest at the
maximum contractual rate. Based on current market conditions, it is likely that
auctions related to more of these securities will be unsuccessful in the near
term. Unsuccessful auctions could result in our holding securities beyond their
next scheduled auction reset dates if a secondary market does not develop,
therefore limiting the short-term liquidity of these investments. Accordingly,
$16,300 of auction rate securities is classified as long term as of December
31, 2007. While these failures in the auction process have affected our
 ability to access these funds in the near term, we do not
believe that the underlying securities or collateral have been affected. We believe
 that the higher reset rates on failed auctions provide
sufficient incentive for the security issuers to address this lack of
liquidity. If the credit rating of the security issuers deteriorates, we
may be required to adjust the carrying value of these investments
through an impairment charge. We expect to continue to earn interest
at the prevailing rates on the ASRs that we hold.

|       |                                            
|------ | -------------------------------------------
|ITEM 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See
the financial statements following Item 15 of this Annual Report on Form 10-K.

|       |                                                                                       
|------ | --------------------------------------------------------------------------------------
|ITEM 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE

None.

28

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|        |                        
|------- | -----------------------
|ITEM 9A | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by
Rule 13a-15(b) of the Exchange Act, our management, including our Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures as of the end of the fiscal year
covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) were effective as of the end of the fiscal year covered by this
Annual Report on Form 10-K.

Managements Annual Report on Internal
Control Over Financial Reporting

Management of
Steven Madden, Ltd. is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) of the
Securities Exchange Act of 1934).

Our internal
control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purpose in accordance with U.S. generally
accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that (1) pertain to maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles,
and that our receipts and expenditures are being made only in accordance with
authorizations of management and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on the financial
statements.

Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Under the supervision of and with the
participation of the Chief Executive Officer and the Chief Financial Officer,
our management conducted an assessment of the effectiveness of our internal
control over financial reporting based on the framework and criteria
established in Internal ControlIntegrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
assessment our management has concluded that, as of December 31, 2007, our internal
control over financial reporting was effective.

Attestation Report of our Independent
Registered Public Accounting Firm

Our
Independent Registered Public Accounting Firm, Eisner LLP, has audited and
issued a report on our internal control over financial reporting. The report of
Eisner LLP appears below.

To the Board
of Directors and Stockholders
Steven Madden, Ltd.

We have
audited Steven Madden, Ltd. and subsidiaries (the Company) internal control
over financial reporting as of December 31, 2007, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Managements Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting based on our audit.

29

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We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

A companys
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements.

Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our
opinion, Steven Madden, Ltd. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December
31, 2007, based on criteria established in Internal Control - Integrated
Framework issued by COSO.

We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Steven
Madden, Ltd. and subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of income, changes in stockholders equity, and cash
flows for the years in the three-year period ended December 31, 2007, and our
report dated March 10, 2008 expressed an unqualified opinion on those
consolidated financial statements.

Eisner LLP

New York, New
York
March 10, 2008

Changes in Internal Control Over Financial
Reporting

As
required by Rule 13a-15(d) under the Exchange Act, our management, including
our Chief Executive Officer and Chief Financial Officer, has evaluated our
internal controls over financial reporting to determine whether any changes
occurred during the fourth quarter of 2007 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting. Based on that evaluation, there has been no such material change
during the fourth quarter of 2007.

|        |                  
|------- | -----------------
|ITEM 9B | OTHER INFORMATION

None.

30

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PART III

|        |                                                       
|------- | ------------------------------------------------------
|ITEM 10 | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The
information required to be furnished pursuant to this item will be set forth in
our proxy statement for the 2008 Annual Meeting of Stockholders, and is
incorporated herein by reference.

|        |                       
|------- | ----------------------
|ITEM 11 | EXECUTIVE COMPENSATION

The
information required to be furnished pursuant to this item will be set forth in
our proxy statement for the 2008 Annual Meeting of Stockholders, and is
incorporated herein by reference.

|        |                                                                                                 
|------- | ------------------------------------------------------------------------------------------------
|ITEM 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
  RELATED STOCKHOLDER MATTERS

The
information required to be furnished pursuant to this item will be set forth in
our proxy statement for the 2007 Annual Meeting of Stockholders, and is
incorporated herein by reference.

|        |                                                                            
|------- | ---------------------------------------------------------------------------
|ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
  INDEPENDENCE

The
information required to be furnished pursuant to this item will be set forth in
our proxy statement for the 2008 Annual Meeting of Stockholders, and is
incorporated herein by reference.

|        |                                       
|------- | --------------------------------------
|ITEM 14 | PRINCIPAL ACCOUNTANT FEES AND SERVICES

The
information required to be furnished pursuant to this item will be set forth in
our proxy statement for the 2008 Annual Meeting of Stockholders, and is
incorporated herein by reference.

PART IV

|        |                                           
|------- | ------------------------------------------
|ITEM 15 | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial StatementsThe following consolidated financial statements of
Steven Madden, Ltd. and subsidiaries are included in Item 8:

31

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STEVEN MADDEN, LTD. AND SUBSIDIARIES

Contents

|                                                                                                       |     
|------------------------------------------------------------------------------------------------------ | ----
|                                                                                                       | Page
|                                                                                                       |     
|Consolidated Financial Statements                                                                      |     
|                                                                                                      
|Report
  of Independent Registered Public Accounting Firm                                              | F-2 
|                                                                                                      
|Balance
  sheets as of December 31, 2007 and 2006                                                      | F-3 
|                                                                                                      
|Statements
  of income for the years ended December 31, 2007, 2006 and 2005                            | F-4 
|                                                                                                      
|Statements
  of changes in stockholders equity for the years ended December 31, 2007,
  2006 and 2005 | F-5 
|                                                                                                      
|Statements
  of cash flows for the years ended December 31, 2007, 2006 and 2005                        | F-7 
|                                                                                                      
|Notes
  to financial statements                                                                        | F-8 

F-1

---



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Steven Madden, Ltd.

We have audited the accompanying consolidated balance
sheets of Steven Madden, Ltd. and subsidiaries (the Company) as of December
31, 2007 and 2006, and the related consolidated statements of income, changes
in stockholders equity and cash flows for the years in the three-year period
ended December 31, 2007.  These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

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

As discussed in Notes K and
G to the consolidated financial statements, the Company adopted the provisions
of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an Interpretation of FASB Statement No. 109, effective January 1, 2007 and its method of accounting for stock-based
compensation in accordance with Statement of Financial Accounting Standards No.
123, (Revised 2004) Share-Based
Payment, effective January 1,
2006, respectively.

We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United States), Steven
Madden, Ltd. and subsidiaries internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 10, 2008 expressed an unqualified
opinion thereon.

/s/ Eisner LLP
New York, New York
March 10, 2008

F-2

---



STEVEN MADDEN, LTD. AND SUBSIDIARIES

Consolidated Balance
Sheets
(in thousands, except per share data)


|                                                                                                                                                                                  |  |              |         |   |   |         |   | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | - | ------- | - | 
|                                                                                                                                                                                  |  | December 31, |         |  
|                                                                                                                                                                                  |  |              |         |  
|                                                                                                                                                                                  |  |              | 2007    |   |   | 2006    |   | 
|                                                                                                                                                                                  |  |              |         |   |   |        
|ASSETS                                                                                                                                                                            |  |              |         |   |   |         |   | 
|Current assets:                                                                                                                                                                   |  |              |         |   |   |         |   | 
|Cash and cash
  equivalents                                                                                                                                                       |  | $            | 29,446  |   | $ | 19,204  |   | 
|Accounts
  receivable - net of allowances of $1,967 and $1,009                                                                                                                    |  |              | 8,351   |   |   | 7,317   |   | 
|Due from factors
  - net of allowances of $13,479 and $11,499                                                                                                                     |  |              | 32,819  |   |   | 40,208  |   | 
|Inventories                                                                                                                                                                       |  |              | 27,197  |   |   | 33,660  |   | 
|Marketable
  securities - available for sale                                                                                                                                      |  |              | 51,028  |   |   | 72,542  |   | 
|Prepaid expenses
  and other current assets                                                                                                                                       |  |              | 5,840   |   |   | 5,929   |   | 
|Prepaid taxes                                                                                                                                                                     |  |              | 4,819   |   |   | 1,084   |   | 
|Deferred taxes                                                                                                                                                                    |  |              | 9,355   |   |   | 8,099   |   | 
|                                                                                                                                                                                  |  |              |         |   |   |        
|                                                                                                                                                                                  |  |              |         |   |   |         |   | 
|Total current
  assets                                                                                                                                                            |  |              | 168,855 |   |   | 188,043 |   | 
|                                                                                                                                                                                 
|Note receivable  related party                                                                                                                                                   |  |              | 3,126   |   |   |        |   | 
|Property and equipment, net                                                                                                                                                       |  |              | 28,653  |   |   | 22,842  |   | 
|Deferred taxes                                                                                                                                                                    |  |              | 7,232   |   |   | 6,794   |   | 
|Deposits and other                                                                                                                                                                |  |              | 3,202   |   |   | 2,965   |   | 
|Marketable securities - available for sale                                                                                                                                        |  |              | 29,383  |   |   | 17,139  |   | 
|Goodwill - net                                                                                                                                                                    |  |              | 15,922  |   |   | 6,465   |   | 
|Intangibles - net                                                                                                                                                                 |  |              | 10,148  |   |   | 7,144   |   | 
|                                                                                                                                                                                  |  |              |         |   |   |        
|                                                                                                                                                                                 
|Total assets                                                                                                                                                                      |  | $            | 266,521 |   | $ | 251,392 |   | 
|                                                                                                                                                                                  |  |              |         |   |   |        
|LIABILITIES                                                                                                                                                                       |  |              |         |   |   |         |   | 
|Current liabilities:                                                                                                                                                              |  |              |         |   |   |         |   | 
|Accounts payable                                                                                                                                                                  |  | $            | 24,827  |   | $ | 12,784  |   | 
|Accrued expenses                                                                                                                                                                  |  |              | 16,757  |   |   | 14,056  |   | 
|Accrued
  incentive compensation                                                                                                                                                  |  |              | 6,133   |   |   | 9,492   |   | 
|                                                                                                                                                                                  |  |              |         |   |   |        
|                                                                                                                                                                                 
|Total current
  liabilities                                                                                                                                                       |  |              | 47,717  |   |   | 36,332  |   | 
|                                                                                                                                                                                 
|Deferred rent                                                                                                                                                                     |  |              | 3,470   |   |   | 3,136   |   | 
|                                                                                                                                                                                  |  |              |         |   |   |        
|                                                                                                                                                                                 
|Total liabilities                                                                                                                                                                 |  |              | 51,187  |   |   | 39,468  |   | 
|                                                                                                                                                                                  |  |              |         |   |   |        
|Commitments, contingencies and other  see notes J
  & L                                                                                                                          |  |              |         |   |   |         |   | 
|                                                                                                                                                                                 
|STOCKHOLDERS EQUITY                                                                                                                                                              |  |              |         |   |   |         |   | 
|Preferred stock - $.0001 par value, 5,000 shares
  authorized; none issued; Series A Junior Participating preferred stock -
  $.0001 par value, 60 shares authorized; none issued |  |              |         |   |   |         |   | 
|Common stock - $.0001 par value, 90,000 shares
  authorized, 25,780 and 24,806 shares issued, 20,118 and 21,106 shares
  outstanding at December 31, 2007 and 2006, respectively  |  |              | 3       |   |   | 2       |   | 
|Additional paid-in capital                                                                                                                                                        |  |              | 129,913 |   |   | 112,692 |   | 
|Retained earnings                                                                                                                                                                 |  |              | 169,263 |   |   | 133,561 |   | 
|Other comprehensive loss:                                                                                                                                                         |  |              |         |   |   |         |   | 
|Unrealized loss on marketable securities (net of
  taxes)                                                                                                                         |  |              | (61     | ) |   | (641    | ) | 
|Treasury stock  5,662 and 3,700 shares at cost at
  December 31, 2007 and 2006, respectively                                                                                     |  |              | (83,784 | ) |   | (33,690 | ) | 
|                                                                                                                                                                                  |  |              |         |   |   |        
|                                                                                                                                                                                 
|Total stockholders equity                                                                                                                                                        |  |              | 215,334 |   |   | 211,924 |   | 
|                                                                                                                                                                                  |  |              |         |   |   |        
|                                                                                                                                                                                 
|Total liabilities and stockholders equity                                                                                                                                        |  | $            | 266,521 |   | $ | 251,392 |   | 
|                                                                                                                                                                                  |  |              |         |   |   |        

See
notes to financial statements

F-3

---



STEVEN MADDEN, LTD. AND SUBSIDIARIES

Consolidated Statements
of Income
(in thousands, except per share data)


|                                                                       |  |                          |          |   |   |          |   |   |          |  
|---------------------------------------------------------------------- |  | ------------------------ | -------- | - | - | -------- | - | - | -------- | -
|                                                                       |  | Years Ended December 31, |         
|                                                                       |  |                          |         
|                                                                       |  |                          | 2007     |   |   | 2006     |   |   | 2005     |  
|                                                                       |  |                          |          |   |   |          |  
|Net sales:                                                             |  |                          |          |   |   |          |   |   |          |  
|Wholesale                                                              |  | $                        | 310,405  |   | $ | 347,509  |   | $ | 254,275  |  
|Retail                                                                 |  |                          | 120,645  |   |   | 127,654  |   |   | 121,511  |  
|                                                                       |  |                          |          |   |   |          |  
|                                                                      
|                                                                       |  |                          | 431,050  |   |   | 475,163  |   |   | 375,786  |  
|                                                                       |  |                          |          |   |   |          |  
|Cost of sales:                                                         |  |                          |          |   |   |          |   |   |          |  
|Wholesale                                                              |  |                          | 205,584  |   |   | 218,014  |   |   | 175,292  |  
|Retail                                                                 |  |                          | 52,062   |   |   | 58,720   |   |   | 61,339   |  
|                                                                       |  |                          |          |   |   |          |  
|                                                                      
|                                                                       |  |                          | 257,646  |   |   | 276,734  |   |   | 236,631  |  
|                                                                       |  |                          |          |   |   |          |  
|Gross profit:                                                          |  |                          |          |   |   |          |   |   |          |  
|Wholesale                                                              |  |                          | 104,821  |   |   | 129,495  |   |   | 78,983   |  
|Retail                                                                 |  |                          | 68,583   |   |   | 68,934   |   |   | 60,172   |  
|                                                                       |  |                          |          |   |   |          |  
|                                                                       |  |                          |          |   |   |          |   |   |          |  
|                                                                       |  |                          | 173,404  |   |   | 198,429  |   |   | 139,155  |  
|                                                                       |  |                          |          |   |   |          |   |   |          |  
|Commission and licensing fee income  net                              |  |                          | 18,351   |   |   | 14,246   |   |   | 7,119    |  
|Operating expenses                                                     |  |                          | (138,841 | ) |   | (134,377 | ) |   | (114,185 | )
|Impairment of goodwill                                                 |  |                          |         |   |   |         |   |   | (519     | )
|                                                                       |  |                          |          |   |   |          |  
|Income before other income (expenses) and provision
  for income taxes |  |                          | 52,914   |   |   | 78,298   |   |   | 31,570   |  
|                                                                      
|Other income (expenses):                                               |  |                          |          |   |   |          |   |   |          |  
|Interest income                                                        |  |                          | 3,876    |   |   | 3,703    |   |   | 2,554    |  
|Interest expense                                                       |  |                          | (65      | ) |   | (100     | ) |   | (164     | )
|Loss on sale of
  marketable securities                                |  |                          | (589     | ) |   | (967     | ) |   | (500     | )
|                                                                       |  |                          |          |   |   |          |  
|                                                                      
|Income before provision for income taxes                               |  |                          | 56,136   |   |   | 80,934   |   |   | 33,460   |  
|Provision for income taxes                                             |  |                          | 20,446   |   |   | 34,684   |   |   | 14,260   |  
|                                                                       |  |                          |          |   |   |          |  
|                                                                      
|Net income                                                             |  | $                        | 35,690   |   | $ | 46,250   |   | $ | 19,200   |  
|                                                                       |  |                          |          |   |   |          |  
|                                                                      
|Basic income per share                                                 |  | $                        | 1.73     |   | $ | 2.21     |   | $ | 0.95     |  
|                                                                       |  |                          |          |   |   |          |  
|                                                                       |  |                          |          |   |   |          |   |   |          |  
|Diluted income per share                                               |  | $                        | 1.68     |   | $ | 2.09     |   | $ | 0.92     |  
|                                                                       |  |                          |          |   |   |          |  
|                                                                      
|Basic weighted average shares of common stock
outstanding              |  |                          | 20,647   |   |   | 20,906   |   |   | 20,112   |  
|Effect of dilutive securities  options and
restricted stock           |  |                          | 645      |   |   | 1,195    |   |   | 806      |  
|                                                                       |  |                          |          |   |   |          |  
|                                                                      
|Diluted weighted average shares of common stock
outstanding            |  |                          | 21,292   |   |   | 22,101   |   |   | 20,918   |  
|                                                                       |  |                          |          |   |   |          |  
|                                                                      
|Dividends paid per share of common stock                               |  | $                        | 0.00     |   | $ | 1.00     |   | $ | 0.67     |  
|                                                                       |  |                          |          |   |   |          |  

