##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2005                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-51382





Volcom, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                        |  |                                         
|--------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                |  | 33-0466919                              
|(State or other jurisdiction of
    incorporation or organization)                      |  | (I.R.S. Employer
    Identification No.)
|1740 Monrovia Avenue
    Costa Mesa, California(Address of principal executive offices) |  | 92627(Zip Code)                         

(949) 646-2175


(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common stock, par value of $.001 per share


o þ


o þ


þ o


S-K 10-K 10-K. þ


12b-2


o o þ


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












---



##### 










TABLE OF CONTENTS


|             |  |                                                                                                                      |  |      |    | 
|------------ |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|             |  |                                                                                                                      |  | Page
|             |  |                                                                                                                      |  |     
|PART I.     
|Item 1.      |  | Business                                                                                                             |  |      | 1  | 
|Item 1A.     |  | Risk Factors                                                                                                         |  |      | 13 | 
|Item 1B.     |  | Unresolved Staff Comments                                                                                            |  |      | 21 | 
|Item 2.      |  | Properties                                                                                                           |  |      | 21 | 
|Item 3.      |  | Legal Proceedings                                                                                                    |  |      | 21 | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 22 | 
|            
|PART II.    
|Item 5.      |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 22 | 
|Item 6.      |  | Selected Financial Data                                                                                              |  |      | 23 | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 25 | 
|Item 7A.     |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |  |      | 37 | 
|Item 8.      |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 38 | 
|Item 9.      |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |      | 38 | 
|Item 9A.     |  | Controls and Procedures                                                                                              |  |      | 38 | 
|Item 9B.     |  | Other Information                                                                                                    |  |      | 39 | 
|            
|PART III.   
|Item 10.     |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 39 | 
|Item 11.     |  | Executive Compensation                                                                                               |  |      | 39 | 
|Item 12.     |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 39 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 39 | 
|Item 14.     |  | Principal Accounting Fees and Services                                                                               |  |      | 39 | 
|            
|PART IV.    
|Item 15.     |  | Exhibits, Financial Statement Schedules                                                                              |  |      | 39 | 
|EXHIBIT 21.1
|EXHIBIT 23.1
|EXHIBIT 23.2
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32  



i



---



##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements


10-K


10-K





PART I







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














---



##### Table of Contents







www.sec.gov www.volcom.com


Products






T-Shirts and Fleece.


Tops, Jackets and Suits.


Bottoms.


2



---



##### Table of Contents





Denim.


Boardshorts.


Outerwear.


Accessories.






| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | denim styles designed in conjunction with team riders Geoff
    Rowley, Mark Appleyard, Ozzie Wright, Ryan Sheckler and Dustin
    Dollin;       
|
| |  | a limited edition blazer designed and inspired by 2006 Winter
    Games gold medalist Shaun White; and                                           
|
| |  | the Bruce Irons Amphibulator boardshort, which includes high
    performance features inspired and tested by professional surfer
    Bruce Irons.



Product Design






3



---



##### Table of Contents







Manufacturing and Sourcing






back-up


4



---



##### Table of Contents





Imports and Import Restrictions








Distribution and Sales




5



---



##### Table of Contents





point-of










Licensing






6



---



##### Table of Contents





|             |  |                         |                   |  |                            |  |                   | 
|------------ |  | ----------------------- | ----------------- |  | -------------------------- |  | ----------------- | 
|Licensee     |  | Initial Expiration Date |                   |  | Extension Termination Date | 
|             |  |                         |                   |  |                            | 
|Europe       |  |                         | December 31, 2006 |  |                            |  | N/A               | 
|Australia    |  |                         | June 30, 2007     |  |                            |  | June 30, 2012     | 
|Brazil       |  |                         | December 31, 2008 |  |                            |  | December 31, 2013 | 
|South Africa |  |                         | December 31, 2006 |  |                            |  | December 31, 2011 | 
|Indonesia    |  |                         | December 31, 2009 |  |                            |  | December 31, 2014 | 



Advertising and Promotion






| |                    
| | -------------------
| | Athlete Sponsorship







| |              
| | -------------
| | Skateboarding



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Geoff Rowley  Geoff won the prestigious Thrasher
    Skater of the Year in 2001 and has been on the cover of many
    major skateboard publications.                                         
|
| |  | Mark Appleyard  Mark was crowned the Transworld
    Street Skater of the Year in 2003, the Thrasher Skater of the
    Year in 2003 and won the Transworld Readers Choice Award
    for 2004.

7



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ryan Sheckler  Ryan turned professional in 2003 at
    the age of thirteen. Since turning professional, he has been
    crowned the overall winner of the Dew Action Sports Tour in the
    skateboard park event and the athlete of the year for the entire
    tour in 2005, placed first at the Vans Triple Crown in 2005, the
    Slam City Jam in Vancouver, Canada in 2003, the 2003
    X Games Park Final, the Gravity Games in 2003 and the
    LG Action Sports Contest in 2004. He also placed second at
    the 2005 World Globe Cup. Ryan is featured in the 2005 version
    of Tony Hawks Underground video game. In addition, Ryan
    won the 2006 Champion of Globes Global Assault skateboard
    contest in Australia. Ryan was also selected as one of Sport
    Illustrateds Top 10 Crowd Pleasers of 2005.
|
| |  | Lauren Perkins  Lauren is a young skateboarder from
    Huntington Beach, California. She recently placed second at the
    Globe World Championship in Australia. Lauren was also recently
    featured on the cover of the womens action sports
    magazine, SG.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