See
notes to financial statements

F-4

---



STEVEN MADDEN, LTD.
AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders Equity(in thousands)

|                                                                          |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|------------------------------------------------------------------------- |  | ------------ | ------ | ------ | ------------------ | ------- | -------- | -------- | ------- | ------------ | - | ------- | - | - | ---- | -
|                                                                          |  | Common Stock |        |        |                    |         |          |          |         |              |   |        
|                                                                          |  |              |        |        | Additional Paid-in |         | Retained |          |         | Unearned     |  
|                                                                          |  | Shares       |        | Amount |                    | Capital |          | Earnings |         | Compensation |  
|                                                                          |  |              |        |        |                    |         |          |          |         |              |  
|                                                                         
|Balance - December 31, 2004                                               |  |              | 21,912 |        | $                  | 1       |          | $        | 80,631  |              | $ | 103,451 |   | $ | (703 | )
|Exercise of stock options                                                 |  |              | 2,133  |        |                    | 1       |          |          | 16,482  |              |   |         |   |   |      |  
|Tax benefit from exercise of options                                      |  |              |        |        |                    |         |          |          | 4,604   |              |   |         |   |   |      |  
|Issuance of fully vested restricted stock                                 |  |              | 180    |        |                    |         |          |          |         |              |   |         |   |   |      |  
|Cash in lieu of
  restricted stock                                        |  |              |        |        |                    |         |          |          | (1,767  | )            |   |         |   |   |      |  
|Amortization of unearned compensation                                     |  |              |        |        |                    |         |          |          |         |              |   |         |   |   | 703  |  
|Unrealized holding loss on marketable
  securities (net of taxes of $199) |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|Net income                                                                |  |              |        |        |                    |         |          |          |         |              |   | 19,200  |   |   |      |  
|Comprehensive income                                                      |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|Cash dividend paid                                                        |  |              |        |        |                    |         |          |          |         |              |   | (13,813 | ) |   |      |  
|Common stock purchased for treasury                                       |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|                                                                          |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|                                                                         
|Balance - December 31, 2005                                               |  |              | 24,225 |        |                    | 2       |          |          | 99,950  |              |   | 108,838 |   |   |     |  
|Exercise of stock options                                                 |  |              | 551    |        |                    |         |          |          | 6,837   |              |   |         |   |   |      |  
|Tax benefit from exercise of options                                      |  |              |        |        |                    |         |          |          | 3,611   |              |   |         |   |   |      |  
|Issuance of fully vested restricted stock                                 |  |              | 30     |        |                    |         |          |          |         |              |   |         |   |   |      |  
|Stock-based compensation                                                  |  |              |        |        |                    |         |          |          | 2,294   |              |   |         |   |   |      |  
|Unrealized holding loss on marketable
  securities (net of taxes of $476) |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|Net income                                                                |  |              |        |        |                    |         |          |          |         |              |   | 46,250  |   |   |      |  
|Comprehensive income                                                      |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|Cash dividend paid                                                        |  |              |        |        |                    |         |          |          |         |              |   | (21,527 | ) |   |      |  
|Common stock purchased for treasury                                       |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|                                                                          |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|                                                                         
|Balance - December 31, 2006                                               |  |              | 24,806 |        |                    | 2       |          |          | 112,692 |              |   | 133,561 |   |   |     |  
|Exercise of stock options                                                 |  |              | 863    |        |                    | 1       |          |          | 5,607   |              |   |         |   |   |      |  
|Tax benefit from exercise of options                                      |  |              |        |        |                    |         |          |          | 7,180   |              |   |         |   |   |      |  
|Issuance of fully vested restricted stock                                 |  |              | 111    |        |                    |         |          |          |         |              |   |         |   |   |      |  
|Stock-based compensation                                                  |  |              |        |        |                    |         |          |          | 4,434   |              |   |         |   |   |      |  
|Unrealized holding gain on marketable securities (net of taxes of $426)   |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|Net income                                                                |  |              |        |        |                    |         |          |          |         |              |   | 35,690  |   |   |      |  
|Comprehensive income                                                      |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|Forfeiture of accrued dividends                                           |  |              |        |        |                    |         |          |          |         |              |   | 12      |   |   |      |  
|Common stock purchased for treasury                                       |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|                                                                          |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  
|                                                                         
|Balance - December 31, 2007                                               |  |              | 25,780 |        | $                  | 3       |          | $        | 129,913 |              | $ | 169,263 |   | $ |     |  
|                                                                          |  |              |        |        |                    |         |          |          |         |              |   |         |   |   |      |  



See notes to financial statements

F-5

---



STEVEN MADDEN, LTD.
AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders Equity (Continued)(in thousands)

|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------ | ------ | -------------- | ------ | ------------------------------ |  | -------------------- | ------- | - | - | ------- | - | - | ------ | -
|                                                                                                                   |  | Accumulated

  Other Comprehensive
  Gain (Loss) |        | Treasury Stock |        | Total
  Stockholders
  Equity |  | Comprehensive
Income |        
|                                                                                                                   |  |                                                  |        |                |        |                               
|                                                                                                                   |  |                                                  | Shares |                | Amount |                                |  |                     
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |  
|                                                                                                                  
|Balance - December 31, 2004                                                                                        |  | $                                                | (1,024 | )              |        | 2,685                          |  | $                    | (17,691 | ) | $ | 164,665 |   |   |        |  
|Exercise of stock options                                                                                          |  |                                                  |        |                |        |                                |  |                      |         |   |   | 16,483  |   |   |        |  
|Tax benefit from exercise of options                                                                               |  |                                                  |        |                |        |                                |  |                      |         |   |   | 4,604   |   |   |        |  
|Issuance of fully vested restricted stock                                                                          |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|Cash in lieu of restricted
  stock                                                                                 |  |                                                  |        |                |        |                                |  |                      |         |   |   | (1,767  | ) |   |        |  
|Amortization of unearned compensation                                                                              |  |                                                  |        |                |        |                                |  |                      |         |   |   | 703     |   |   |        |  
|Unrealized holding loss on marketable
  securities (net of taxes of $199)                                          |  |                                                  | (275   | )              |        |                                |  |                      |         |   |   | (275    | ) |   | (275   | )
|Net income                                                                                                         |  |                                                  |        |                |        |                                |  |                      |         |   |   | 19,200  |   |   | 19,200 |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|Comprehensive income                                                                                               |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   | $ | 18,925 |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|Cash dividend paid                                                                                                 |  |                                                  |        |                |        |                                |  |                      |         |   |   | (13,813 | ) |   |        |  
|Common stock purchased for treasury                                                                                |  |                                                  |        |                |        | 666                            |  |                      | (7,735  | ) |   | (7,735  | ) |   |        |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|                                                                                                                  
|Balance - December 31, 2005                                                                                        |  |                                                  | (1,299 | )              |        | 3,351                          |  |                      | (25,426 | ) |   | 182,065 |   |   |        |  
|Exercise of stock options                                                                                          |  |                                                  |        |                |        |                                |  |                      |         |   |   | 6,837   |   |   |        |  
|Tax benefit from exercise of options                                                                               |  |                                                  |        |                |        |                                |  |                      |         |   |   | 3,611   |   |   |        |  
|Issuance of fully vested restricted stock                                                                          |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|Stock-based compensation                                                                                           |  |                                                  |        |                |        |                                |  |                      |         |   |   | 2,294   |   |   |        |  
|Unrealized holding loss on marketable
  securities (net of taxes of $476)                                          |  |                                                  | 658    |                |        |                                |  |                      |         |   |   | 658     |   |   | 658    |  
|Net income                                                                                                         |  |                                                  |        |                |        |                                |  |                      |         |   |   | 46,250  |   |   | 46,250 |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|Comprehensive income                                                                                               |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   | $ | 46,908 |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|Cash dividend paid ($421 of which is
  payable to holders of restricted stock pending the vesting of these shares) |  |                                                  |        |                |        |                                |  |                      |         |   |   | (21,527 | ) |   |        |  
|Common stock purchased for treasury                                                                                |  |                                                  |        |                |        | 349                            |  |                      | (8,264  | ) |   | (8,264  | ) |   |        |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|                                                                                                                  
|Balance - December 31, 2006                                                                                        |  |                                                  | (641   | )              |        | 3,700                          |  |                      | (33,690 | ) |   | 211,924 |   |   |        |  
|Exercise of stock options                                                                                          |  |                                                  |        |                |        |                                |  |                      |         |   |   | 5,608   |   |   |        |  
|Tax benefit from exercise of options                                                                               |  |                                                  |        |                |        |                                |  |                      |         |   |   | 7,180   |   |   |        |  
|Issuance of fully vested restricted stock                                                                          |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|Stock-based compensation                                                                                           |  |                                                  |        |                |        |                                |  |                      |         |   |   | 4,434   |   |   |        |  
|Unrealized holding gain on marketable
  securities (net of taxes of $426)                                          |  |                                                  | 580    |                |        |                                |  |                      |         |   |   | 580     |   |   | 580    |  
|Net income                                                                                                         |  |                                                  |        |                |        |                                |  |                      |         |   |   | 35,690  |   |   | 35,690 |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|Comprehensive income                                                                                               |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   | $ | 36,270 |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|Forfeiture of accrued dividends                                                                                    |  |                                                  |        |                |        |                                |  |                      |         |   |   | 12      |   |   |        |  
|Common stock purchased for treasury                                                                                |  |                                                  |        |                |        | 1,962                          |  |                      | (50,094 | ) |   | (50,094 | ) |   |        |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  
|                                                                                                                  
|Balance - December 31, 2007                                                                                        |  | $                                                | (61    | )              |        | 5,662                          |  | $                    | (83,784 | ) | $ | 215,334 |   |   |        |  
|                                                                                                                   |  |                                                  |        |                |        |                                |  |                      |         |   |   |         |   |   |        |  

See notes to financial statements

F-6

---



STEVEN MADDEN, LTD.
AND SUBSIDIARIES

|                                                                                    |  |                          |         |      |   |         |   |   |         |  
|----------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- | - | ------- | - | - | ------- | -
|Consolidated Statements of Cash Flows                                               |  |                          |         |      |   |         |   |   |         |  
|(in thousands)                                                                      |  | Years Ended December 31, |        
|                                                                                    |  |                          |        
|Cash flows from operating activities:                                               |  | 2007                     |         | 2006 |   | 2005    |  
|                                                                                    |  |                          |         |      |   |         |  
|                                                                                   
|Net income                                                                          |  | $                        | 35,690  |      | $ | 46,250  |   | $ | 19,200  |  
|Adjustments to reconcile net income to net
  cash provided by operating activities: |  |                          |         |      |   |         |   |   |         |  
|Stock-based compensation                                                            |  |                          | 4,434   |      |   | 2,294   |   |   | 703     |  
|Excess tax benefits from the exercise of
  options                                  |  |                          | (7,180  | )    |   | (3,611  | ) |   | (4,604  | )
|Depreciation and amortization                                                       |  |                          | 8,435   |      |   | 6,705   |   |   | 5,120   |  
|Loss on disposal of fixed assets                                                    |  |                          | 760     |      |   | 1,857   |   |   | 535     |  
|Impairment of goodwill                                                              |  |                          |        |      |   |        |   |   | 519     |  
|Deferred taxes                                                                      |  |                          | (2,120  | )    |   | (4,210  | ) |   | (2,691  | )
|Provision for doubtful accounts and
  chargebacks                                   |  |                          | 2,938   |      |   | 3,048   |   |   | 5,485   |  
|Deferred rent expense                                                               |  |                          | 334     |      |   | 379     |   |   | 669     |  
|Realized loss on sale of marketable
  securities                                    |  |                          | 589     |      |   | 967     |   |   | 500     |  
|Changes in:                                                                         |  |                          |         |      |   |         |   |   |         |  
|Accounts receivable                                                                 |  |                          | (1,992  | )    |   | (2,275  | ) |   | (1,197  | )
|Due from factors                                                                    |  |                          | 5,409   |      |   | (10,136 | ) |   | (3,282  | )
|Notes receivable  related
  party                                                  |  |                          | (3,126  | )    |   |        |   |   |        |  
|Inventories                                                                         |  |                          | 6,463   |      |   | 635     |   |   | 5,972   |  
|Prepaid expenses, prepaid taxes, deposits
  and other assets                        |  |                          | 3,189   |      |   | 1,478   |   |   | 3,980   |  
|Accounts payable and accrued expenses                                               |  |                          | 9,443   |      |   | (6,136  | ) |   | 4,320   |  
|Accrued incentive compensation                                                      |  |                          | (3,359  | )    |   | 6,163   |   |   | 2,909   |  
|                                                                                    |  |                          |         |      |   |         |   |   |         |  
|                                                                                   
|Net cash provided by operating activities                                           |  |                          | 59,907  |      |   | 43,408  |   |   | 38,138  |  
|                                                                                    |  |                          |         |      |   |         |   |   |         |  
|Cash flows from investing activities:                                               |  |                          |         |      |   |         |   |   |         |  
|Purchase of property and equipment                                                  |  |                          | (12,965 | )    |   | (9,511  | ) |   | (5,822  | )
|Purchases of marketable securities                                                  |  |                          | (66,505 | )    |   | (44,690 | ) |   | (27,252 | )
|Maturity/sale of marketable securities                                              |  |                          | 76,192  |      |   | 21,434  |   |   | 9,153   |  
|Acquisitions, net of cash acquired                                                  |  |                          | (9,080  | )    |   | (15,357 | ) |   |        |  
|                                                                                    |  |                          |         |      |   |         |   |   |         |  
|                                                                                   
|Net cash used in investing activities                                               |  |                          | (12,358 | )    |   | (48,124 | ) |   | (23,921 | )
|                                                                                    |  |                          |         |      |   |         |   |   |         |  
|Cash flows from financing activities:                                               |  |                          |         |      |   |         |   |   |         |  
|Proceeds from exercise of stock options                                             |  |                          | 5,607   |      |   | 6,837   |   |   | 16,483  |  
|Excess tax benefit from the exercise of
  options                                   |  |                          | 7,180   |      |   | 3,611   |   |   | 4,604   |  
|Cash dividend paid                                                                  |  |                          |        |      |   | (21,106 | ) |   | (13,813 | )
|Cash in lieu of restricted stock                                                    |  |                          |        |      |   |        |   |   | (1,767  | )
|Common stock purchased for treasury                                                 |  |                          | (50,094 | )    |   | (8,264  | ) |   | (7,735  | )
|                                                                                    |  |                          |         |      |   |         |   |   |         |  
|                                                                                   
|Net cash used in financing activities                                               |  |                          | (37,307 | )    |   | (18,922 | ) |   | (2,228  | )
|                                                                                    |  |                          |         |      |   |         |   |   |         |  
|                                                                                   
|Net increase (decrease) in cash and cash
  equivalents                              |  |                          | 10,242  |      |   | (23,638 | ) |   | 11,989  |  
|Cash and cash equivalents - beginning of year                                       |  |                          | 19,204  |      |   | 42,842  |   |   | 30,853  |  
|                                                                                    |  |                          |         |      |   |         |   |   |         |  
|                                                                                   
|Cash and cash equivalents  end of year                                             |  | $                        | 29,446  |      | $ | 19,204  |   | $ | 42,842  |  
|                                                                                    |  |                          |         |      |   |         |   |   |         |  
|Supplemental disclosures of cash flow
  information:                                |  |                          |         |      |   |         |   |   |         |  
|Cash paid during the year for:                                                      |  |                          |         |      |   |         |   |   |         |  
|Interest                                                                            |  | $                        | 65      |      | $ | 100     |   | $ | 164     |  
|Income taxes                                                                        |  | $                        | 20,178  |      | $ | 33,886  |   | $ | 12,536  |  
|Non-cash transactions                                                               |  |                          |         |      |   |         |   |   |         |  
|Dividend accrual (forfeitures) related to
  restricted stock                        |  | $                        | (16     | )    | $ | 421     |   | $ |        |  

See notes to financial statements

F-7

---



|                                                   
|---------------------------------------------------
|STEVEN MADDEN, LTD. AND SUBSIDIARIES               
|                                                   
|Notes to Financial Statements                      
|December 31, 2007 and 2006                         
|($ in thousands except share and per share data)   
|                                                   
|NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[1] | Organization:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Steven
  Madden, Ltd., a Delaware corporation, designs, sources, markets and retails
  womens, mens and childrens shoes, for sale through its wholesale and
  retail channels under the Steve Madden, Steven and Madden Mens and through
  its wholesale channels under the Stevies, Madden Girl and Candies (under
  license) brand names.  In addition,
  the Company designs, sources, markets and sells name brand and private label
  fashion handbags and accessories to customers located in the United States
  through its Daniel M. Friedman domestic and foreign Divisions.  Revenue is generated predominately through
  the sale of the Companys brand name merchandise and certain licensed
  products.  At December 31, 2007 and 2006,
  the Company operated 101 and 96 retail stores (including its website as a store),
  respectively.  Revenue is subject to
  seasonal fluctuations.  See Note M for
  operating segment information.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|[2] | Principles of consolidation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The
  Consolidated Financial Statements include the accounts of Steven Madden, Ltd.
  and its wholly owned subsidiaries Steven Madden Retail, Inc., Diva
  Acquisition Corp., Adesso Madden, Inc., Stevies, Inc. and Daniel M. Friedman
  and Associates, Inc. (collectively referred to as the Company).  All significant intercompany balances and
  transactions have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|[3] | Use of estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The
  preparation of financial statements in conformity with accounting principles
  generally accepted in the United States of America requires management to
  make estimates and assumptions that affect the reported amounts of assets and
  liabilities and disclosure of contingent assets and liabilities at the date
  of the financial statements and the reported amounts of revenue and expenses
  during the reporting period.  Actual results
  could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The
  significant areas involving management estimates include allowances for bad
  debts, returns and customer chargebacks.
  The Company provides reserves on trade accounts receivables for future
  customer chargebacks and markdown allowances, discounts, returns and other
  miscellaneous compliance related deductions that relate to the current period
  sales.  The Company evaluates
  anticipated chargebacks by reviewing several performance indicators of its
  major customers.  These performance
  indicators, which include retailers inventory levels, sell through rates and
  gross margin levels, are analyzed by key account executives and the Vice
  President of Wholesale Sales to estimate the amount of the anticipated
  customer allowance.                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|[4] | Cash equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Cash
  equivalents at December 31, 2007 and 2006 amounted to approximately $10,765
  and $11,121, respectively, and consisted of money market accounts and
  commercial paper.  The Company
  considers all highly liquid instruments with an original maturity of three months
  or less when purchased to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-8

---





|                                                               
|---------------------------------------------------------------
|STEVEN MADDEN, LTD. AND SUBSIDIARIES                           
|                                                               
|Notes to Financial Statements                                  
|December 31, 2007 and 2006                                     
|($ in thousands except share and per share data)               
|                                                               
|NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[5] | Marketable securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Marketable
  securities consist primarily of corporate and municipal bonds, U.S. treasury
  notes, certificates of deposit and auction rate securities with maturities
  greater than three months and up to five years at the time of purchase, as
  well as marketable equity securities.
  These securities, which are classified as available for sale, are
  carried at fair value, with unrealized gains and losses net of any tax effect
  reported in stockholders equity as accumulated other comprehensive income,
  and are held at an investment bank with the schedule of maturities at
  December 31, 2007 as follows:

|                                         |  |                | 3                 |              |   |                   |  |              |        |  |   |        | 
|---------------------------------------- |  | -------------- | ----------------- | ------------ | - | ----------------- |  | ------------ | ------ |  | - | ------ | 
|                                         |  |                | Maturities as of  |              |   | Maturities as of  | 
|                                         |  |                | December 31, 2007 |              |   | December 31, 2006 | 
|                                         |  |                |                   |              |   |                   | 
|                                         |  | 1 Year or Less |                   | 1 to 5 Years |   | 1 Year or Less    |  | 1 to 5 Years |       
|                                         |  |                |                   |              |   |                   |  |              |       
|Schedule of maturities:                  |  |                |                   |              |   |                   |  |              |        |  |   |        | 
|Municipal bonds                          |  | $              | 12,227            |              | $ | 7,682             |  | $            | 21,869 |  | $ | 7,072  | 
|U.S. Government and Federal agency bonds |  |                | 3,240             |              |   |                  |  |              | 1,980  |  |   | 3,175  | 
|Corporate bonds                          |  |                | 3,475             |              |   | 5,401             |  |              | 7,326  |  |   | 4,849  | 
|Auction rate securities                  |  |                | 21,025            |              |   | 16,300            |  |              | 33,175 |  |   |       | 
|Certificates of deposit                  |  |                | 2,320             |              |   |                  |  |              |       |  |   | 2,043  | 
|                                         |  |                |                   |              |   |                   |  |              |        |  |   |        | 
|                                         |  |                | 42,287            |              |   | 29,383            |  |              | 64,350 |  |   | 17,139 | 
|Marketable equity securities             |  |                | 8,741             |              |   |                  |  |              | 8,192  |  |   |       | 
|                                         |  |                |                   |              |   |                   |  |              |        |  |   |        | 
|                                         |  |                |                   |              |   |                   |  |              |        |  |   |        | 
|                                         |  | $              | 51,028            |              | $ | 29,383            |  | $            | 72,542 |  | $ | 17,139 | 
|                                         |  |                |                   |              |   |                   |  |              |        |  |   |        | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | At December
  31, 2007, the Company held $37,325 in auction rate securities.  The contractual maturities of the
  investments underlying the auction rate securities mature at various dates
  through 2046, however, all the Company's auction rate securities, or ARSs, have a reset
  period of less than 30 days.  Through
  March 7, 2008, the Company had reduced its total holdings in ARSs to $16,300,
  principally by investing in other short-term investments as individual ARS
  reset periods came due and the securities were once again subject to the
  auction process.  Through March 7,
  2008, auctions for $8,800 of these securities were not successful, resulting
  in the Company continuing to hold these securities and the issuers paying interest at
  the maximum contractual rate.  Based
  on current market conditions, it is likely that auctions related to more of
  these securities will be unsuccessful in the near term.  Unsuccessful auctions could result in the Company
  holding securities beyond their next scheduled auction reset dates if a
  secondary market does not develop, therefore limiting the short-term
  liquidity of these investments.  Accordingly,
  $16,300 of auction rate securities are classified as long term as of December
  31, 2007.  While these failures in the
  auction process have affected the Companys ability to access these funds in
  the near term, the Company does not believe that the underlying securities or
  collateral have been affected.  The
  Company believes that the higher reset rates on failed auctions provide
  sufficient incentive for the security issuers to address this lack of
  liquidity.  If the credit rating of
  the security issuers deteriorates, the Company may be required to adjust the
  carrying value of these investments through an impairment charge.  The Company expects to continue to earn
  interest at the prevailing rates on the ASRs that we hold.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|[6] | Inventories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Inventories,
  which consist of finished goods on hand and in transit, are stated at the
  lower of cost (first-in, first-out method) or market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|[7] | Property and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Property and
  equipment are stated at cost less accumulated depreciation and
  amortization.  Depreciation is
  computed utilizing the straight-line method based on estimated useful lives
  ranging from three to ten years.
  Leasehold improvements are amortized utilizing the straight-line
  method over the shorter of their estimated useful lives or the remaining
  lease term.  Depreciation and
  amortization include amounts relating to property and equipment under capital
  leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-9

---



|                                                
|------------------------------------------------
|STEVEN MADDEN, LTD. AND SUBSIDIARIES            
|                                                
|Notes to Financial Statements                   
|December 31, 2007 and 2006                      
|($ in thousands except share and per share data)

|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTEA  SUMMARY OFSIGNIFICANTACCOUNTINGPOLICIES (CONTINUED)
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                            | Impairment
  losses are recognized for long-lived assets, including certain intangibles,
  used in operations when indicators of impairment are present and the
  undiscounted cash flows estimated to be generated by those assets are not
  sufficient to recover the assets carrying amount.  Impairment losses are measured by comparing the fair value of
  the assets to their carrying amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|[8]                                                         | Goodwill:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                            | The Company
  accounts for goodwill and intangible assets in accordance with SFAS No. 142,
  Goodwill and Other Intangible Assets (SFAS 142).  Under SFAS 142, amortization of goodwill
  and indefinite lived intangible assets are not amortized, rather they are
  tested for impairment on an annual basis or more often if events or
  circumstances change that could cause these assets to become impaired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                            | During 2005,
  the balance of the goodwill of $519 relating to the Shoe Biz name was
  considered impaired and was recognized as a reduction of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                            | The Company
  completed its annual impairment test on the goodwill relating to the Daniel
  M. Friedman acquisition in the third quarter of 2007.  No impairment was recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|[9]                                                         | Net income per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                            | Basic income
  per share is based on the weighted average number of shares of common stock
  outstanding during the year.  Diluted
  income per share reflects: a) the potential dilution assuming shares of
  common stock were issued upon the exercise of outstanding in-the-money
  options and the proceeds thereof were used to purchase treasury stock at the
  average market price during the period, and b) the vesting of granted
  nonvested restricted stock awards for which the assumed proceeds upon grant
  are deemed to be the amount of compensation cost attributable to future
  services and are not yet recognized using the treasury stock method, to the
  extent dilutive.  For the years ended
  December 31, 2007, 2006 and 2005, no options exercisable into shares of
  common stock have been excluded in the calculation of diluted income per
  share. For the years ended December 31, 2007, 2006 and 2005, the unvested
  restricted stock awards were dilutive.
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|[10]                                                        | Advertising costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                            | The Company
  expenses costs of print, radio and billboard advertisements as of the first
  date the advertisements take place.
  Advertising expense included in operating expenses amounted to
  approximately $4,831 in 2007, $7,187 in 2006 and $8,354 in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|[11]                                                        | Fair value of financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                            | The carrying
  value of the Companys financial instruments approximates fair value due to
  their short-term nature or their underlying terms.  Marketable securities are carried at quoted market prices which
  represent fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-10

---



|                                                
|------------------------------------------------
|STEVEN MADDEN, LTD. AND SUBSIDIARIES            
|                                                
|Notes to Financial Statements                   
|December 31, 2007 and 2006                      
|($ in thousands except share and per share data)

|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTEA  SUMMARY OFSIGNIFICANTACCOUNTINGPOLICIES (CONTINUED)
|                                                           
|[12]                                                        | Revenue recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                           
|                                                            | The Company
  recognizes revenue on wholesale sales when products are shipped pursuant to
  its standard terms which are freight on board (FOB) warehouse or when
  products are delivered to the consolidators as per the terms of the
  customers purchase order.  Sales
  reductions for anticipated discounts, allowances and other deductions are
  recognized when sales are recorded.
  Customers retain the right to replacement of the product  for
  poor  quality  or
  improper or short shipments, which have historically been
  immaterial.  Retail sales are
  recognized when the payment is received from customers and are recorded net
  of returns.  The Company also
  generates commission income acting as a buying agent by arranging to
  manufacture private label shoes to the specifications of its clients.  The Companys revenue includes partial
  recovery of its design, product and development costs for the services
  provided to certain suppliers in connection with the Companys private label
  business.  Commission revenue and
  product and development cost recoveries are recognized as earned when title
  of the product transfers from the manufacturer to the customer and is
  reported on a net basis after deducting operating expenses.
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                            | The Company
  licenses its trademarks for use in connection with the manufacturing,
  marketing and sale of cold weather accessories, sunglasses, eyewear,
  outerwear, hosiery and childrens apparel. The license agreements require the
  licensee to pay the Company a royalty and, in substantially all of the
  agreements, an advertising fee based on the higher of a minimum or a net
  sales percentage as defined in the various agreements.  In addition, under the terms of retail
  selling agreements, most of the Companys international distributors are
  required to pay the Company a royalty based on a percentage of net sales, in
  addition to a commission on the purchases of the Companys products.  Licensing revenue is recognized on the
  basis of net sales reported by the licensees and international
  distributors, or the minimum guaranteed royalties, if higher.  In substantially all of the Companys
  license agreements, the minimum guaranteed royalty is earned and payable on a
  quarterly basis.                                                                                                                                                                                                                                               
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|[13]                                                        | Taxes collected from customers:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                            | In June of
  2006, the FASB issued Emerging Issues Task Force 06-03, How Taxes Collected
  from Customers and Remitted to Governmental Authorities Should Be Presented
  in the Income Statement (EITF 06-03).
  The consensus reached in EITF 06-03 allows companies to adopt a policy
  of presenting taxes in the income statement on either a gross basis (included
  in revenues and costs) or net basis (excluded from revenues).  Taxes within the scope of EITF 06-03 would
  include taxes that are imposed on a revenue transaction between a seller and
  a customer, for example, sales taxes, use taxes, value-added taxes and some
  types of excise taxes.  The Company
  records taxes within the scope of EITF 06-03 on a net basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|[14]                                                        | Sales deductions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                            | The Company
  supports retailers initiatives to maximize sales of the Companys products
  on the retail floor by subsidizing the co-op advertising programs of such
  retailers, providing them with inventory markdown allowances and
  participating in various other marketing initiatives of its major
  customers.  Such expenses are
  reflected in the financial statements as deductions to net sales.  For the years ended December 31, 2007,
  2006 and 2005 the total deductions to net sales for these expenses were
  $43,691, $35,267 and $36,356, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|[15]                                                        | Cost of sales:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                            | All costs
  incurred to bring finished products to the Companys distribution center and,
  in the Retail Division, the costs to bring products to the Companys stores,
  are included in the cost of sales line on the Consolidated Statement of
  Income.  These include the cost of
  finished products, purchase commissions, letter of credit fees, brokerage
  fees, sample expenses, custom duty, inbound freight, royalty payments on
  licensed products, labels and product packaging.  All warehouse and distribution costs related to the Wholesale
  Division and freight to customers, if any, are included in the operating
  expenses line item of the Companys Consolidated Statement of Income.  The Companys gross margins may not be
  comparable to other companies in the industry because some companies may
  include warehouse and distribution costs as a component of cost of sales,
  while other companies report on the same basis as the Company and include
  them in operating expenses.                                                                                                                                                                                                                                                                      

F-11

---



|                                                
|------------------------------------------------
|STEVEN MADDEN, LTD. AND SUBSIDIARIES            
|                                                
|Notes to Financial Statements                   
|December 31, 2007 and 2006                      
|($ in thousands except share and per share data)

|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|[16]                                                            | Warehouse and shipping costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                | The Company
  includes all warehouse and distribution costs for the Wholesale Division in
  the Operating Expenses line on the Consolidated Statements of Income.  For the years ended December 31, 2007,
  2006 and 2005, the total warehouse and distribution costs included in
  Operating Expenses were $8,957, $8,901 and $6,229 respectively.  The Companys standard terms of sales are
  FOB Steve Madden warehouse and thus the Companys wholesale customers
  absorb most shipping costs.  Shipping
  costs to wholesale customers incurred by the Company are not considered
  significant and are included in the Operating Expense line in the
  Consolidated Statements of Income.                                                             
|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|[17]                                                            | Impairment of long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                | The Company
  reviews long-lived assets, including amortizable intangible assets, for
  impairment whenever events or changes in business circumstances indicate that
  the carrying amount of the asset may not be fully recoverable.  If facts and circumstances indicate that
  the Companys long-lived assets might be impaired, the estimated future
  undiscounted cash flows associated with the long-lived asset would be
  compared to its carrying amounts to determine if a write-down to fair value
  is necessary.  If a write-down is
  required, the amount is determined by estimation of the present value of net
  discounted cash flows in accordance with SFAS No. 144, Accounting for the
  Impairment or Disposal of Long-Lived Assets.
|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|[18]                                                            | 401(k) Plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                | The Company
  maintains a tax-qualified 401(k) plan which is available to each of the
  Companys eligible employees who elect to participate after meeting certain
  length-of-service requirements.  The
  Company makes discretionary matching contributions of 25% in 2006 and 2005,
  and 50% in 2007, of employees contributions up to a maximum of 6% of
  employees compensation which vest to the employees over a period of
  time.  Total matching contributions to
  the plan for 2007, 2006 and 2005 were approximately $513, $180 and $176,
  respectively.                                                                                                                                                                                     
|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|[19]                                                            | Prior years reclassifications:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                | Royalty payments.  The Company has reclassified royalty payments on its
  Consolidated Statements of Income from operating expenses to cost of
  sales.  This reclassification resulted
  in an increase in the wholesale cost of sales for the year ended December 31,
  2005 of $3,345, with a corresponding decrease to operating expenses in the
  same periods.  This reclassification had
  no impact on the net income of the Company.                                                                                                                                                                                                                                                                                                                   
|                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                | Balance Sheet reclassifications. Certain
  prior period amounts on the balance sheet have been reclassified to conform
  to the current period presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-12

---



|                                                           
|-----------------------------------------------------------
|STEVEN MADDEN, LTD. AND SUBSIDIARIES                       
|                                                           
|Notes to Financial Statements December 31, 2007 and 2006   
|($ in thousands except share and per share data)           
|                                                           
|NOTEA  SUMMARY OFSIGNIFICANTACCOUNTINGPOLICIES (CONTINUED)