| |             
| | ------------
| | Snowboarding



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Shaun White  Shaun is one of the most versatile
    boardsport athletes in the world, performing at a championship
    level in both snowboarding and skateboarding. Shauns many
    achievements include: 2006 Winter Olympics gold medalist in the
    snowboard halfpipe, four-time X Games Champion, two-time
    Session-At-Vail Champion, Nippon Open Champion, Grand Prix in
    Lake Placid Champion, Air & Style Champion, Arctic
    Challenge Champion, U.S. Open Champion, and Vans Triple
    Crown Slopestyle and Super-Pipe Champion.
|
| |  | Terje Haakonsen  Terjes championships include,
    among others, two-time Air & Style Champion, three-time
    U.S. Open Half-Pipe Champion, three-time International
    Snowboard Federation World Half-Pipe Champion, six-time Mt.
    Baker Banked Slalom Champion and five-time European Half-Pipe
    Champion.                                                                                                                                                                                                                               
|
| |  | Bjorn Leines  Bjorn placed fourth in Slopestyle at
    the 2005 X Games, won the 2003 Red Bull Heavy Metal, has
    twice been ranked second by Snowboarder magazine for Rider of
    the Year, is a featured rider in Xbox games Amped and
    Amped 2 and has been a Transworld Snowboarding Magazine
    Readers Choice Award nominee.                                                                                                                                                                                                           
|
| |  | Janna Meyen  Janna is a 2004, 2005 and 2006
    X Games gold medalist and was crowned the 2004 Womens
    Rider of the Year by Transworld Snowboarding Magazine. Her
    abilities range from big mountain riding to halfpipe, slopestyle
    and handrails.                                                                                                                                                                                                                                                                                        



| |        
| | -------
| | Surfing



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Bruce Irons  Bruce is on his second year of the
    Association of Surfing Professionals, or ASP, World Championship
    Tour, or WCT. Bruce won the 2005 Eddie Aikau Big Wave
    Invitational at Waimea Bay in Hawaii and the Mr. Price Pro,
    a six-star WQS event. Bruce has also won the prestigious WCT
    Pipemasters event, held at the Banzai Pipeline on the North
    Shore of Oahu. Bruce has consistently been voted in the top ten
    of the annual Surfer Magazine readers choice poll and was
    voted ASP Rookie of the Year for the 2004 WCT season.
|
| |  | Dean Morrison  Dean is one of the best Australian
    surfers and is also on the ASP WCT. He won the WCT event at his
    home break at Snapper Rock, Australia in 2003. Dean has also
    been featured on many major magazine covers in Australia.                                                                                                                                                                                                                                                                                                                        
|
| |  | Claire Bevilacqua  In February 2006, Claire was
    crowned the 2005 ASP Womens Rookie of the Year. Claire
    placed sixth in the 2004 World Qualifying Series and placed
    third in the 2005 Bells Beach, Australia WCT contest.                                                                                                                                                                                                                                                                                                                                       



8



---



##### Table of Contents







| |                      
| | ---------------------
| | Volcom Branded Events









| |                     
| | --------------------
| | Print Advertisements





| |      
| | -----
| | Music





9



---



##### Table of Contents







| |     
| | ----
| | Film



Alive We Ride, The
Garden, Subjekt: Haakonsen, Magnaplasm, Chichagof The
Bruce Movie. X-Dance




| |                       
| | ----------------------
| | Featured Artist Series





| |       
| | ------
| | Retail





| |                 
| | ----------------
| | Online Marketing

www.volcom.com


10



---



##### Table of Contents



sign-up 10-K.




| |            
| | -----------
| | Competition







| |   |                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | maintain our reputation as a popular lifestyle brand among the
    skateboarding, snowboarding and surfing community and others who
    associate themselves with the action sports youth lifestyle;
|
| |  | continue to develop and respond to global fashion and lifestyle
    trends in our target market;                                                                                                    
|
| |  | advance our brand as an authentic,
    anti-establishment brand while continuing to grow as
    a global business;                                                                                
|
| |  | design stylish, high quality products at appropriate prices for
    our target market; and                                                                                                          
|
| |  | continue to convey our lifestyle message to our target market
    worldwide.                                                                                                                        

Principal Customers




Credit and Collection




11



---



##### Table of Contents



Trademarks




Government Regulation




Management Information Systems


tm tm


Employees




12



---



##### Table of Contents








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

Before deciding to purchase, hold or sell our common stock,
you should carefully consider the risks described below in
addition to the other cautionary statements and risks described
elsewhere, and the other information contained, in this Report
and in our other filings with the SEC, including our subsequent
reports on
Forms 10-Q
and 8-K. The risks
and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also affect our business.
If any of these known or unknown risks or uncertainties actually
occurs with material adverse effects on us, our business,
financial condition and results of operations could be seriously
harmed. In that event, the market price for our common stock
will likely decline, and you may lose all or part of your
investment.




| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our marketing efforts do not effectively maintain and
    expand our brand name recognition, we may not be able to achieve
    our growth strategy.





| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to continue to develop innovative and
    stylish products, demand for our products may decrease and our
    brand image may be harmed.







| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to sustain our past growth or manage our
    future growth, which may have a material adverse effect on our
    future operating results.