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[20] | Recently issued accounting standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | In September
  2006, the FASB issued Statement of Financial Accounting Standards No. 157,
  Fair Value Measurements (SFAS No. 157).
  SFAS No. 157 clarifies the principle that fair value should be based
  on the assumptions market participants would use when pricing an asset or liability
  and establishes a fair value hierarchy that prioritizes the information used
  to develop those assumptions.  On
  December 14, 2007, the FASB issued proposed FASB Staff Position No. FAS
  157-b, Effective Date of FASB Statement No. 157 (the proposed FSP). The
  proposed FSP  would amend  FASB Statement               No.  157,
  Fair Value  Measurements
  (Statement 157), to delay the effective date of Statement 157 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 (that is, at least annually). The proposed FSP defers the
  effective date of Statement 157 to fiscal years beginning after November 15,
  2008, and interim periods within those fiscal years for items within the
  scope of the proposed FSP.  We have
  not yet determined the impact, if any, that the implementation of SFAS No.
  157 will have on our results of operations or financial condition.                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | In February
  2007, the FASB issued Statement of Financial Accounting Standards No. 159,
  The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
  No. 159).  SFAS No. 159 permits
  entities to choose to measure many financial instruments and certain other
  items at fair value that are not currently required to be measured at fair
  value.  SFAS No. 159 also establishes
  presentation and disclosure requirements designed to facilitate comparisons
  between entities that chose different measurement attributes for similar
  assets and liabilities.  SFAS No. 159
  is effective for financial statements issued for fiscal years beginning after
  November 15, 2007.  We have not yet
  determined the impact, if any, that the implementation of SFAS No. 159 will
  have on our results of operations or financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | In December
  of 2007, the FASB issued Statement of Financial Accounting Standards No.
  141R, Business Combinations (SFAS No. 141R), which replaces FASB
  Statement No. 141.  Under SFAS No.
  141R, an acquiring entity will be required to recognize all the assets
  acquired and liabilities assumed in a transaction at the acquisition-date
  fair value with limited exceptions. SFAS No. 141R establishes principles and
  requirements for how an acquirer recognizes and measures in its financial
  statements the identifiable assets acquired, the liabilities assumed, any
  non-controlling interest in the acquiree and the goodwill acquired.  This statement also establishes disclosure
  requirements which will enable users to evaluate the nature and financial
  effects of the business combination.
  SFAS No. 141R is effective for financial statements issued for fiscal
  years beginning after December 15, 2008.
  Early adoption is prohibited.
  We have not yet determined the impact, if any, that the implementation
  of SFAS No. 141R will have on our results of operations or financial
  condition.                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | In December
  2007, the FASB issued Statement of Financial Accounting Standards No. 160,
  Noncontrolling Interests in Consolidated Financial Statements  An Amendment
  of ARB No. 51 (SFAS No. 160).  SFAS
  No. 160 establishes new accounting and reporting standards for the
  noncontrolling interest in a subsidiary and for the deconsolidation of a
  subsidiary.  Specifically, this
  statement requires the recognition of a noncontrolling interest (minority
  interest) as equity in the Consolidated Financial Statements and separate
  from the parents equity.  The amount
  of net income attributable to the noncontrolling interest will be included in
  consolidated net income on the face of the income statement.  SFAS No. 160 clarifies that changes in a
  parents ownership interest in a subsidiary that do not result in
  deconsolidation are equity transactions if the parent retains its controlling
  financial interest.  In addition, this
  statement requires that a parent recognize a gain or loss in net income when
  a subsidiary is deconsolidated.  Such
  gain or loss will be measured using the fair value of the noncontrolling
  equity investment on the deconsolidation date.  SFAS No. 160 also includes expanded disclosure requirements
  regarding the interests of the parent and its noncontrolling interest.  SFAS No. 160 is effective for fiscal years
  beginning on or after December 15, 2008.
  Earlier adoption is prohibited.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|NOTEB  ACQUISITIONS                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|Compo Enhancements                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|On May 16,
  2007, the Company acquired all of the outstanding membership interests of
  privately held Compo Enhancements, LLC (Compo), a Connecticut Limited
  Liability Company.  Compo was founded
  in late 2005 as a third party provider of e-commerce solutions for the
  Company.  The acquisition enables the
  Company to fully integrate its e-commerce business into the Companys Retail
  Division and operate its online business internally. | 

F-13

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE B  ACQUISITIONS (CONTINUED)

The acquisition, which
was accounted for using the purchase method of accounting as required by SFAS
Statement No. 141, Business Combinations,
was completed for a consideration of $8,982, inclusive of transaction
costs, subject to adjustments which include certain earn-out provisions based
on the Companys financial performance through 2012. In December of 2007, Jeffrey Silverman, the founder and CEO of
Compo, reached an agreement with the Company to surrender his rights under the
earn-out agreement in exchange for a cash payment which, combined with other
purchase adjustments, increased the total consideration to $9,679. The
total purchase price has been allocated as follows:

|                       |  |   |       |  
|---------------------- |  | - | ----- | -
|Current assets         |  | $ | 50    |  
|Property and equipment |  |   | 143   |  
|Intangible assets      |  |   | 4,744 |  
|Goodwill               |  |   | 5,501 |  
|Liabilities assumed    |  |   | (759  | )
|                       |  |   |       |  
|                      
|Net assets acquired    |  | $ | 9,679 |  
|                       |  |   |       |  

The results of operations of
Compo have been included in the Companys Condensed Consolidated Statements of
Income from the date of the acquisition.
Unaudited pro forma information related to this acquisition is not
included, as the impact of this transaction is not material to the Companys
consolidated results.  In connection
with the acquisition, Mr. Silverman has been appointed President of the
Company.  Mr. Silvermans contract,
which was to expire on December 31, 2009, provides for an annual salary of $600
and an annual bonus based on EBIT.  In
addition, Mr. Silverman was granted 150,000 stock options with an exercise
price of $45 and an additional 150,000 stock options with an exercise price of
$50, all of which were to vest over three years.  In December of 2007, an amendment to Mr. Silvermans contract
shortened the expiration date to June 30, 2008, eliminated the bonus provision
of the contract and cancelled all of the stock options.

Daniel
M. Friedman

On February 7, 2006, the Company
acquired all of the equity interest of privately held Daniel M. Friedman and
Associates, Inc. and D.M.F. International (collectively, Daniel M.
Friedman).  Founded in 1995, Daniel M.
Friedman designs, sources and markets name brand fashion handbags and
accessories.  The acquisition was
completed for consideration of $18,710, including transaction costs.  In addition, the purchase agreement includes
certain earn-out provisions based on financial performance through 2010.  On April 10, 2007, an amendment to
the agreement shortened the earn-out period by one year through December 31,
2008 and advanced the earn-out payments from 2008 to 2007.  The 2007 earn-out provision of $3,956 was
charged to goodwill and increased the total acquisition cost to $22,666.

F-14

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE B  ACQUISITIONS (CONTINUED)

The Daniel M. Friedman acquisition was accounted for
using the purchase method of accounting as required by SFAS Statement No. 141,
Business Combinations.  Accordingly,
the assets and liabilities of Daniel M. Friedman were adjusted to their fair
values, and the excess of the purchase price over the fair value of the assets
acquired, including identified intangible assets, was recorded as
goodwill.  The fair values assigned to
tangible and intangible assets acquired and liabilities assumed are based on
managements estimates and assumptions, as well as third-party independent
valuations.  The total purchase price
has been allocated as follows:

|                       |  |   |        |  
|---------------------- |  | - | ------ | -
|Current assets         |  | $ | 9,772  |  
|Property and equipment |  |   | 289    |  
|Deposits               |  |   | 62     |  
|Intangible assets      |  |   | 8,400  |  
|Goodwill               |  |   | 8,874  |  
|Liabilities assumed    |  |   | (4,731 | )
|                       |  |   |        |  
|                      
|Net assets acquired    |  | $ | 22,666 |  
|                       |  |   |        |  

The purchase price and related allocation may be
revised as a result of adjustments made to the purchase price pursuant to the
earn-out provisions.

Pursuant to the acquisition, the Company has a note
receivable from the former owner and namesake of Daniel M. Friedman in the
amount of $1,250.  The note, which has
an interest rate of 5%, is due and payable on the same day that the final
earn-out payment is due.  The note
allows the maker to offset the principal and interest due on the note against
any earn-out monies that might be due to him.
The note is included in the Deposits and other category on the
Companys Consolidated Balance Sheets.

The results of operations for Daniel M. Friedman have
been included in the Companys Consolidated Statements of Income from the date
of the acquisition.  The following
unaudited pro forma information presents the results of the Companys
operations as though the Daniel M. Friedman acquisition had occurred on January
1, 2004.  The pro forma information, as
presented below, is not indicative of the results that would have been obtained
had the transaction occurred on January 1, 2004, nor is it indicative of the
Companys future results.

|                           |  |                                          |         |      |   |         | 
|-------------------------- |  | ---------------------------------------- | ------- | ---- | - | ------- | 
|                           |  | Years
  Ended December 31,
  (unaudited) |        
|                           |  |                                          |        
|                           |  | 2006                                     |         | 2005 |  
|                           |  |                                          |         |      |  
|                           |  |                                          |         |      |   |         | 
|Net sales                  |  | $                                        | 479,195 |      | $ | 417,299 | 
|Operating income           |  | $                                        | 78,993  |      | $ | 31,216  | 
|Net income                 |  | $                                        | 46,631  |      | $ | 18,988  | 
|Basic earnings per share   |  | $                                        | 2.23    |      | $ | 0.94    | 
|Diluted earnings per share |  | $                                        | 2.11    |      | $ | 0.91    | 

NOTE C  DUE FROM FACTORS

Under the terms of its
factoring agreement with GMAC
Commercial Finance LLC (GMAC), as amended, the Company may request
advances from the factor of up to 80% of aggregate receivables purchased by the
factor at an interest rate equal to the lower of the prime rate less 0.875% or
the 30-day London Interbank Offered Rate (LIBOR) plus 1.375%.  The agreement, which has no specific
expiration date and can be terminated by either party with sixty (60) days written
notice after June 30, 2009, provides the Company with a $50 million credit
facility with a $25 million sub-limit on the aggregate face amount of Letters
of Credit.  The Company also pays a fee
that varies depending on the customer of between 0.15% and 0.25% of the gross
invoice amount of each receivable purchased.
The Company sells and assigns a substantial portion of its receivables,
principally without recourse, to the factor.
As of December 31, 2007 and 2006, $272 and $260 of factored
receivables, respectively, were sold by the Company with recourse.  GMAC
maintains a lien on all of the Companys receivables and assumes the credit
risk for all assigned accounts approved by them with certain restrictions.

F-15

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE C  DUE FROM FACTORS (CONTINUED)

The Companys Daniel M.
Friedman Division had a factoring agreement with Wells Fargo Century that
expired on June 30, 2007.  Under
the terms of the agreement, the Company was eligible to draw down 85% of its
invoiced receivables at an interest rate equal to the prime rate.  The
Company paid a fee equal to 0.45% of the gross invoice amount of each
receivable purchased.  Wells Fargo Century maintained a lien on all of
Daniel M. Friedmans receivables and assumed the credit risk for all assigned
accounts approved by them with certain restrictions.  As of July 1, 2007, Daniel M. Friedman has
been incorporated into the GMAC agreement.

A factored sale (whether with or without
recourse) is substantially the same as a non-factored sale and the Company
accounts for its factored sales/receivables in the same manner as its
non-factored sales/receivables.  The
factor services the collection of the Companys accounts receivable.  Funds collected by the factor are applied
against advances owed to the factor (if any), and the balance is due and
payable to the Company, net of any fees.
The allowance against due from factor is a projected provision based
on certain formulas and prior approvals for markdowns, allowances, discounts,
advertising and other deductions that customers may deduct against their
payments.

NOTE D  NOTE RECEIVABLE  RELATED PARTY

On June 25, 2007, the
Company made a loan to Steve Madden, its Creative and Design Chief and a
principal shareholder of the Company, in the amount of $3,000, in order for Mr.
Madden to exercise options that were due to expire and hold the underlying
Company stock.  Mr. Madden executed a
secured promissory note in favor of the Company that bears interest at an
annual rate of 8% and is due on the earlier of the date Mr. Madden ceases to be
employed by the Company or December 31, 2007.
An amendment to the note dated December 19, 2007 extended the due date
to March 31, 2009.   As of December 31,
2007, $126 of interest has accrued on the note and has been reflected on the
Companys Consolidated Financial Statements.
Pursuant to a pledge agreement between the Company and Mr. Madden, the
note is secured by 510,000 shares of the Companys common stock.

NOTE E  PROPERTY AND EQUIPMENT

The
major classes of assets and total accumulated depreciation and amortization are
as follows:

|                                                 |  |                |         |      |   |         |  
|------------------------------------------------ |  | -------------- | ------- | ---- | - | ------- | -
|                                                 |  | December
  31, |        
|                                                 |  |                |        
|                                                 |  | 2007           |         | 2006 |  
|                                                 |  |                |         |      |  
|                                                 |  |                |         |      |   |         |  
|Leasehold improvements                           |  | $              | 37,421  |      | $ | 31,790  |  
|Machinery and
  equipment                        |  |                | 3,620   |      |   | 1,119   |  
|Furniture and
  fixtures                         |  |                | 4,595   |      |   | 4,563   |  
|Computer
  equipment                             |  |                | 11,578  |      |   | 9,238   |  
|                                                 |  |                |         |      |   |         |  
|                                                 |  |                |         |      |   |         |  
|                                                 |  |                | 57,214  |      |   | 46,710  |  
|Less accumulated
  depreciation and amortization |  |                | (28,561 | )    |   | (23,868 | )
|                                                 |  |                |         |      |   |         |  
|                                                 |  |                |         |      |   |         |  
|Property and
  equipment - net                   |  | $              | 28,653  |      | $ | 22,842  |  
|                                                 |  |                |         |      |   |         |  

F-16

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE F  GOODWILL AND INTANGIBLE
ASSETS

The following is a summary of
the carrying amount of goodwill by segment for the year ended December 31,
2007:

|                                  |  |           |       |             |   |              |  |        |       |  |   |        | 
|--------------------------------- |  | --------- | ----- | ----------- | - | ------------ |  | ------ | ----- |  | - | ------ | 
|                                  |  | Wholesale |       |             |  
|                                  |  |           |       |             |   | Net Carrying | 
|                                  |  | Womens   |       | Accessories |   | Retail       |  | Amount |      
|                                  |  |           |       |             |   |              |  |        |      
|                                  |  |           |       |             |   |              |  |        |      
|Balance at
  January 1, 2007      |  | $         | 1,547 |             | $ | 4,918        |  | $      | 0     |  | $ | 6,465  | 
|Acquisition of
  Compo            |  |           | 0     |             |   | 0            |  |        | 5,501 |  |   | 5,501  | 
|Additional
  purchase price - DMF |  |           | 0     |             |   | 3,956        |  |        | 0     |  |   | 3,956  | 
|                                  |  |           |       |             |   |              |  |        |       |  |   |        | 
|                                 
|Balance at December 31, 2007      |  | $         | 1,547 |             | $ | 8,874        |  | $      | 5,501 |  | $ | 15,922 | 
|                                  |  |           |       |             |   |              |  |        |       |  |   |        | 

The following table details identifiable intangible
assets as of December 31, 2007:

|                        |  |                 |           |            |   |                            |  |                     |       |  |   |        | 
|----------------------- |  | --------------- | --------- | ---------- | - | -------------------------- |  | ------------------- | ----- |  | - | ------ | 
|                        |  | Estimated lives |           | Cost basis |   | Accumulated
  Amortization |  | Net Carrying Amount |      
|                        |  |                 |           |            |   |                            |  |                     |       |  |   |        | 
|                       
|Trade name              |  |                 | 6 years   |            | $ | 200                        |  | $                   | 65    |  | $ | 135    | 
|Customer relationships  |  |                 | 10 years  |            |   | 6,400                      |  |                     | 740   |  |   | 5,660  | 
|License
  agreements    |  |                 | 3-6 years |            |   | 5,600                      |  |                     | 2,059 |  |   | 3,541  | 
|Non-compete
  agreement |  |                 | 5 years   |            |   | 930                        |  |                     | 129   |  |   | 801    | 
|Other                   |  |                 | 3 years   |            |   | 14                         |  |                     | 3     |  |   | 11     | 
|                        |  |                 |           |            |   |                            |  |                     |       |  |   |        | 
|                       
|                        |  |                 |           |            | $ | 13,144                     |  | $                   | 2,996 |  | $ | 10,148 | 
|                        |  |                 |           |            |   |                            |  |                     |       |  |   |        | 

The amortization of intangible
assets is included in operating expenses on the Companys Consolidated
Statements of Income.  The estimated
future amortization expense of purchased intangibles as of December 31, 2007 is
as follows:

|           |  |   |        | 
|---------- |  | - | ------ | 
|2008       |  | $ | 1,962  | 
|2009       |  |   | 1,859  | 
|2010       |  |   | 1,856  | 
|2011       |  |   | 1,380  | 
|2012       |  |   | 642    | 
|Thereafter |  |   | 2,449  | 
|           |  |   |        | 
|           |  |   |        | 
|           |  | $ | 10,148 | 
|           |  |   |        | 

F-17

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE G  STOCK-BASED COMPENSATION

In March 2006, the Board of Directors approved the
Steven Madden, Ltd. Stock Incentive Plan (the Plan) under which nonqualified
stock options, stock appreciation rights, performance shares, restricted stock,
other stock-based awards and performance-based cash awards may be granted to
employees, consultants and non-employee directors.  The shareholders approved the Plan on May 26, 2006.  The number of shares that
may be issued or
used under the Plan cannot exceed 1,200,000 shares.  On May 25, 2007, the stockholders approved an amendment to the
Plan to increase the maximum number of shares that may be issued under the Plan
to 1,550,000.  The following table
summarizes the number of Common Stock shares authorized for use in the Plan,
the amount of stock-based awards issued (net of expired or cancelled) and the
amount of Common Stock available for the grant of stock-based awards under the
Plan:

|                                                                                                      |  |  |           | 
|----------------------------------------------------------------------------------------------------- |  |  | --------- | 
|Common Stock
  authorized                                                                             |  |  | 1,550,000 | 
|                                                                                                      |  |  |           | 
|Stock based awards, including restricted stock and stock options, granted net of expired or cancelled |  |  | 623,000   | 
|                                                                                                      |  |  |           | 
|                                                                                                      |  |  |           | 
|Common Stock
  available for grant of stock based awards as of December 31, 2007                      |  |  | 927,000   | 
|                                                                                                      |  |  |           | 

The Company has established various stock option plans
entitled The 1993 Incentive Stock Option Plan, The 1995 Stock Plan, The
1996 Stock Plan, The 1997 Stock Plan and The 1999 Stock Plan under which
options to purchase shares of common stock may be granted to employees, directors,
officers, agents, consultants and independent contractors.  The plans provide that the option price
shall not be less than the fair market value of the common stock on the date of
grant and that no portion of the option may be exercised beyond ten years from
that date.   No incentive stock option
can be granted and exercised beyond five years to a stockholder owning 10% or
more of the Companys outstanding common stock.  Options granted under the plans during the three years ended
December 31, 2007 vest between four months and three years from the date
of grant.  The 1993 Incentive Stock
Option Plan, The 1995 Stock Plan, The 1996 Stock plan and The 1997 Stock Plan
expired in 2003, 2005, 2006 and 2007, respectively.

The following table summarizes the amount of options
authorized, the amount of options granted (net of expired or cancelled options)
and the amount of options available for grant for The 1999 Stock Plan:

|                                              |  |  |           | 
|--------------------------------------------- |  |  | --------- | 
|Options
  authorized                          |  |  | 4,830,000 | 
|                                              |  |  |           | 
|Options granted
  net of expired or cancelled |  |  | 4,828,500 | 
|                                              |  |  |           | 
|                                              |  |  |           | 
|Available for
  grant as of December 31, 2007 |  |  | 1,500     | 
|                                              |  |  |           | 

F-18

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE G  STOCK-BASED COMPENSATION (CONTINUED)

Effective January 1, 2006,
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 123R, Accounting for Stock-Based Compensation (SFAS No.
123R), which requires stock-based compensation to be measured based on the
fair value of the awards on the grant date.
The Company elected the modified prospective method of transition as
permitted by SFAS No. 123R.  Under this
transition method, the Company is required to record compensation expense for
all awards granted after the date of adoption and for the unvested portion of
previously granted awards that were outstanding at the date of adoption, and
accordingly, periods prior to adoption are not restated.  Equity-based compensation is included in
operating expenses on the Companys Consolidated Statements of Income.  For the years ended December 31, 2007, 2006
and 2005, total equity-based compensation was as follows:

|                   |  |                          |       |      |   |       |  |   |     | 
|------------------ |  | ------------------------ | ----- | ---- | - | ----- |  | - | --- | 
|                   |  | Years Ended December 31, |      
|                   |  |                          |      
|                   |  | 2007                     |       | 2006 |   | 2005  | 
|                   |  |                          |       |      |   |       | 
|Stock
  options    |  | $                        | 5     |      | $ | 120   |  | $ | 703 | 
|Restricted
  stock |  |                          | 4,429 |      |   | 2,174 |  |   |    | 
|                   |  |                          |       |      |   |       |  |   |     | 
|Total              |  | $                        | 4,434 |      | $ | 2,294 |  | $ | 703 | 
|                   |  |                          |       |      |   |       |  |   |     | 

SFAS
No. 123R requires the Company to apply an estimated forfeiture rate in
calculating the period expense (and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates), as opposed to
recognizing forfeitures as an expense reduction as they occur, which was the
method used by the Company prior to adoption. The adjustment to apply estimated
forfeitures to previously recognized stock-based compensation was considered
immaterial and, as such, was not classified as a cumulative effect of a change
in accounting principle.

Prior to the adoption of
SFAS No. 123R, the Company presented cash flows resulting from the tax benefits
of deductions from the exercise of stock options as operating cash flows in the
Statements of Cash Flows.  SFAS No. 123R
requires cash flows resulting from the tax benefits from tax deductions in
excess of the compensation costs recognized for those options (tax benefits) to
be classified as financing cash flows.
For the years ended December 31, 2007, 2006 and 2005, the Company
realized a tax benefit from the exercise of stock options of $7,180,  $3,611 and $4,604, respectively.

F-19

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE G  STOCK-BASED COMPENSATION (CONTINUED)

Prior to adopting SFAS No.
123R, the Companys equity-based compensation expense was accounted for under
the provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees, as permitted by SFAS No. 123.
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provision of
SFAS No. 123R to equity-based employee compensation for the year ended December
31, 2005:

|                                                                                               |  |      |        |  
|---------------------------------------------------------------------------------------------- |  | ---- | ------ | -
|                                                                                               |  | 2005 |       
|                                                                                               |  |      |       
|                                                                                               |  |      |       
|Reported net
  income                                                                          |  | $    | 19,200 |  
|Stock-based
  employee compensation included in reported net income, net of tax                |  |      | 407    |  
|Stock-based
  employee compensation determined under the fair value based method, net of
  tax |  |      | (2,246 | )
|                                                                                               |  |      |        |  
|                                                                                              
|Pro forma net
  income                                                                         |  | $    | 17,361 |  
|                                                                                               |  |      |        |  
|                                                                                               |  |      |        |  
|Basic income per
  share:                                                                      |  |      |        |  
|As reported                                                                                    |  | $    | 0.95   |  
|Pro forma                                                                                      |  | $    | 0.86   |  
|                                                                                               |  |      |        |  
|Diluted income
  per share:                                                                    |  |      |        |  
|As reported                                                                                    |  | $    | 0.92   |  
|Pro forma                                                                                      |  | $    | 0.83   |  

Stock Options

During the years ended
December 31, 2007 and 2006, there were 863,000 and 551,000 options exercised,
respectively, with a total intrinsic value of $20,825 and $10,674 for the
corresponding periods.  No options
vested during the year ended December 31, 2007 compared to 30,000 options with
a weighted average exercise price of $11.84 that vested during the prior year.  As of December 31, 2007, there were 5,000
unvested options which were granted during the year ended December 31,
2007.  As of December 31, 2007, there
was $24 of total unrecognized compensation cost related to stock options that
will be recognized during the year ended December 31, 2008.

The Company estimates the fair value of options
granted using the Black-Scholes option-pricing model, which requires several
assumptions.  The expected term of the
options represents the estimated period of time until exercise and is based on
historical experience of similar awards.
Expected volatility is based on the historical volatility of the
Companys stock.  The risk free interest
rate is based on the U.S Treasury yield curve in effect at the time of the
grant.  With the exception of a special
dividend paid in November of 2005 and in November of 2006, the Company
historically has not paid dividends and thus the expected dividend rate is
assumed to be zero.  The weighted
average fair value of options granted in 2007 and 2005 (no options were granted
in 2006) was approximately $5.02 and $4.07, respectively, using the
Black-Scholes option-pricing model with the following assumptions:

|                        |  |  |                |  |  |       | 
|----------------------- |  |  | -------------- |  |  | ----- | 
|                        |  |  | 2007           |  |  | 2005  | 
|                        |  |  |                |  |  |       | 
|Volatility              |  |  | 37% to 40%     |  |  | 43%   | 
|Risk free interest rate |  |  | 4.29% to 4.73% |  |  | 3.86% | 
|Expected life in years  |  |  | 3              |  |  | 3     | 
|Dividend yield          |  |  | 0              |  |  | 0     | 

F-20

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE G  STOCK-BASED COMPENSATION (CONTINUED)

Activity relating to stock options granted under the
Companys plans and outside the plans during the three years ended
December 31, 2007 is as follows:

|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 
|---------------------------------- |  | ---------------- | ---------- | ------------------------------- | - | --------------------------------------------- |  | ------------------------- | --- |  | - | ----- | 
|                                   |  | Number of Shares |            | Weighted Average Exercise Price |   | Weighted Average Remaining
  Contractual Term |  | Aggregate Intrinsic Value |    
|                                   |  |                  |            |                                 |   |                                               |  |                           |    
|                                   |  |                  |            |                                 |   |                                               |  |                           |    
|Outstanding at
  January 1, 2005   |  |                  | 3,770,000  |                                 | $ | 8.47                                          |  |                           |     |  |   |       | 
|Granted                            |  |                  | 478,000    |                                 |   | 11.93                                         |  |                           |     |  |   |       | 
|Exercised                          |  |                  | (2,133,000 | )                               |   | 7.73                                          |  |                           |     |  |   |       | 
|Cancelled/Forfeited                |  |                  | (165,000   | )                               |   | 12.55                                         |  |                           |     |  |   |       | 
|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 
|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 
|Outstanding at
  December 31, 2005 |  |                  | 1,950,000  |                                 | $ | 9.79                                          |  |                           |     |  |   |       | 
|Granted                            |  |                  |           |                                 |   |                                              |  |                           |     |  |   |       | 
|Exercised                          |  |                  | (551,000   | )                               |   | 12.41                                         |  |                           |     |  |   |       | 
|Cancelled/Forfeited                |  |                  | (3,000     | )                               |   | 8.00                                          |  |                           |     |  |   |       | 
|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 
|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 
|Outstanding at
  December 31, 2006 |  |                  | 1,396,000  |                                 | $ | 8.75                                          |  |                           |     |  |   |       | 
|Granted                            |  |                  | 305,000    |                                 |   | 47.01                                         |  |                           |     |  |   |       | 
|Exercised                          |  |                  | (863,000   | )                               |   | 6.50                                          |  |                           |     |  |   |       | 
|Cancelled/Forfeited                |  |                  | (300,000   | )                               |   | 47.50                                         |  |                           |     |  |   |       | 
|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 
|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 
|Outstanding at
  December 31, 2007 |  |                  | 538,000    |                                 | $ | 12.45                                         |  |                           | 6.1 |  | $ | 4,005 | 
|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 
|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 
|Exercisable at
  December 31, 2007 |  |                  | 533,000    |                                 | $ | 12.40                                         |  |                           | 6.1 |  | $ | 3,915 | 
|                                   |  |                  |            |                                 |   |                                               |  |                           |     |  |   |       | 

The following table summarizes information about stock
options at December 31, 2007:

|                        |  |                     |         |                                                            |  |                                 |  |                    |  |                                   |  |  |  |         |  |  |  |       |  | 
|----------------------- |  | ------------------- | ------- | ---------------------------------------------------------- |  | ------------------------------- |  | ------------------ |  | --------------------------------- |  |  |  | ------- |  |  |  | ----- |  | 
|                        |  | Options Outstanding |         | Options Exercisable                                        | 
|                        |  |                     |         |                                                            | 
|Range of Exercise Price |  | Number Outstanding  |         | Weighted Average Remaining
  Contractual Life
  (in Years) |  | Weighted Average Exercise Price |  | Number Exercisable |  | Weighted Average Exercise
  Price | 
|                        |  |                     |         |                                                            |  |                                 |  |                    |  |                                   | 
|$4.67 to $6.37          |  |                     | 22,000  |                                                            |  | 3.3                             |  |                    |  | 5.68                              |  |  |  | 22,000  |  |  |  | 5.68  |  | 
|$11.61 to $12.50        |  |                     | 214,000 |                                                            |  | 7.0                             |  |                    |  | 11.99                             |  |  |  | 214,000 |  |  |  | 11.99 |  | 
|$12.65 to $13.99        |  |                     | 297,000 |                                                            |  | 5.6                             |  |                    |  | 13.20                             |  |  |  | 297,000 |  |  |  | 13.20 |  | 
|$17.68                  |  |                     | 5,000   |                                                            |  | 9.8                             |  |                    |  | 17.68                             |  |  |  |        |  |  |  |      |  | 
|                        |  |                     |         |                                                            |  |                                 |  |                    |  |                                   |  |  |  |         |  |  |  |       |  | 
|                       
|                        |  |                     | 538,000 |                                                            |  | 6.1                             |  |                    |  | 12.45                             |  |  |  | 533,000 |  |  |  | 12.40 |  | 
|                        |  |                     |         |                                                            |  |                                 |  |                    |  |                                   |  |  |  |         |  |  |  |       |  | 

F-21

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE G  STOCK-BASED COMPENSATION (CONTINUED)

Restricted Stock

The following table summarizes
restricted stock activity during the year ended December 31, 2007:

|                                   |  |                 |          |                                         |   |       | 
|---------------------------------- |  | --------------- | -------- | --------------------------------------- | - | ----- | 
|                                   |  | Number ofShares |          | Weighted Average FairValue at GrantDate |  
|                                   |  |                 |          |                                         |   |       | 
|                                  
|Outstanding at December 31,
  2006 |  |                 | 391,000  |                                         | $ | 32.07 | 
|Granted                            |  |                 | 234,000  |                                         |   | 29.71 | 
|Vested                             |  |                 | (111,000 | )                                       |   | 32.34 | 
|Forfeited                          |  |                 | (7,000   | )                                       |   | 34.05 | 
|                                   |  |                 |          |                                         |   |       | 
|                                   |  |                 |          |                                         |   |       | 
|Outstanding at December 31, 2007   |  |                 | 507,000  |                                         | $ | 30.90 | 
|                                   |  |                 |          |                                         |   |       | 

As of December 31, 2007, there
was $11,930 of total unrecognized compensation cost related to restricted stock
awards granted under the Plan.  This
cost is expected to be recognized over a weighted-average of 3 years.  During the year ended December 31, 2006,
165,000 restricted stock awards were granted to the Companys Creative and
Design Chief.  The Company determines
the fair value of its restricted stock awards based on the market price of its
common stock on the date of grant.

In July 2004, the Company and several of its salesmen
mutually agreed to replace restricted stock awards due to vest in January 2006
with cash awards to be paid on the vesting date.  No shares had been issued under the original award.  These cash rewards retained
the same
characteristics as the original restricted stock awards.  The vesting date (i.e., the payment date) of
the cash awards was the same as the vesting date of the restricted stock, and
the payment was contingent upon the recipient still being employed with the
Company on the vesting date.  The cash
awards, which totaled $183, were charged to operations through December 31,
2005.  In April and October of 2002, two
executives of the Company were granted restricted stock awards pursuant to
their employment agreements.  The awards
vested on June 30, 2005 and were contingent on the employees continuous employment
through the vesting date.  Under the
terms of the agreements, the issuance of the shares of common stock required
shareholder approval.  At the annual
meeting of stockholders held on May 27, 2005, the shareholders did not approve
the issuance of the shares.  As stated
in the Companys proxy statement, the executives were paid $1,776 equal to the
fair value of the restricted stock when first granted.

NOTE H  PREFERRED STOCK

The Company has authorized 5,000,000 shares of
preferred stock.  The Board of Directors
has designated 60,000 shares of such preferred stock as Series A Junior
Participating Preferred Stock (Series A Preferred).  Holders of the shares of Series A Preferred are entitled to
dividends equal to 1,000 times dividends declared or paid on the Companys
common stock.  Each share of Series A
preferred entitles the holder to 1,000 votes on all matters submitted to the
holders of common stock.  The Series A
Preferred has a liquidation preference of $1,000 per share, and is not
redeemable by the Company.  No preferred
shares have been issued.

F-22

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE I  RIGHTS AGREEMENT

On October 30, 2001, the
Company declared a dividend distribution of one preferred stock purchase right
(a Right) for each outstanding share of common stock.  Each Right entitles the holder to purchase
from the Company seven ten-thousandths (7/10,000) of a share of Series A
Preferred at a price of $50 per seven ten-thousandth (7/10,000) of a
share.  Initially, the Rights will not
be exercisable and will automatically trade with the common stock.  The Rights become exercisable, in general,
ten days following the announcement of a person or group acquiring beneficial
ownership of at least 15% of the outstanding voting stock of the Company.

NOTE J  OPERATING LEASES

The Company leases office, showroom and retail
facilities under noncancelable operating leases with terms expiring at various
times through 2019.  Future minimum
annual lease payments under noncancelable operating leases consist of the
following at December 31:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2008       |  | $ | 16,560  | 
|2009       |  |   | 16,668  | 
|2010       |  |   | 16,097  | 
|2011       |  |   | 15,476  | 
|2012       |  |   | 14,521  | 
|Thereafter |  |   | 46,850  | 
|           |  |   |         | 
|           |  |   |         | 
|           |  | $ | 126,172 | 
|           |  |   |         | 

A majority of the retail store leases provide for
contingent rental payments if gross sales exceed certain targets.  In addition, many of the leases contain rent
escalation clauses to compensate for increases in operating costs and real
estate taxes.

Rent expense for the years ended December 31,
2007, 2006 and 2005 was approximately $18,071, $16,419 and $15,592,
respectively.  Included in such amounts
are contingent rents of $29, $240 and $182 in 2007, 2006 and 2005, respectively.

Rent expense is calculated by amortizing total rental
payments (net of any rental abatements, construction allowances and other
rental concessions), on a straight-line basis, over the lease term.  Accordingly, rent expense charged to
operations differs from rent paid resulting in the Company recording deferred
rent.