13



---



##### Table of Contents







| |                                                                                 
| | --------------------------------------------------------------------------------
| | Our business could be harmed if we fail to maintain proper
    inventory levels.





| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to maintain and expand our endorsements
    by professional athletes, our ability to market and sell our
    products may be harmed.







| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | We may be adversely affected by the discontinuance of our
    licensing relationship in Europe.



14



---



##### Table of Contents







| |                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to secure or protect our intellectual property
    rights, counterfeiters may be able to copy and sell imitations
    of our products and competitors may be able to use our designs,
    each of which could harm our reputation, reduce our revenues and
    increase our costs.







| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our current executive officers and management personnel
    are critical to our success, and the loss of these individuals
    could harm our business, brand and image.





| |                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to attract and retain qualified design and
    sales and marketing personnel is critical to our success, and
    any inability to attract and retain such personnel could harm
    our business.



15



---



##### Table of Contents





| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | One retail customer represents a material amount of our
    revenues, and the loss of this retail customer or reduced
    purchases from this retail customer may have a material adverse
    effect on our operating results.





| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We do not have long-term contracts with any of our
    retailers, and the loss of orders for our products from our
    retailers may have a material adverse effect on our operating
    results.





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Any inability to receive timely deliveries from our
    manufacturers could harm our business.





| |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the United States continues to impose tariffs and
    import quota restrictions on products manufactured in China and
    we are unable to obtain sufficient product from countries other
    than China or from domestic sources, or if the products we
    obtain from these other countries or domestic sources are of
    insufficient quality, it could materially affect our gross
    margin and financial performance.



16



---



##### Table of Contents







| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Any shortage of raw materials could impair our ability to
    ship orders of our products in a cost-efficient manner or could
    cause us to miss the delivery requirements of our customers,
    which could harm our business.





| |                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are required to establish new manufacturing
    relationships due to the termination of current key
    manufacturing relationships with large contractors such as
    Ningbo Jehson Textiles and China Ningbo CIXI (Dragon Crowd), we
    would likely experience increased costs, disruptions in the
    manufacture and shipment of our products and a loss of
    revenue.





| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Our business could suffer if any of our or our
    licensees key manufacturers fails to use acceptable labor
    practices.





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | We may not be able to compete effectively, which could
    cause our revenues and market share to decline.



17



---



##### Table of Contents









| |                                                                              
| | -----------------------------------------------------------------------------
| | We may be adversely affected by the financial condition of
    our retailers.





| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in the mix of retailers to whom we distribute our
    products could impact our gross margin and brand image, which
    could have a material adverse effect on our results of
    operations.





| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our revenues and operating income fluctuate on a seasonal
    basis and decreases in sales or margins during our peak seasons
    could have a disproportionate effect on our overall financial
    condition and results of operations.



18



---



##### Table of Contents





| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Cyclical trends in apparel retailing could have a material
    adverse effect on our results of operations.





| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We face business, political, operational, financial and
    economic risks because a portion of our revenues are from
    international customers, substantially all of our products are
    sourced overseas and our licensees operate outside of the United
    States.





| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties obtaining domestic and foreign export, import and
    other governmental approvals, permits and licenses, and
    compliance with foreign laws, which could halt, interrupt or
    delay our operations if we cannot obtain such approvals, permits
    and licenses;                                                     
|
| |  | difficulties encountered by our international licensees or us in
    staffing and managing foreign operations or international sales;                                                                                                                                                                                                  
|
| |  | transportation delays and difficulties of managing international
    distribution channels;                                                                                                                                                                                                                                            
|
| |  | longer payment cycles for, and greater difficulty collecting,
    accounts receivable and royalty payments;                                                                                                                                                                                                                            
|
| |  | trade restrictions, higher tariffs, currency fluctuations or the
    imposition of additional regulations relating to import or
    export of our products, especially in China, where a large
    portion of our products are manufactured, which could force us
    to seek alternate manufacturing sources or increase our expenses;
|
| |  | unexpected changes in regulatory requirements, royalties and
    withholding taxes that restrict the repatriation of earnings and
    effects on our effective income tax rate due to profits
    generated or lost in foreign countries;                                                                                              
|
| |  | political and economic instability, including wars, terrorism,
    political unrest, boycotts, curtailment of trade and other
    business restrictions; and                                                                                                                                                                           
|
| |  | natural disasters.                                                                                                                                                                                                                                                                                                                     





| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Fluctuations in foreign currency exchange rates could harm
    our results of operations.



19



---



##### Table of Contents





| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | We will continue to incur significant expenses as a result
    of being a public company, which may negatively impact our
    financial performance.





| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our internal controls over financial reporting may not be
    considered effective, which could result in a loss of investor
    confidence in our financial reports and in turn have an adverse
    effect on our stock price.

10-K








| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the ownership of our common stock continues to be
    highly concentrated, it may prevent you and other stockholders
    from influencing significant corporate decisions and may result
    in conflicts of interest that could cause our stock price to
    decline.



20



---



##### Table of Contents







| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | The market price of our common stock is highly volatile
    and may result in investors selling shares of our common stock
    at a loss.





| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | actual or anticipated variations in quarterly operating results;       
|
| |  | changes in financial estimates by securities analysts;                 
|
| |  | conditions or trends in the fashion and boardsports
    industries; and
|
| |  | changes in the market valuations of similar companies.                 








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








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








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



21



---



##### Table of Contents








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






PART II







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

Market Information and Holders




|                                   |  |                |       |  |     |   |       | 
|---------------------------------- |  | -------------- | ----- |  | --- | - | ----- | 
|                                   |  | Price Range of |      
|                                   |  | Common Stock   |      
|                                   |  |                |      
|                                   |  | High           |       |  | Low |  
|                                   |  |                |       |  |     |  
|Year Ended December 31, 2005       |  |                |       |  |     |   |       | 
|Second Quarter (June 30, 2005)     |  | $              | 26.77 |  |     | $ | 26.77 | 
|Third Quarter (September 30, 2005) |  | $              | 35.77 |  |     | $ | 25.10 | 
|Fourth Quarter (December 31, 2005) |  | $              | 35.68 |  |     | $ | 26.24 | 





Dividend Policy




Unregistered Sale of Equity Securities and Issuer Purchases
of Equity Securities




Use of Proceeds


S-1 333-124498)


22



---



##### Table of Contents








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

10-K. 10-K.


|                                             |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |            |   |  |   |            |  
|-------------------------------------------- |  | ----------------------------------------------- | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- |  |  | ---- | ---------- | - |  | - | ---------- | -
|                                             |  | Year Ended December 31,                         |           
|                                             |  |                                                 |           
|                                             |  | 2005                                            |            |  | 2004 |   |            | 2003 |  |   | 2002       |  |  | 2001 |           
|                                             |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |           
|                                             |  | (In thousands, except share and per share data) |           
|Consolidated Statements of Operations Data:  |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |            |  
|Revenues:                                    |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |            |   |  |   |            |  
|Product revenues                             |  | $                                               | 156,716    |  |      | $ | 110,601    |      |  | $ | 74,389     |  |  | $    | 56,302     |   |  | $ | 43,176     |  
|Licensing revenues                           |  |                                                 | 3,235      |  |      |   | 2,574      |      |  |   | 1,877      |  |  |      | 833        |   |  |   | 855        |  
|                                             |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |           
|Total revenues                               |  |                                                 | 159,951    |  |      |   | 113,175    |      |  |   | 76,266     |  |  |      | 57,135     |   |  |   | 44,031     |  
|Cost of goods sold                           |  |                                                 | 78,632     |  |      |   | 58,205     |      |  |   | 39,384     |  |  |      | 31,184     |   |  |   | 26,294     |  
|                                             |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |           
|Gross profit                                 |  |                                                 | 81,319     |  |      |   | 54,970     |      |  |   | 36,882     |  |  |      | 25,951     |   |  |   | 17,737     |  
|Selling, general and administrative expenses |  |                                                 | 42,939     |  |      |   | 30,585     |      |  |   | 22,919     |  |  |      | 18,123     |   |  |   | 14,250     |  
|                                             |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |           
|Operating income                             |  |                                                 | 38,380     |  |      |   | 24,385     |      |  |   | 13,963     |  |  |      | 7,828      |   |  |   | 3,487      |  
|Other income (expense)                       |  |                                                 | 1,101      |  |      |   | (6         | )    |  |   | 106        |  |  |      | (129       | ) |  |   | (313       | )
|                                             |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |           
|Income before provision for income taxes     |  |                                                 | 39,481     |  |      |   | 24,379     |      |  |   | 14,069     |  |  |      | 7,699      |   |  |   | 3,174      |  
|Provision for income taxes(1)                |  |                                                 | 10,475     |  |      |   | 374        |      |  |   | 214        |  |  |      | 215        |   |  |   | 1,252      |  
|                                             |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |           
|Income before equity in earnings of investee |  |                                                 | 29,006     |  |      |   | 24,005     |      |  |   | 13,855     |  |  |      | 7,484      |   |  |   | 1,922      |  
|Equity in earnings of investee               |  |                                                 | 331        |  |      |   | 588        |      |  |   | 407        |  |  |      | 129        |   |  |   | 143        |  
|                                             |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |           
|Net income                                   |  | $                                               | 29,337     |  |      | $ | 24,593     |      |  | $ | 14,262     |  |  | $    | 7,613      |   |  | $ | 2,065      |  
|                                             |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |           
|Net income per share:                        |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |            |   |  |   |            |  
|Basic                                        |  | $                                               | 1.36       |  |      | $ | 1.28       |      |  | $ | 0.75       |  |  | $    | 0.41       |   |  | $ | 0.11       |  
|Diluted                                      |  | $                                               | 1.34       |  |      | $ | 1.26       |      |  | $ | 0.73       |  |  | $    | 0.39       |   |  | $ | 0.11       |  
|Weighted average shares outstanding:         |  |                                                 |            |  |      |   |            |      |  |   |            |  |  |      |            |   |  |   |            |  
|Basic                                        |  |                                                 | 21,627,821 |  |      |   | 19,142,275 |      |  |   | 19,054,109 |  |  |      | 18,771,059 |   |  |   | 17,994,703 |  
|Diluted                                      |  |                                                 | 21,839,626 |  |      |   | 19,534,945 |      |  |   | 19,530,873 |  |  |      | 19,513,969 |   |  |   | 19,543,894 |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For Federal and state income tax purposes we had elected to be
    treated as an S corporation from January 1, 2002 until
    our initial public offering on June 29, 2005, and during
    that period we were not subject to Federal or state income
    taxes, other than California franchise taxes of 1.5% on our
    corporate income. For 2001 we were, and for all periods from and
    after June 29, 2005, we have become, subject to the Federal
    and state income taxes applicable to a C corporation. As a
    result, our provision for income taxes, net income and net
    income per share data for 2004, 2003 and 2002 are not comparable
    to our provision for income taxes, net income and net income per
    share data for 2005 and 2001.