F-23

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE K  INCOME TAXES

The components of income before income taxes is as
follows:

| |          |  |      |        |      |   |        |  |   |        | 
| | -------- |  | ---- | ------ | ---- | - | ------ |  | - | ------ | 
| |          |  | 2007 |        | 2006 |   | 2005   | 
| |          |  |      |        |      |   |        | 
| |          |  |      |        |      |   |        |  |   |        | 
| | Domestic |  | $    | 48,456 |      | $ | 77,686 |  | $ | 33,460 | 
| | Foreign  |  |      | 7,680  |      |   | 3,248  |  |   |       | 
| |          |  |      |        |      |   |        |  |   |        | 
| |          |  | $    | 56,136 |      | $ | 80,934 |  | $ | 33,460 | 
| |          |  |      |        |      |   |        |  |   |        | 

The income tax provision (benefit) consists of the
following:

|                |  |      |        |      |   |        |   |   |        |  
|--------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|                |  | 2007 |        | 2006 |   | 2005   |  
|                |  |      |        |      |   |        |  
|Current:        |  |      |        |      |   |        |   |   |        |  
|Federal         |  | $    | 21,850 |      | $ | 27,929 |   | $ | 12,690 |  
|State and local |  |      | 517    |      |   | 10,437 |   |   | 4,260  |  
|Foreign         |  |      | 1,229  |      |   | 520    |   |   |       |  
|                |  |      |        |      |   |        |   |   |        |  
|                |  |      | 23,596 |      |   | 38,886 |   |   | 16,950 |  
|                |  |      |        |      |   |        |   |   |        |  
|Deferred:       |  |      |        |      |   |        |   |   |        |  
|Federal         |  |      | (2,827 | )    |   | (3,500 | ) |   | (2,241 | )
|State and local |  |      | (323   | )    |   | (702   | ) |   | (449   | )
|                |  |      |        |      |   |        |   |   |        |  
|                |  |      | (3,150 | )    |   | (4,202 | ) |   | (2,690 | )
|                |  |      |        |      |   |        |   |   |        |  
|                |  |      |        |      |   |        |   |   |        |  
|                |  | $    | 20,446 |      | $ | 34,684 |   | $ | 14,260 |  
|                |  |      |        |      |   |        |   |   |        |  

A recent growth in the Company's New York based income, combined
with revisions in state and local tax law, prompted the Company to re-evaluate
its tax filing strategies.  As a result
of such changes, the Company has determined that electing to file each of the
New York State and New York City tax returns on a combined basis would maximize
the tax benefits to the Company.  The
election to file combined returns has reduced the Companys expected effective
tax rate to approximately 36.4% in 2007 from 42.9% in 2006.   The Company filed combined returns in 2006
and was able to amend New York State and New York City returns for 2003 through
2005 resulting in an additional one-time tax benefit recognized in 2007.

A reconciliation between taxes computed at the federal
statutory rate and the effective tax rate is as follows:

|                                                                                                    |  |              |      |      |  |      |   |  |      |  
|--------------------------------------------------------------------------------------------------- |  | ------------ | ---- | ---- |  | ---- | - |  | ---- | -
|                                                                                                    |  | December 31, |     
|                                                                                                    |  |              |     
|                                                                                                    |  | 2007         |      | 2006 |  | 2005 |  
|                                                                                                    |  |              |      |      |  |      |  
|Income taxes at
  federal statutory rate                                                            |  |              | 35.0 | %    |  | 35.0 | % |  | 35.0 | %
|State and local
  income taxes - net of federal income tax benefit                                  |  |              | 4.3  |      |  | 7.8  |   |  | 7.4  |  
|Nondeductible
  items                                                                               |  |              | 0.2  |      |  | 0.1  |   |  | 0.3  |  
|Nondeductible
  impairment charges                                                                  |  |              |     |      |  |     |   |  | 0.5  |  
|One-time benefit for filing prior years NY
State and NY City amended
  returns on a combined basis |  |              | (2.3 | )    |  |     |   |  |     |  
|Other                                                                                               |  |              | (0.8 | )    |  |     |   |  | (0.6 | )
|                                                                                                    |  |              |      |      |  |      |   |  |      |  
|                                                                                                    |  |              |      |      |  |      |  
|Effective rate                                                                                      |  |              | 36.4 | %    |  | 42.9 | % |  | 42.6 | %
|                                                                                                    |  |              |      |      |  |      |   |  |      |  

F-24

---



STEVEN
MADDEN, LTD. AND SUBSIDIARIES

Notes to
Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE K  INCOME TAXES (CONTINUED)

The Company applies the asset and liability method of
accounting for income taxes.  Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse.

Effective January 1, 2007,
the Company adopted the provisions of the Financial Accounting Standards
Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), which addresses the accounting for uncertainty in income
taxes recognized in the financial statements in accordance with FASB Statement
No. 109, Accounting for Income Taxes.
FIN 48 provides guidance on the financial statement recognition and
measurement of a tax position taken on the Companys tax return.  Pursuant to FIN 48, the Company has opted to
classify interest and penalties that would accrue according to the provisions
of relevant tax law as income tax expense on the Consolidated Statements of
Income.  The Company determines the
amount of interest expense to be recognized by applying the applicable
statutory rate of interest to the difference between the tax position
recognized in accordance with FIN 48 and the amount previously taken or
expected to be taken on a tax return.
As required by FIN 48, the Company applied the more-likely-than-not
recognition threshold to all tax positions at the adoption date, which resulted
in no required adjustment to the opening balance of retained earnings.  The adoption of FIN 48 did not have a
material impact on the Companys results of operations and earnings per
share.  The Companys tax years 2003
through 2006 remain open to examination for most taxing authorities.

The components of deferred tax assets and liabilities
are as follows:

|                                   |  |              |        |      |   |        |  
|---------------------------------- |  | ------------ | ------ | ---- | - | ------ | -
|                                   |  | December 31, |       
|                                   |  |              |       
|                                   |  | 2007         |        | 2006 |  
|                                   |  |              |        |      |  
|Current deferred
  tax assets:     |  |              |        |      |   |        |  
|Receivable
  allowances            |  | $            | 6,032  |      | $ | 5,262  |  
|Inventory                          |  |              | 1,594  |      |   | 1,434  |  
|Unrealized
  (gain) loss           |  |              | (66    | )    |   | 112    |  
|Deferred accruals                  |  |              | 1,098  |      |   | 675    |  
|Other                              |  |              | 697    |      |   | 616    |  
|                                   |  |              |        |      |   |        |  
|                                   |  |              |        |      |   |        |  
|                                   |  |              | 9,355  |      |   | 8,099  |  
|                                   |  |              |        |      |   |        |  
|Non-current
  deferred tax assets: |  |              |        |      |   |        |  
|Depreciation and
  amortization    |  |              | 4,973  |      |   | 3,868  |  
|Deferred
  compensation            |  |              | 1,169  |      |   | 1,379  |  
|Deferred rent                      |  |              | 1,353  |      |   | 1,320  |  
|Amortization of
  goodwill         |  |              | (368   | )    |   | (126   | )
|Unrealized loss                    |  |              | 105    |      |   | 353    |  
|                                   |  |              |        |      |   |        |  
|                                   |  |              |        |      |   |        |  
|                                   |  |              | 7,232  |      |   | 6,794  |  
|                                   |  |              |        |      |   |        |  
|                                   |  |              |        |      |   |        |  
|Deferred tax
  assets              |  | $            | 16,587 |      | $ | 14,893 |  
|                                   |  |              |        |      |   |        |  

F-25

---



STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE L  COMMITMENTS,
CONTINGENCIES AND OTHER

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[1] | Legal proceedings:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | On August
  10, 2005, the U.S. Customs Department (Customs) issued a report that
  asserts that certain commissions which the Company treated as buying agents
  commissions (which are non-dutiable) should be treated as selling agents
  commissions and hence are dutiable. In the report, Customs estimates that
  the Company had underpaid duties during the calendar years of 1998 through
  2004 in the amount of $1,051. As of June 30, 2007, based on discussions with
  legal counsel, the Company believed that the liability in this case,
  including interest, was not likely to exceed $1,500. Accordingly, as of
  December 31, 2006 the Company recorded a reserve of $1,500. In September of
  2007, Customs notified the Company that it had finalized its assessment of
  the underpaid duties to be $1,400. Pursuant to this assessment, the Company,
  with the advice of legal counsel, has re-evaluated the liability in the case,
  including interest and penalties, and believes that it is not likely to
  exceed $2,700. The Company increased its reserve by $1,208 in the third quarter
  of 2007. Such reserve is subject to change to reflect the status of this
  matter.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | The Company
  has been named as a defendant in certain other lawsuits in the normal course
  of business. In the opinion of management, after consulting with legal
  counsel, the liabilities, if any, resulting from these matters should not
  have a material effect on the Companys financial position or results of
  operations. It is the policy of management to disclose the amount or range of
  reasonably possible losses in excess of recorded amounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|[2] | Employment agreements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Effective as
  of July 1, 2005, the Company amended its employment agreement with Steven
  Madden, the Companys Creative and Design Chief. The agreement provides for
  an annual salary of $600, subject to certain specified adjustments, through
  June 30, 2015. The agreement also provides for annual bonuses based on
  EBITDA, on revenue for any new business, and royalty income over $2,000, and
  an annual option grant at exercise prices equal to the market price on the
  date of grant and a non-accountable expense allowance.                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Effective as
  of July 1, 2005, the Company entered into an employment agreement with
  Awadhesh Sinha, pursuant to which Mr. Sinha will serve as the Companys Chief
  Operating Officer. The initial term of the agreement is three years through
  June 30, 2008, with successive one-year automatic renewal terms. The
  agreement provides for an annual salary of $425 with annual increases and
  performance bonuses. The agreement requires the Company to accrue deferred
  cash compensation equal to 25% of the annual salary, payable to Mr. Sinha at
  the end of the term of the agreement. On November 6, 2007, an amendment to
  the agreement extended the initial term of the agreement to December 31,
  2008.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Effective January 1, 2006,
  the Company amended its employment agreement with Jamieson Karson, the
  Companys Chief Executive Officer and Chairman of the Board. The agreement
  provides for an annual salary of $500 through December 31, 2008. The agreement
  also provides for an annual bonus at the discretion of the Board of
  Directors.                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Effective February 1,
  2006, the Company amended its employment agreement with Arvind Dharia, the
  Companys Chief Financial Officer. The agreement provides for an annual
  salary of $425, with annual increases through December 31, 2009. The
  agreement also provides for an annual bonus at the discretion of the Board of
  Directors.                                                                                                                                                                                                                                                                                                                                                                                  

F-26

---



STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE L  COMMITMENTS,
CONTINGENCIES AND OTHER (CONTINUED)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
  has employment agreements with other executives (the executives) which
  expire between June 30, 2008 and December 31, 2009. These agreements provide
  for cash bonuses based primarily upon a percentage of year-to-year increases
  in earnings before interest, taxes, depreciation and amortization, option
  grants and non-accountable expense allowances as defined. Base salary
  commitments for these executives are as follows:

|     |  |   |       | 
|---- |  | - | ----- | 
|2008 |  | $ | 2,372 | 
|2009 |  |   | 1,080 | 
|     |  |   |       | 
|     |  | $ | 3,452 | 
|     |  |   |       | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    | In
  connection with their employment agreements, five executives received an
  aggregate of 170,000 and 132,000 shares of restricted common stock from the
  Company in 2007 and 2006, respectively. The restricted shares vest equally
  each year over a period of between four to five years and, accordingly, the
  Company has recorded a charge to operations in the amount of $1,726 and $680
  for the years ended December 31, 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|    | In addition,
  the Company accrued aggregate cash obligations of approximately $1,000 for
  bonuses under these agreements for the year ended December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|[4] | Letters of credit:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|    | At
  December 31, 2007 and 2006, the Company had open letters of credit for
  the purchase of imported merchandise of approximately $1,974 and $1,981,
  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|[5] | Royalty agreements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|    | On May 12,
  2003, the Company entered into a long-term license agreement with Candies,
  Inc. to design, manufacture and distribute Candies branded footwear for
  women and children worldwide. The initial term of the agreement expires on
  December 31, 2009, with four 3-year renewal terms, the last of which expires
  on December 31, 2021. The agreement required the Company to make royalty and
  advertising payments equal to a percentage of net sales of licensed products
  and a minimum royalty and advertising payment in the event that specified net
  sales targets were not achieved. On December 6, 2004, the agreement was
  amended to reflect Candies decision to name Kohls Corporation the exclusive
  provider of a new line of Candies apparel. The amendment extended the
  initial term of the agreement to December 31, 2010, and eliminated the
  renewal term options. Pursuant to the amendment, commencing on January 1,
  2007, the Company no longer has the exclusive right to market Candies
  branded footwear and will be permitted to sell Candies branded footwear only
  to Kohls. Under the terms of the amendment, Candies guarantees that the
  Company will achieve minimum sales levels with Kohls during the term of the
  agreement. In the event such minimum sales levels are not achieved, Candies
  is required to compensate the Company in an amount based on a percentage of
  the sales shortfall. Effective January 1, 2005, all royalty and advertising
  payments were eliminated. As an inducement to execute the amendment, the
  Company was required to pay Candies a total of $3,000 payable in eight equal
  quarterly installments that began in February of 2005 and concluded with a
  final payment in May 2007.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|    | On March 28,
  2007, the Company, through its Daniel M. Friedman Division, entered into a
  license agreement to design, manufacture and distribute handbags and belts
  and related accessories under the DF Daisy Fuentes and the Daisy Fuentes
  brands. The agreement requires the Company to pay the licensor a royalty and
  brand management fees based on a percentage of net sales and a minimum
  royalty in the event that specified net sales targets are not achieved. The
  agreement expires on December 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-27

---



STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE L  COMMITMENTS,
CONTINGENCIES AND OTHER (CONTINUED)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | On September
  14, 2006, the Company, through its Daniel M. Friedman Division, entered into
  a license agreement to design, manufacture and distribute handbags and belts
  and related accessories under the Tracy Reese and the Plenty brands. In
  addition, the Company has the right to use the phrase Plenty by Tracy
  Reese. The agreement requires the Company to pay the licensor a royalty
  based on net sales and a minimum royalty in the event that specified net
  sales targets are not achieved. The agreement expires on December 31, 2009,
  with two three-year renewal terms which, if certain provisions are met, are
  at the option of the Company.          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
| | On July 20,
  2004, Daniel M. Friedman entered into a long-term license agreement with B.J.
  Vines, Inc., under which the Company has the right to use the Betsey
  Johnson trademark in connection with the sale and marketing of handbags,
  small leather goods, belts and umbrellas. The agreement requires the Company
  to make royalty and advertising payments equal to a percentage of net sales
  and a minimum royalty and advertising payment in the event that specified net
  sales targets are not achieved. The initial term of the agreement expired on
  December 31, 2007, however, the Company exercised its option to extend the
  agreement until December 31, 2010.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
| | Royalty
  expenses are included in the cost of goods sold section of the Companys
  Consolidated Statements of Income. Aggregate minimum future royalties under
  these agreements are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                           |  |   |       | 
|-------------------------- |  | - | ----- | 
|Year Ending
  December 31, |  |   |       | 
|                           |  |   |       | 
|                           |  |   |       | 
|2008                       |  | $ | 522   | 
|2009                       |  |   | 712   | 
|2010                       |  |   | 702   | 
|                           |  |   |       | 
|                          
|                           |  | $ | 1,936 | 
|                           |  |   |       | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|[6] | Related Party Transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
|    | In January
  2004, the Company entered into an agreement with JLM Consultants, a company
  wholly-owned by John Madden, one of the Companys directors. Under this
  agreement, Mr. Madden provides consulting services with respect to the
  development of international sales of the Company. Pursuant to this
  agreement, JLM Consultants received a fee and expenses of $661, $511 and $392
  in 2007, 2006 and 2005 respectively, in addition to fees that Mr. Madden
  received for service to the Company as a director.                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
|    | In July
  2001, the Company entered into a consulting agreement with Peter J. Solomon
  & Company (Solomon), a financial advisory firm of which Marc Cooper,
  one of the Companys directors, is a managing director. Under this agreement,
  the firm provided financial advisory and investment banking services to the
  Company. This agreement, which was amended in March 2004, was terminated on
  July 11, 2006. Pursuant to this agreement, the Company paid fees and expenses
  to Solomon of $412 (related to the acquisition of Daniel M. Friedman), and
  $66 for 2006 and 2005, respectively. The Company paid fees and expenses of $67
  to Solomon in 2007 for a limited consulting engagement. Mr. Cooper resigned
  from the board on February 25, 2008.