23



---



##### Table of Contents



|                                                       |         |                                                 |        |            |      |   |        |            |  |   |        |  |  |   |       |  | 
|------------------------------------------------------ | ------- | ----------------------------------------------- | ------ | ---------- | ---- | - | ------ | ---------- |  | - | ------ |  |  | - | ----- |  | 
|                                                       |         | Year Ended December 31,                         |       
|                                                       |         |                                                 |       
|                                                       |         | 2005                                            |        |            | 2004 |   |        | 2003       |  |   | 2002   | 
|                                                       |         |                                                 |        |            |      |   |        |            |  |   |        | 
|                                                       |         | (In thousands, except share and per share data) |       
|Pro Forma Net Income Data(1):                          |         |                                                 |        |            |      |   |        |            |  |   |        |  |  |   |       | 
|Income before provision for income taxes, as reported  |         | $                                               | 39,481 |            |      | $ | 24,379 |            |  | $ | 14,069 |  |  | $ | 7,699 | 
|Pro forma provision for income taxes                   |         |                                                 | 16,223 |            |      |   | 10,178 |            |  |   | 5,909  |  |  |   | 3,197 | 
|                                                       |         |                                                 |        |            |      |   |        |            |  |   |        | 
|Pro forma income before equity in earnings of investee |         |                                                 | 23,258 |            |      |   | 14,201 |            |  |   | 8,160  |  |  |   | 4,502 | 
|Equity in earnings of investee                         |         |                                                 | 331    |            |      |   | 588    |            |  |   | 407    |  |  |   | 129   | 
|                                                       |         |                                                 |        |            |      |   |        |            |  |   |        | 
|Pro forma net income                                   |         | $                                               | 23,589 |            |      | $ | 14,789 |            |  | $ | 8,567  |  |  | $ | 4,631 | 
|                                                       |         |                                                 |        |            |      |   |        |            |  |   |        | 
|Pro forma net income per share:                        |         |                                                 |        |            |      |   |        |            |  |   |        |  |  |   |       | 
|                                                       | Basic   |                                                 | $      | 1.09       |      |   | $      | 0.77       |  |   |        |  |  |   |       |  | 
|                                                       | Diluted |                                                 | $      | 1.08       |      |   | $      | 0.76       |  |   |        |  |  |   |       |  | 
|Pro forma weighted average shares outstanding:         |         |                                                 |        |            |      |   |        |            |  |   |        |  |  |   |       | 
|                                                       | Basic   |                                                 |        | 21,627,821 |      |   |        | 19,142,275 |  |   |        |  |  |   |       |  | 
|                                                       | Diluted |                                                 |        | 21,839,626 |      |   |        | 19,534,945 |  |   |        |  |  |   |       |  | 

|                                                          |  |                    |         |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|--------------------------------------------------------- |  | ------------------ | ------- |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                                          |  | As of December 31, |        
|                                                          |  |                    |        
|                                                          |  | 2005               |         |  | 2004 |   |        | 2003 |  |   | 2002   |  |  | 2001 |       
|                                                          |  |                    |         |  |      |   |        |      |  |   |        |  |  |      |       
|                                                          |  | (In thousands)     |        
|Consolidated Balance Sheet Data:                          |  |                    |         |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Cash and cash equivalents                                 |  | $                  | 71,712  |  |      | $ | 10,359 |      |  | $ | 5,079  |  |  | $    | 1,141  |  |  | $ | 418    | 
|Working capital                                           |  |                    | 98,470  |  |      |   | 27,041 |      |  |   | 16,595 |  |  |      | 8,209  |  |  |   | 3,772  | 
|Total assets                                              |  |                    | 111,381 |  |      |   | 35,886 |      |  |   | 22,601 |  |  |      | 13,902 |  |  |   | 10,415 | 
|Long-term capital lease obligations, less current portion |  |                    | 183     |  |      |   | 256    |      |  |   | 160    |  |  |      | 45     |  |  |   | 69     | 
|Total stockholders equity                                |  |                    | 102,680 |  |      |   | 29,502 |      |  |   | 18,044 |  |  |      | 9,019  |  |  |   | 4,156  | 






|    |                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Pro forma net income data reflects the provision for income
    taxes that would have been recorded had we been subject to
    Federal and state income taxes as a C corporation, and not been
    exempt from paying income taxes other than California franchise
    taxes due to our S corporation election, from
    January 1, 2002 to June 29, 2005.

24



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 our
consolidated financial statements and related notes included
elsewhere in this
Form 10-K. This
discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking
statements due to known and unknown risks, uncertainties and
other factors, including those risks discussed in Risk
Factors and elsewhere in this
Form 10-K. Those
risk factors expressly qualify all subsequent oral and written
forward-looking statements attributable to us or persons acting
on our behalf. We do not have any intention or obligation to
update forward-looking statements included in this
Form 10-K after
the date of this
Form 10-K, except
as required by law.


Overview










25



---



##### Table of Contents













Share-Based Payment


26



---



##### Table of Contents



Critical Accounting Policies






| |                    
| | -------------------
| | Revenue Recognition







| |                    
| | -------------------
| | Accounts Receivable





| |            
| | -----------
| | Inventories





| |   |                                                      
| | - | -----------------------------------------------------
| |  | unanticipated changes in consumer preferences;       
|
| |  | weakening economic conditions;                       
|
| |  | terrorist acts or threats;                           
|
| |  | reduced consumer confidence in the retail market; and
|
| |  | unseasonable weather.                                



27



---



##### Table of Contents





| |                               
| | ------------------------------
| | Goodwill and Intangible Assets

Goodwill and Intangible Assets




| |                  
| | -----------------
| | Long-Lived Assets





| |                                        
| | ---------------------------------------
| | Investments in Unconsolidated Investees









| |                     
| | --------------------
| | Athlete Sponsorships



28



---



##### Table of Contents







| |             
| | ------------
| | Income Taxes







| |                             
| | ----------------------------
| | Foreign Currency Translation





General






29



---



##### Table of Contents





Results of Operations




|                                             |  |                         |       |   |      |  |       |      |  |  |       |  
|-------------------------------------------- |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                             |  | Year Ended December 31, |      
|                                             |  |                         |      
|                                             |  | 2005                    |       |   | 2004 |  |       | 2003 | 
|                                             |  |                         |       |   |      |  |       |      | 
|Revenues                                     |  |                         | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|Cost of goods sold                           |  |                         | 49.2  |   |      |  | 51.4  |      |  |  | 51.6  |  
|                                             |  |                         |       |   |      |  |       |      | 
|Gross profit                                 |  |                         | 50.8  |   |      |  | 48.6  |      |  |  | 48.4  |  
|Selling, general and administrative expenses |  |                         | 26.8  |   |      |  | 27.0  |      |  |  | 30.1  |  
|                                             |  |                         |       |   |      |  |       |      | 
|Operating income                             |  |                         | 24.0  |   |      |  | 21.6  |      |  |  | 18.3  |  
|Other income (expense)                       |  |                         | 0.7   |   |      |  | (0.1  | )    |  |  | 0.1   |  
|                                             |  |                         |       |   |      |  |       |      | 
|Income before provision for income taxes     |  |                         | 24.7  |   |      |  | 21.5  |      |  |  | 18.4  |  
|Provision for income taxes                   |  |                         | 6.5   |   |      |  | 0.3   |      |  |  | 0.2   |  
|                                             |  |                         |       |   |      |  |       |      | 
|Income before equity in earnings of investee |  |                         | 18.2  |   |      |  | 21.2  |      |  |  | 18.2  |  
|Equity in earnings of investee               |  |                         | 0.1   |   |      |  | 0.5   |      |  |  | 0.5   |  
|                                             |  |                         |       |   |      |  |       |      | 
|Net income                                   |  |                         | 18.3  | % |      |  | 21.7  | %    |  |  | 18.7  | %
|                                             |  |                         |       |   |      |  |       |      | 

Year Ended December 31, 2005 Compared to Year Ended
December 31, 2004




| |         
| | --------
| | Revenues









30



---



##### Table of Contents







| |             
| | ------------
| | Gross Profit





| |                                             
| | --------------------------------------------
| | Selling, General and Administrative Expenses





| |                 
| | ----------------
| | Operating Income





| |                       
| | ----------------------
| | Other Income (Expense)





| |                           
| | --------------------------
| | Provision for Income Taxes





31



---



##### Table of Contents







| |           
| | ----------
| | Net Income



Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003




| |         
| | --------
| | Revenues











| |             
| | ------------
| | Gross Profit





| |                                             
| | --------------------------------------------
| | Selling, General and Administrative Expenses



32



---



##### Table of Contents







| |                 
| | ----------------
| | Operating Income





| |                       
| | ----------------------
| | Other Income (Expense)





| |                           
| | --------------------------
| | Provision for Income Taxes





| |           
| | ----------
| | Net Income



Liquidity and Capital Resources






|                                                 |  |                         |        |   |      |   |         |      |  |   |        |  
|------------------------------------------------ |  | ----------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                 |  | Year Ended December 31, |       
|                                                 |  |                         |       
|                                                 |  | 2005                    |        |   | 2004 |   |         | 2003 | 
|                                                 |  |                         |        |   |      |   |         |      | 
|                                                 |  | (In thousands)          |       
|Cash and cash equivalents at beginning of period |  | $                       | 10,359 |   |      | $ | 5,079   |      |  | $ | 1,141  |  
|Cash flow from operating activities              |  |                         | 22,985 |   |      |   | 19,424  |      |  |   | 10,819 |  
|Cash flow from investing activities              |  |                         | (2,657 | ) |      |   | (811    | )    |  |   | (257   | )
|Cash flow from financing activities              |  |                         | 41,041 |   |      |   | (13,333 | )    |  |   | (6,624 | )
|Effect of exchange rate changes on cash          |  |                         | (16    | ) |      |   |        |      |  |   |       |  
|                                                 |  |                         |        |   |      |   |         |      | 
|Cash and cash equivalents at end of period       |  | $                       | 71,712 |   |      | $ | 10,359  |      |  | $ | 5,079  |  
|                                                 |  |                         |        |   |      |   |         |      | 