F-28

---



STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE L  COMMITMENTS,
CONTINGENCIES AND OTHER (CONTINUED)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    | In October
  2002, the Company entered into an arrangement with Jeff Birnbaum, a director
  of the Company from June 2003 through October 2007. Under this arrangement,
  Mr. Birnbaum provided consulting services with respect to the design and
  manufacturing of shoes and general consulting services to the Company.
  Pursuant to this arrangement, Mr. Birnbaum received a fee of $200, $200 and
  $200 in 2007, 2006 and 2005 respectively, in addition to fees received for
  service to the Company as a director. Mr. Birnbaum has been the Product
  Development Manager of Dolphin Shoe Company since August 1982. Dolphin Shoe
  Company, which is equally owned by Mr. Birnbaum, his father and his brother,
  is one of the Companys domestic suppliers. In July of 2006, the Company
  acquired the Natural Comfort brand from Dolphin Shoe Company for $100.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|[7] | Concentrations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|    | The Company
  maintains cash and cash equivalents with various major financial institutions
  which at times are in excess of the amount insured. In addition, the
  Companys marketable securities and money market accounts are principally
  held at two brokerage companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|    | During the
  year ended December 31, 2007, the Company purchased approximately 24%
  and 12% of its merchandise from two suppliers in China. Total inventory
  purchases from China for the year ended December 31, 2007 was
  approximately 81%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|    | During the
  year ended December 31, 2006, the Company purchased approximately 36%
  and 16% of its merchandise from two suppliers in China. Total inventory
  purchases from China for the year ended December 31, 2006 was
  approximately 88%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|    | During the
  year ended December 31, 2005, the Company purchased approximately 21%
  and 12% of its merchandise from two suppliers in China. Total inventory
  purchases from China for the year ended December 31, 2005 was
  approximately 82%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|    | Sales to one
  customer accounted for 12% of total net sales for the year ended
  December 31, 2007. This customer represented 17% of accounts receivable
  at December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|    | Sales to one
  customer accounted for 13% of total net sales for the year ended
  December 31, 2006. This customer represented 18% of accounts receivable
  at December 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|    | Sales to one
  customer accounted for 19% of total net sales for the year ended
  December 31, 2005. This customer represented 24% of accounts receivable
  at December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|    | Sales to
  such customers are included in the wholesale segment (see Note M).
  Purchases are made primarily in United States dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|[8] | Valuation and qualifying accounts:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|    | The
  following is a summary of the allowance for doubtful accounts related to
  accounts receivable and the allowance for chargebacks related to the amount
  Due from Factor for the years ended December 31:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                               |  |      |        |      |   |        |  |   |       | 
|------------------------------ |  | ---- | ------ | ---- | - | ------ |  | - | ----- | 
|                               |  | 2007 |        | 2006 |   | 2005   | 
|                               |  |      |        |      |   |        | 
|                              
|Balance at
  beginning of year |  | $    | 12,508 |      | $ | 8,400  |  | $ | 2,915 | 
|Increase in
  reserve          |  |      | 2,938  |      |   | 4,108  |  |   | 5,485 | 
|                               |  |      |        |      |   |        |  |   |       | 
|                              
|Balance at
  end of year       |  | $    | 15,446 |      | $ | 12,508 |  | $ | 8,400 | 
|                               |  |      |        |      |   |        |  |   |       | 

F-29

---



STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE L  COMMITMENTS,CONTINGENCIES ANDOTHER (CONTINUED)

The following
is a summary of the reserve for slow moving inventory for the years ended
December 31:

|                             |  |      |       |      |   |       |  |   |       | 
|---------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | ----- | 
|                             |  | 2007 |       | 2006 |   | 2005  | 
|                             |  |      |       |      |   |       | 
|                             |  |      |       |      |   |       |  |   |       | 
|Balance at beginning of year |  | $    | 2,065 |      | $ | 1,143 |  | $ | 608   | 
|Charged to reserve           |  |      |      |      |   |      |  |   |      | 
|Increase to the reserve      |  |      | 75    |      |   | 922   |  |   | 535   | 
|                             |  |      |       |      |   |       |  |   |       | 
|                            
|Balance at end of year       |  | $    | 2,140 |      | $ | 2,065 |  | $ | 1,143 | 
|                             |  |      |       |      |   |       |  |   |       | 

The following
is a summary of goodwill and the related accumulated amortization for the years
ended December 31:

|                                            |  |      |        |      |   |       |  |   |       |  
|------------------------------------------- |  | ---- | ------ | ---- | - | ----- |  | - | ----- | -
|                                            |  | 2007 |        | 2006 |   | 2005  | 
|                                            |  |      |        |      |   |       | 
|                                            |  |      |        |      |   |       |  |   |       |  
|Cost basis                                  |  |      |        |      |   |       |  |   |       |  
|Balance at beginning of year                |  | $    | 7,063  |      | $ | 2,145 |  | $ | 2,780 |  
|Acquisitions and purchase price adjustments |  |      | 9,457  |      |   | 4,918 |  |   |      |  
|Write-off of impaired assets                |  |      |       |      |   |      |  |   | (635  | )
|                                            |  |      |        |      |   |       |  |   |       |  
|Balance at end of year                      |  |      | 16,520 |      |   | 7,063 |  |   | 2,145 |  
|                                            |  |      |        |      |   |       |  |   |       |  
|Accumulated amortization                    |  |      |        |      |   |       |  |   |       |  
|Balance at beginning of year                |  |      | 598    |      |   | 598   |  |   | 714   |  
|Write-off of impaired assets                |  |      |       |      |   |      |  |   | (116  | )
|                                            |  |      |        |      |   |       |  |   |       |  
|Balance at end of year                      |  |      | 598    |      |   | 598   |  |   | 598   |  
|                                            |  |      |        |      |   |       |  |   |       |  
|                                           
|Goodwill                                    |  | $    | 15,922 |      | $ | 6,465 |  | $ | 1,547 |  
|                                            |  |      |        |      |   |       |  |   |       |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[9] | Other:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Pursuant to
  an agreement reached on February 2, 2005 with an 8% shareholder, the Company
  agreed to commit $25 million during the twelve months ended January 31, 2006
  and $10 million during the twelve months ended January 31, 2007 to a
  combination of share repurchases and/or dividends, such programs to be
  implemented at such time and in such manner as determined by the board of
  directors in its sole discretion. As of January 31, 2007, the Company has
  satisfied this agreement via the repurchase of 909,000 shares for $14,680 and
  the payment of dividends of $34,919.

NOTE M  SUBSEQUENT
EVENT

On February
19, 2008, the Company announced a Tender Offer to purchase up to 2,600,000 shares of our
common stock at a price not greater than $20.00 nor less than $16.50 per share.
As of December 31, 2007, there
were 20,117,983 shares of our
common stock issued and outstanding, not including 5,662,055 of our issued shares held in treasury. The 2,600,000 shares that we
are
offering to purchase hereunder represent approximately 13% of the total number of issued shares. The Company anticipates
that we will pay for the shares tendered in the Offer from our available cash.

F-30

---



STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTE N  OPERATING
SEGMENT INFORMATION

The Companys reportable segments are primarily determined based on
distribution channels of its various brands. The wholesale segment markets its
products through department and specialty stores throughout the country and the
retail segment thru the operation of various Company owned stores and the
Companys website. The First Cost segment represents activities of a subsidiary
which earns commissions for acting as a buying agent to mass-market
merchandisers, shoe chains and other off-price retailers with respect to their
purchase of footwear.

The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based on
profit or loss from operations before other income (expense) and the provision
for income taxes. The following is information for the Companys reportable
segments:

|                                      |  |                    |         |       |   |             |  |                   |        |        |   |            |  |              |         |  |   |        |  |   |         | 
|------------------------------------- |  | ------------------ | ------- | ----- | - | ----------- |  | ----------------- | ------ | ------ | - | ---------- |  | ------------ | ------- |  | - | ------ |  | - | ------- | 
|                                      |  | Wholesale Segments |         |       |   |             |  |                   |        |        |   |            |  |              |        
|                                      |  |                    |         |       |   |             |  |                   |        |        |   |            |  |              |        
|                                      |  | Womens            |         | Mens |   | Accessories |  | Total
  Wholesale |        | Retail |   | First Cost |  | Consolidated |        
|                                      |  |                    |         |       |   |             |  |                   |        |        |   |            |  |              |        
|Year ended, December 31, 2007:        |  |                    |         |       |   |             |  |                   |        |        |   |            |  |              |         |  |   |        |  |   |         | 
|Net sales to external customers       |  | $                  | 204,699 |       | $ | 51,237      |  | $                 | 54,469 |        | $ | 310,405    |  | $            | 120,645 |  |   |        |  | $ | 431,050 | 
|Gross profit                          |  |                    | 68,074  |       |   | 19,862      |  |                   | 16,885 |        |   | 104,821    |  |              | 68,583  |  |   |        |  |   | 173,404 | 
|Commissions and  licensing fees - net |  |                    | 3,677   |       |   |            |  |                   |       |        |   | 3,677      |  |              |        |  | $ | 14,674 |  |   | 18,351  | 
|Income from operations                |  |                    | 24,884  |       |   | 5,771       |  |                   | 4,481  |        |   | 35,136     |  |              | 3,104   |  |   | 14,674 |  |   | 52,914  | 
|Depreciation and amortization         |  |                    |         |       |   |             |  |                   |        |        |   | 3,668      |  |              | 4,766   |  |   | 1      |  |   | 8,435   | 
|Segment assets                        |  | $                  | 130,342 |       | $ | 22,031      |  | $                 | 29,618 |        |   | 181,991    |  |              | 56,120  |  |   | 28,410 |  |   | 266,521 | 
|Capital expenditures                  |  |                    |         |       |   |             |  |                   |        |        | $ | 3,210      |  | $            | 9,513   |  | $ | 242    |  | $ | 12,965  | 
|                                      |  |                    |         |       |   |             |  |                   |        |        |   |            |  |              |         |  |   |        |  |   |         | 
|December 31, 2006:                    |  |                    |         |       |   |             |  |                   |        |        |   |            |  |              |         |  |   |        |  |   |         | 
|Net sales to external customers       |  | $                  | 233,564 |       | $ | 62,629      |  | $                 | 51,316 |        | $ | 347,509    |  | $            | 127,654 |  |   |        |  | $ | 475,163 | 
|Gross profit                          |  |                    | 89,407  |       |   | 26,112      |  |                   | 13,976 |        |   | 129,495    |  |              | 68,934  |  |   |        |  |   | 198,429 | 
|Commissions and licensing fees - net  |  |                    | 2,925   |       |   |            |  |                   |       |        |   | 2,925      |  |              |        |  | $ | 11,321 |  |   | 14,246  | 
|Income from operations                |  |                    | 42,458  |       |   | 10,668      |  |                   | 3,966  |        |   | 57,092     |  |              | 9,885   |  |   | 11,321 |  |   | 78,298  | 
|Depreciation and amortization         |  |                    |         |       |   |             |  |                   |        |        |   | 2,655      |  |              | 4,025   |  |   | 26     |  |   | 6,706   | 
|Segment assets                        |  | $                  | 165,543 |       | $ | 10,621      |  | $                 | 27,022 |        |   | 203,186    |  |              | 41,933  |  |   | 6,273  |  |   | 251,392 | 
|Capital expenditures                  |  |                    |         |       |   |             |  |                   |        |        | $ | 3,739      |  | $            | 5,765   |  | $ | 7      |  | $ | 9,511   | 
|                                      |  |                    |         |       |   |             |  |                   |        |        |   |            |  |              |         |  |   |        |  |   |         | 
|December 31, 2005:                    |  |                    |         |       |   |             |  |                   |        |        |   |            |  |              |         |  |   |        |  |   |         | 
|Net sales to external customers       |  | $                  | 199,664 |       | $ | 54,611      |  |                   |       |        | $ | 254,275    |  | $            | 121,511 |  |   |        |  | $ | 375,786 | 
|Gross profit                          |  |                    | 56,962  |       |   | 22,021      |  |                   |       |        |   | 78,983     |  |              | 60,172  |  |   |        |  |   | 139,155 | 
|Commissions and licensing fees - net  |  |                    | 2,286   |       |   |            |  |                   |       |        |   | 2,286      |  |              |        |  | $ | 4,833  |  |   | 7,119   | 
|Income from operations                |  |                    | 12,211  |       |   | 9,100       |  |                   |       |        |   | 21,311     |  |              | 5,426   |  |   | 4,833  |  |   | 31,570  | 
|Depreciation and amortization         |  |                    |         |       |   |             |  |                   |        |        |   | 1,361      |  |              | 3,750   |  |   | 9      |  |   | 5,120   | 
|Segment assets                        |  | $                  | 152,607 |       | $ | 18,709      |  |                   |       |        |   | 171,316    |  |              | 38,576  |  |   | 1,836  |  |   | 211,728 | 
|Capital expenditures                  |  |                    |         |       |   |             |  |                   |        |        | $ | 1,456      |  | $            | 4,366   |  | $ |       |  | $ | 5,822   | 

F-31

---



STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 2007 and 2006
($ in thousands except share and per share data)

NOTEO  QUARTERLYRESULTS OFOPERATIONS (UNAUDITED)

The following
is a summary of the quarterly results of operations for the years ended
December 31, 2007 and 2006:

|                                           |  |           |         |          |   |               |  |              |         |  |   |         | 
|------------------------------------------ |  | --------- | ------- | -------- | - | ------------- |  | ------------ | ------- |  | - | ------- | 
|                                           |  | March 31, |         | June 30, |   | September 30, |  | December 31, |        
|                                           |  |           |         |          |   |               |  |              |        
|                                          
|2007:                                      |  |           |         |          |   |               |  |              |         |  |   |         | 
|Wholesale, net                             |  | $         | 82,299  |          | $ | 78,616        |  | $            | 85,998  |  | $ | 63,492  | 
|Retail, net                                |  |           | 24,355  |          |   | 29,640        |  |              | 27,397  |  |   | 39,253  | 
|                                           |  |           |         |          |   |               |  |              |         |  |   |         | 
|Net sales                                  |  |           | 106,654 |          |   | 108,256       |  |              | 113,395 |  |   | 102,745 | 
|Cost of sales                              |  |           | 64,460  |          |   | 62,836        |  |              | 66,577  |  |   | 63,773  | 
|                                           |  |           |         |          |   |               |  |              |         |  |   |         | 
|Gross profit                               |  |           | 42,194  |          |   | 45,420        |  |              | 46,818  |  |   | 38,972  | 
|Commissions and licensing fee income -
net |  |           | 5,446   |          |   | 5,669         |  |              | 4,335   |  |   | 2,901   | 
|Net income                                 |  | $         | 9,533   |          | $ | 10,518        |  | $            | 10,939  |  | $ | 4,700   | 
|Net income per share:                      |  |           |         |          |   |               |  |              |         |  |   |         | 
|Basic                                      |  |           | 0.45    |          |   | 0.51          |  |              | 0.52    |  |   | 0.23    | 
|Diluted                                    |  |           | 0.43    |          |   | 0.49          |  |              | 0.52    |  |   | 0.23    | 
|                                           |  |           |         |          |   |               |  |              |         |  |   |         | 
|2006:                                      |  |           |         |          |   |               |  |              |         |  |   |         | 
|Wholesale, net                             |  | $         | 82,982  |          | $ | 96,194        |  | $            | 91,751  |  | $ | 76,582  | 
|Retail, net                                |  |           | 25,333  |          |   | 33,306        |  |              | 31,489  |  |   | 37,526  | 
|                                           |  |           |         |          |   |               |  |              |         |  |   |         | 
|Net sales                                  |  |           | 108,315 |          |   | 129,500       |  |              | 123,240 |  |   | 114,108 | 
|Cost of sales                              |  |           | 62,032  |          |   | 74,945        |  |              | 72,217  |  |   | 67,540  | 
|                                           |  |           |         |          |   |               |  |              |         |  |   |         | 
|Gross profit                               |  |           | 46,283  |          |   | 54,555        |  |              | 51,023  |  |   | 46,568  | 
|Commissions and licensing fee income -
net |  |           | 3,762   |          |   | 2,825         |  |              | 3,850   |  |   | 3,809   | 
|Net income                                 |  | $         | 10,860  |          | $ | 12,696        |  | $            | 12,647  |  | $ | 10,047  | 
|Net income per share:                      |  |           |         |          |   |               |  |              |         |  |   |         | 
|Basic                                      |  |           | 0.52    |          |   | 0.61          |  |              | 0.61    |  |   | 0.48    | 
|Diluted                                    |  |           | 0.49    |          |   | 0.58          |  |              | 0.57    |  |   | 0.45    | 

F-32

---



(b) Exhibits.