33



---



##### Table of Contents















| |                  
| | -----------------
| | Credit Facilities



34



---



##### Table of Contents







| |                                        
| | ---------------------------------------
| | Contractual Obligations and Commitments



|                                  |       |                        |       |        |      |   |       |       |  |   |       |       |  |      |     |       |      |   |     |            |  |   |    |    |  |   |   |   | 
|--------------------------------- | ----- | ---------------------- | ----- | ------ | ---- | - | ----- | ----- |  | - | ----- | ----- |  | ---- | --- | ----- | ---- | - | --- | ---------- |  | - | -- | -- |  | - | - | - | 
|                                  |       | Payments Due by Period
|                                  |       |                       
|                                  |       | Total                  |       |        | 2006 |   |       | 2007  |  |   | 2008  |       |  | 2009 |     |       | 2010 |   |     | Thereafter
|                                  |       |                        |       |        |      |   |       |       |  |   |       |       |  |      |     |       |      |   |     |           
|                                  |       | (In thousands)        
|Operating lease obligations       |       | $                      | 3,349 |        |      | $ | 908   |       |  | $ | 910   |       |  | $    | 934 |       |      | $ | 521 |            |  | $ | 76 |    |  | $ |  |  
|Capital lease obligations         |       |                        | 283   |        |      |   | 87    |       |  |   | 87    |       |  |      | 75  |       |      |   | 34  |            |  |   |   |    |  |   |  |  
|Professional athlete sponsorships |       |                        | 7,022 |        |      |   | 3,439 |       |  |   | 2,874 |       |  |      | 709 |       |      |   |    |            |  |   |   |    |  |   |  |  
|Contractual letters of credit     |       |                        | 436   |        |      |   | 436   |       |  |   |      |       |  |      |    |       |      |   |    |            |  |   |   |    |  |   |  |  
|                                  |       |                        |       |        |      |   |       |       |  |   |       |       |  |      |     |       |      |   |     |            | 
|                                  | Total |                        | $     | 11,090 |      |   | $     | 4,870 |  |   | $     | 3,871 |  |      | $   | 1,718 |      |   | $   | 555        |  |   | $  | 76 |  |   | $ |  | 
|                                  |       |                        |       |        |      |   |       |       |  |   |       |       |  |      |     |       |      |   |     |            | 









Seasonality




35



---



##### Table of Contents







Backlog




Inflation




Vulnerability Due to Concentrations






Recent Accounting Pronouncements


Inventory-Costs an Amendment of ARB
No. 43, Chapter 4.


Share-Based Payment


36



---



##### Table of Contents



10-K,









|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK



| |                      
| | ---------------------
| | Foreign Currency Risk

marked-to








37



---



##### Table of Contents





| |                   
| | ------------------
| | Interest Rate Risk








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








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








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







38



---



##### Table of Contents








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






PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT








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








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








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES






PART IV







|         |                                        
|-------- | ---------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES

F-1






39



---



##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                             |  |      |     | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                             |  | Page |    
|                                                                                                             |  |      |    
|Reports of Independent Registered Public
    Accounting Firms                                                |  |      | F-2 | 
|Consolidated Balance Sheets as of
    December 31, 2005 and 2004                                             |  |      | F-4 | 
|Consolidated Statements of Operations for
    the years ended December 31, 2005, 2004 and 2003               |  |      | F-5 | 
|Consolidated Statements of
    Stockholders Equity for the years ended December 31,
    2005, 2004 and 2003 |  |      | F-6 | 
|Consolidated Statements of Cash Flows for
    the years ended December 31, 2005, 2004 and 2003               |  |      | F-7 | 
|Notes to Consolidated Financial
    Statements                                                               |  |      | F-9 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


