|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.01  |  | Certificate of Incorporation of Steven Madden,
  Ltd. (incorporated by reference to Exhibit 1 to Steven Madden,
  Ltd.s Current Report on Form 8-K filed with the Securities and Exchange
  Commission on November 23, 1998).                                                                                                                                            
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|3.02  |  | Amended & Restated By-Laws of Steven Madden,
  Ltd. (incorporated by reference to Exhibit 3.02 to Steven Madden,
  Ltd.s Annual Report on Form 10-K for its fiscal year ended December 31.
  2001).                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|4.01  |  | Specimen Certificate for shares of Common Stock
  (incorporated by reference to Exhibit 4.01 to Steven Madden, Ltd.s
  Registration Statement on Form SB-2/A filed with the Securities and Exchange
  Commission on September 29, 1993 (File No. 033-67162)).                                                                                                            
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|4.02  |  | Rights Agreement between Steven Madden, Ltd. and
  American Stock Transfer and Trust Company (incorporated by reference
  to Exhibit 4.1 to Steven Madden, Ltd.s Current Report on Form 8-K
  filed with the Securities and Exchange Commission on November 16, 2001).                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.01 |  | Third Amended Employment Agreement between Steven Madden, Ltd. and Steven Madden (incorporated by reference to Exhibit
  10.1 to Steven Madden, Ltd.s Current Report on Form 8-K filed with
  the Securities and Exchange Commission on July 20, 2005).#                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.02 |  | Employment Agreement of Jamieson Karson
  (incorporated by reference to Exhibit 10.1 to Steven Madden, Ltd.s
  Current Report on Form 8-K filed with the Securities and Exchange Commission
  on January 6, 2006).#                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.03 |  | Employment Agreement of Arvind Dharia (incorporated
  by reference to Exhibit 10.07 to Steven Madden, Ltd.s Annual Report on
  Form 10-K for its fiscal year ending December 31, 2000).#                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.04 |  | Amendment No. 1 to Employment Agreement of Arvind
  Dharia (incorporated by reference to Exhibit 99.4 to Steven Madden,
  Ltd.s Quarterly Report on Form 10-Q for its fiscal quarter ending June 30,
  2001).#                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.05 |  | Amendment No. 2 to Employment Agreement of Arvind
  Dharia (incorporated by reference to Exhibit 10.16 to Steven Madden,
  Ltd.s Quarterly Report on Form 10-Q for its fiscal quarter ending September
  30, 2002).#                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.06 |  | Amendment No. 3 to Employment Agreement of Arvind
  Dharia (incorporated by reference to Exhibit 10.1 to Steven Madden,
  Ltd.s Current Report on Form 8-K filed with the Securities and Exchange Commission
  on February 3, 2006).#                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.07 |  | Employment Agreement between Steven Madden, Ltd.
  and Awadhesh Sinha, dated as of June 15, 2005 (incorporated by reference to
  Exhibit 10.1 to Steven Madden, Ltd.s Current Report on Form 8-K filed
  with the Securities and Exchange Commission on June 21, 2005).#                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.08 |  | Amendment No. 1 to Employment Agreement between
  Steven Madden, Ltd. and Awadhesh Sinha, dated as of November 6, 2007
  (incorporated by reference to Exhibit 10.1 to Steven Madden, Ltd.s
  Current Report on Form 8-K filed with the Securities and Exchange Commission
  on November 6, 2007).                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.09 |  | Stock Purchase Agreement, dated as of February 7,
  2006, by and between Steven Madden, Ltd. and the sole shareholder of
  Daniel M. Friedman & Associates, Inc. and DMF International, Ltd. (incorporated
  by reference to Exhibit 10.1 to Steven Madden, Ltd.s Current Report on
  Form 8-K filed with the Securities and Exchange Commission on February 13,
  2006).
|      |  |                                                                                                                                                                                                                                                                                                                                                                           
|10.10 |  | Earn-Out Agreement, dated as of February 7, 2006, by
  and among Steven Madden, Ltd., Daniel M. Friedman & Associates, Inc.,
  DMF International, Ltd. and Daniel M. Friedman (incorporated by reference to
  Exhibit 10.2 to Steven Madden, Ltd.s Current Report on Form 8-K filed
  with the Securities and Exchange Commission on February 13, 2006).                 

---



|      |  |                                                                                                                                                                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11 |  | Amendment to Earn-Out
  Agreement, dated as of April 10, 2006, by and between Steven Madden, Ltd.
  and Daniel M. Friedman (incorporated by reference to Exhibit 10.1 to
  Steven Madden, Ltd.s Current Report on Form 8-K filed with the
  Securities and Exchange
  Commission on April 13, 2006).                                        
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.12 |  | Amendment to Earn-Out Agreement, dated as of April
  10, 2007, by and among Steven Madden, Ltd., Daniel M. Friedman &
  Associates, Inc. and DMF International, Ltd. (incorporated by reference to
  Exhibit 10.1 to Steven Madden, Ltd.s Current Report on Form 8-K filed
  with the Securities and Exchange Commission on April 16, 2007).
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.13 |  | Employment Agreement with Robert Schmertz dated
  March 9, 2007 (incorporated by reference to Exhibit 10.1 to Steven
  Madden, Ltd.s Current Report on Form 8-K filed with the Securities and
  Exchange Commission on March 13, 2007).                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.14 |  | Membership Interest Purchase Agreement, dated as of
  May 16, 2007, by and among Steven Madden, Ltd. and the members of Compo
  Enhancements, LLC (incorporated by reference to Exhibit 10.1 to Steven
  Madden, Ltd.s Current Report on Form 8-K filed with the Securities and
  Exchange Commission on May 18, 2007).                     
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.15 |  | Earn-Out Agreement, dated as of May 16, 2007, by and
  among Steven Madden, Ltd. and the members of Compo Enhancements, LLC
  (incorporated by reference to Exhibit 10.2 to Steven Madden, Ltd.s
  Current Report on Form 8-K filed with the Securities and Exchange Commission
  on May 18, 2007).                                         
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.16 |  | Employment Agreement, dated as of May 16, 2007, by
  and between Steven Madden, Ltd. and Jeffrey Silverman (incorporated by
  reference to Exhibit 10.3 to Steven Madden, Ltd.s Current Report on Form
  8-K filed with the Securities and Exchange Commission on May 18, 2007).                                                            
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.17 |  | Amendment to Employment Agreement, dated as of
  December 21, 2007, by and between Steven Madden, Ltd. and Jeffrey
  Silverman (incorporated by reference to Exhibit 10.3 to Steven Madden,
  Ltd.s Current Report on Form 8-K filed with the Securities and Exchange
  Commission on December 21, 2007).                                   
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.18 |  | Settlement and Release Agreement, dated as of
  December 21, 2007, by and between Steven Madden, Ltd. and Jeffrey
  Silverman (incorporated by reference to Exhibit 10.1 to Steven Madden,
  Ltd.s Current Report on Form 8-K filed with the Securities and Exchange
  Commission on December 21, 2007).                                    
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.19 |  | Settlement and Release Agreement, dated as of
  December 21, 2007, by and between Steven Madden, Ltd. and James Randel
  (incorporated by reference to Exhibit 10.2 to Steven Madden, Ltd.s
  Current Report on Form 8-K filed with the Securities and Exchange Commission
  on December 21, 2007).                                         
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.20 |  | 1996 Stock Plan, approved and adopted on March 6,
  1996 (incorporated by reference to Exhibit 10.27 to Steven Madden, Ltd.s
  Registration Statement on Form S-8 filed with the Securities and Exchange Commission
  on November 3, 1997).#                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.21 |  | The 1997 Stock Plan, approved and adopted on May 10,
  1997 (incorporated by reference to Exhibit 10.28 to Steven Madden, Ltd.s
  Registration Statement on Form S-8 filed with the Securities and Exchange Commission
  on November 3, 1997).#                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.22 |  | The 1998 Stock Plan, approved and adopted on January
  16, 1998 (incorporated by reference to Exhibit 10.2 to Steven Madden,
  Ltd.s Registration Statement on Form S-8 filed with the Securities and
  Exchange Commission on July 28, 1998).#                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.23 |  | The 1999 Stock Plan, approved and adopted on March
  15, 1999, amended as of March 20, 2000 and March 30, 2001 (incorporated by
  reference to Exhibit 10.A to Steven Madden, Ltd.s Registration Statement
  on Form S-8 filed with the Securities and Exchange Commission on July 26,
  2004).#                                            
|      |  |                                                                                                                                                                                                                                                                                                                                              
|10.24 |  | 2006 Stock Incentive Plan approved and adopted on
  May 26, 2006 (incorporated by reference to Exhibit 10.1 to Steven Madden,
  Ltd.s Current Report on Form 8-K filed with the Securities and Exchange
  Commission on July 3, 2006).                                                                                                      

---



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.25 |  | Secured Promissory Note dated June 25, 2007, of
  Steven Madden to Steven Madden, Ltd. (incorporated by reference to
  Exhibit 10.1 to Steven Madden, Ltd.s Quarterly Report on Form 10-Q filed
  with the Securities and Exchange Commission on November 9, 2007).                                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.26 |  | Form of Non-Qualified
  Stock Option Agreement (Chief Executive Officer) under Steven Madden,
  Ltd.s 2006 Stock Incentive Plan, as amended (the Plan), as adopted October
  30, 2007 (incorporated by reference to Exhibit 10.2 to Steven Madden,
  Ltd.s Quarterly Report on Form 10-Q filed with the Securities and
  Exchange Commission on
  November 9, 2007).                                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.27 |  | Form of Non-Qualified
  Stock Option Agreement (Employee without Employment Agreement) under the
  Plan, as adopted October 30, 2007 (incorporated by reference to Exhibit 10.3
  to Steven Madden, Ltd.s Quarterly Report on Form 10-Q filed with the Securities
  and Exchange Commission on November
  9, 2007).                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.28 |  | Form of Non-Qualified
  Stock Option Agreement (Employee with Employment Agreement) under the Plan,
  as adopted October 30, 2007 (incorporated by reference to Exhibit 10.4 to
  Steven Madden, Ltd.s Quarterly Report on Form 10-Q filed with the Securities
  and Exchange Commission on
  November 9, 2007).                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.29 |  | Form of Restricted Stock
  Agreement (Chief Executive Officer) under the Plan, as adopted October 30,
  2007 (incorporated by reference to Exhibit 10.5 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).                                                                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.30 |  | Form of Restricted Stock
  Agreement (Employee without Employment Agreement) under the Plan, as adopted
  October 30, 2007 (incorporated by reference to Exhibit 10.6 to Steven
  Madden, Ltd.s Quarterly Report on Form 10-Q filed with the Securities
  and Exchange Commission on
  November 9, 2007).                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.31 |  | Form of Restricted Stock
  Agreement (Employee with Employment Agreement) under the Plan, as adopted
  October 30, 2007 (incorporated by reference to Exhibit 10.7 to Steven
  Madden, Ltd.s Quarterly Report on Form 10-Q filed with the Securities
  and Exchange Commission on
  November 9, 2007).                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.32 |  | Form of Restricted Stock
  Agreement under the Plan used for grants made to non- employee directors from
  March 2006 through May 2007, with a schedule setting forth the name of each
  of the recipients, the date of the grant and the number of shares
  (incorporated by reference to Exhibit 10.8 to Steven Madden, Ltd.s Quarterly
  Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.33 |  | Restricted Stock Agreement
  dated March 24, 2006, between Jamieson A. Karson and Steven Madden, Ltd.
  (incorporated by reference to Exhibit 10.9 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.34 |  | Restricted Stock Agreement
  dated March 27, 2007, between Jamieson A. Karson and Steven Madden, Ltd.
  (incorporated by reference to Exhibit 10.10 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.35 |  | Amendments to Restricted
  Stock Agreements, dated as of March 23, 2007, between Jamieson A. Karson and
Steven Madden, Ltd. (incorporated by reference to Exhibit 10.11 to
  Steven Madden, Ltd.s Quarterly Report on Form 10-Q filed with the Securities
  and Exchange Commission on
  November 9, 2007).                                                                                                                            
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.36 |  | Restricted Stock Agreement
  dated March 24, 2006, between Steven H. Madden and Steven Madden, Ltd.
  (incorporated by reference to Exhibit 10.12 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.37 |  | Restricted Stock Agreement
  dated June 9, 2006, between Steven H. Madden and Steven Madden, Ltd.
  (incorporated by reference to Exhibit 10.13 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).                                                                                                                                                        

---



|      |  |                                                                                                                                                                                                                                                                                                
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.38 |  | Restricted Stock Agreement
  dated March 24, 2006, between Arvind Dharia and Steven Madden, Ltd.
  (incorporated by reference to Exhibit 10.14 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).                
|      |  |                                                                                                                                                                                                                                                                                                
|10.39 |  | Restricted Stock Agreement
  dated March 20, 2006, between Amelia Newton Varela and Steven Madden,
  Ltd. (incorporated by reference to Exhibit 10.15 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).         
|      |  |                                                                                                                                                                                                                                                                                                
|10.40 |  | Restricted Stock Agreement
  dated March 20, 2006, between Robert Schmertz and Steven Madden, Ltd.
  (incorporated by reference to Exhibit 10.16 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).              
|      |  |                                                                                                                                                                                                                                                                                                
|10.41 |  | Restricted Stock Agreement
  dated March 6, 2007, between Arvind Dharia and Steven Madden, Ltd.
  (incorporated by reference to Exhibit 10.17 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).                 
|      |  |                                                                                                                                                                                                                                                                                                
|10.42 |  | Restricted Stock Agreement
  dated March 9, 2007, between Robert Schmertz and Steven Madden, Ltd.
  (incorporated by reference to Exhibit 10.18 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).               
|      |  |                                                                                                                                                                                                                                                                                                
|10.43 |  | Restricted Stock Agreement
  dated April 25, 2007, between Awadhesh Sinha and Steven Madden, Ltd.
  (incorporated by reference to Exhibit 10.19 to Steven Madden, Ltd.s
  Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007).               
|      |  |                                                                                                                                                                                                                                                                                                
|10.44 |  | Non-Qualified Stock Option
  Agreement dated May 16, 2007, between Jeffrey Silverman and Steven
  Madden, Ltd. (incorporated by reference to Exhibit 10.20 to Steven
  Madden, Ltd.s Quarterly Report on Form 10-Q filed with the Securities
  and Exchange Commission on
  November 9, 2007).
|      |  |                                                                                                                                                                                                                                                                                                
|10.45 |  | Non-Qualified Stock Option
  Agreement dated May 16, 2007, between Jeffrey Silverman and Steven
  Madden, Ltd. (incorporated by reference to Exhibit 10.21 to Steven
  Madden, Ltd.s Quarterly Report on Form 10-Q filed with the Securities
  and Exchange Commission on
  November 9, 2007).
|      |  |                                                                                                                                                                                                                                                                                                
|10.46 |  | Employment Agreement
  between Steven Madden, Ltd. and Amelia Newton Varela, effective as of
  October 1, 2004 (incorporated by reference to Exhibit 10.29 to Steven
  Madden, Ltd.s Annual Report on Form 10-K/A for its fiscal year ended
  December 31. 2005). #                           
|      |  |                                                                                                                                                                                                                                                                                                
|21.01 |  | Subsidiaries of Registrant.                                                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                
|23.01 |  | Consent of Eisner LLP                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                
|24.01 |  | Power of Attorney (included on signature page
  hereto).                                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                
|31.01 |  | Certification of Chairman Chief Executive Officer
  pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as
  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                
|31.02 |  | Certification of Chief Financial Officer pursuant to
  Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted
  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                
|32.01 |  | Certification of Chairman & Chief Executive
  Officer pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of
  the Sarbanes-Oxley Act of 2002.                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                
|32.02 |  | Certification of Chief Financial Officer pursuant to
  18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley
  Act of 2002.                                                                                                                                            

---

|  |  |                                                                                                                      
|- |  | ---------------------------------------------------------------------------------------------------------------------
| |  | Filed herewith.                                                                                                      
|# |  | Indicates management contract or compensatory plan
  or arrangement required to be identified pursuant to Item 15(b).

---



SIGNATURE

Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|       |                   
|------ | ------------------
|Dated: | New York, New York
|       | March 12, 2008    

| |                     |                                     
| | ------------------- | ------------------------------------
| | STEVEN MADDEN, LTD.
| |                     |                                     
| | By:                 | /s/ JAMIESON A. KARSON              
| |                     |                                     
| |                     | Jamieson A. Karson                  
| |                     | Chairman and Chief Executive Officer

---



KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jamieson A. Karson and Arvind Dharia, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and re-substitution, for him in any and all capacities, to sign
any and all amendments to this Annual Report on Form 10-K and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission hereby ratifying and confirming that
each of said attorneys-in-fact and agents, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.

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

|                        |  |                                                |  |               
|----------------------- |  | ---------------------------------------------- |  | --------------
|Signature               |  | Title                                          |  | Date          
|                        |  |                                                |  |               
|                        |  |                                                |  |               
|/S/ JAMIESON A. KARSON  |  | Chairman, Chief Executive Officer and Director |  | March 12, 2008
|                        |  |                                                | 
|Jamieson A. Karson      |  |                                                |  |               
|                        |  |                                                |  |               
|/S/ ARVIND DHARIA       |  | Chief Financial Officer                        |  | March 12, 2008
|                        |  |                                                |  |               
|Arvind Dharia           |  |                                                |  |               
|                        |  |                                                |  |               
|/S/ JOHN L. MADDEN      |  | Director                                       |  | March 12, 2008
|                        |  |                                                |  |               
|John L. Madden          |  |                                                |  |               
|                        |  |                                                |  |               
|/S/ PETER MIGLIORINI    |  | Director                                       |  | March 12, 2008
|                        |  |                                                |  |               
|Peter Migliorini        |  |                                                |  |               
|                        |  |                                                |  |               
|/S/ RICHARD P. RANDALL  |  | Director                                       |  | March 12, 2008
|                        |  |                                                |  |               
|Richard P. Randall      |  |                                                |  |               
|                        |  |                                                |  |               
|/S/ EDWARD R. ROSENFELD |  | Director                                       |  | March 12, 2008
|                        |  |                                                |  |               
|Edward R. Rosenfeld     |  |                                                |  |               
|                        |  |                                                |  |               
|/S/ THOMAS H. SCHWARTZ  |  | Director                                       |  | March 12, 2008
|                        |  |                                                |  |               
|Thomas H. Schwartz      |  |                                                |  |               
|                        |  |                                                |  |               
|/S/ WALTER YETNIKOFF    |  | Director                                       |  | March 12, 2008
|                        |  |                                                |  |               
|Walter Yetnikoff        |  |                                                |  |               

---