F-2



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


















F-3



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                        |                                                                                                                                             |                                            |       |        |         |  |       |        |        | 
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------ | ------- |  | ----- | ------ | ------ | 
|                                        |                                                                                                                                             | As of December 31,                         |      
|                                        |                                                                                                                                             |                                            |      
|                                        |                                                                                                                                             | 2005                                       |       |        | 2004    | 
|                                        |                                                                                                                                             |                                            |       |        |         | 
|                                        |                                                                                                                                             | (In thousands, except                      |      
|                                        |                                                                                                                                             | share data)                                |      
|Assets                                 
|Current assets:                         |                                                                                                                                             |                                            |       |        |         |  |       |       
|                                        | Cash and cash equivalents                                                                                                                   |                                            | $     | 71,712 |         |  | $     | 10,359 |       
|                                        | Accounts receivable  net of allowances of $730 (2005)
    and $378 (2004)                                                                  |                                            |       | 21,408 |         |  |       | 16,680 |       
|                                        | Inventories                                                                                                                                 |                                            |       | 10,833 |         |  |       | 5,620  |       
|                                        | Prepaid expenses and other current assets                                                                                                   |                                            |       | 1,366  |         |  |       | 483    |       
|                                        | Income taxes receivable                                                                                                                     |                                            |       | 479    |         |  |       |       |       
|                                        | Deferred income taxes                                                                                                                       |                                            |       | 1,110  |         |  |       | 9      |       
|                                        |                                                                                                                                             |                                            |       |        |         | 
|                                        |                                                                                                                                             | Total current assets                       |       |        | 106,908 |  |       |        | 33,151 | 
|                                        |                                                                                                                                             |                                            |       |        |         | 
|Property and equipment  net            |                                                                                                                                             |                                            | 3,467 |        |         |  | 1,063 |       
|Investments in unconsolidated investees |                                                                                                                                             |                                            | 298   |        |         |  | 1,627 |       
|Intangible assets  net                 |                                                                                                                                             |                                            | 451   |        |         |  |      |       
|Goodwill                                |                                                                                                                                             |                                            | 158   |        |         |  |      |       
|Other assets                            |                                                                                                                                             |                                            | 99    |        |         |  | 45    |       
|                                        |                                                                                                                                             |                                            |       |        |         | 
|                                        |                                                                                                                                             | Total assets                               |       | $      | 111,381 |  |       | $      | 35,886 | 
|                                        |                                                                                                                                             |                                            |       |        |         | 
|                                       
|Liabilities and Stockholders Equity   
|Current liabilities:                    |                                                                                                                                             |                                            |       |        |         |  |       |       
|                                        | Accounts payable                                                                                                                            |                                            | $     | 5,779  |         |  | $     | 4,893  |       
|                                        | Accrued expenses and other current liabilities                                                                                              |                                            |       | 2,587  |         |  |       | 1,132  |       
|                                        | Current portion of capital lease obligations                                                                                                |                                            |       | 72     |         |  |       | 85     |       
|                                        |                                                                                                                                             |                                            |       |        |         | 
|                                        |                                                                                                                                             | Total current liabilities                  |       |        | 8,438   |  |       |        | 6,110  | 
|                                        |                                                                                                                                             |                                            |       |        |         | 
|Long-term capital lease obligations     |                                                                                                                                             |                                            | 183   |        |         |  | 256   |       
|Deferred income taxes                   |                                                                                                                                             |                                            | 80    |        |         |  | 18    |       
|Commitments and contingencies (Note 9)  |                                                                                                                                             |                                            |       |        |         |  |       |       
|Stockholders equity:                   |                                                                                                                                             |                                            |       |        |         |  |       |       
|                                        | Common stock, $.001 par value 
    60,000,000 shares authorized; 24,214,120 (2005) and
    19,170,705 (2004) shares issued and outstanding |                                            |       | 24     |         |  |       | 19     |       
|                                        | Additional paid-in capital                                                                                                                  |                                            |       | 84,418 |         |  |       | 1,081  |       
|                                        | Retained earnings                                                                                                                           |                                            |       | 18,266 |         |  |       | 28,133 |       
|                                        | Accumulated other comprehensive income                                                                                                      |                                            |       | (28    | )       |  |       | 269    |       
|                                        |                                                                                                                                             |                                            |       |        |         | 
|                                        |                                                                                                                                             | Total stockholders equity                 |       |        | 102,680 |  |       |        | 29,502 | 
|                                        |                                                                                                                                             |                                            |       |        |         | 
|                                        |                                                                                                                                             | Total liabilities and stockholders equity |       | $      | 111,381 |  |       | $      | 35,886 | 
|                                        |                                                                                                                                             |                                            |       |        |         | 



F-4



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                           |                                                        |                                                 |        |            |         |   |        |            |         |   |        |            |        | 
|---------------------------------------------------------- | ------------------------------------------------------ | ----------------------------------------------- | ------ | ---------- | ------- | - | ------ | ---------- | ------- | - | ------ | ---------- | ------ | 
|                                                           |                                                        | Year Ended December 31,                         |       
|                                                           |                                                        |                                                 |       
|                                                           |                                                        | 2005                                            |        |            | 2004    |   |        | 2003       |        
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|                                                           |                                                        | (In thousands, except share and per share data) |       
|Revenues:                                                  |                                                        |                                                 |        |            |         |   |        |            |         |   |        |           
|                                                           | Product revenues                                       |                                                 | $      | 156,716    |         |   | $      | 110,601    |         |   | $      | 74,389     |       
|                                                           | Licensing revenues                                     |                                                 |        | 3,235      |         |   |        | 2,574      |         |   |        | 1,877      |       
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|                                                           |                                                        | Total revenues                                  |        |            | 159,951 |   |        |            | 113,175 |   |        |            | 76,266 | 
|Cost of goods sold                                         |                                                        |                                                 | 78,632 |            |         |   | 58,205 |            |         |   | 39,384 |           
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|Gross profit                                               |                                                        |                                                 | 81,319 |            |         |   | 54,970 |            |         |   | 36,882 |           
|Selling, general and administrative expenses               |                                                        |                                                 | 42,939 |            |         |   | 30,585 |            |         |   | 22,919 |           
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|Operating income                                           |                                                        |                                                 | 38,380 |            |         |   | 24,385 |            |         |   | 13,963 |           
|Other income (expense):                                    |                                                        |                                                 |        |            |         |   |        |            |         |   |        |           
|                                                           | Interest income (expense), net                         |                                                 |        | 1,036      |         |   |        | (6         | )       |   |        | (30        | )     
|                                                           | Dividend income from cost method investee              |                                                 |        | 11         |         |   |        |           |         |   |        |           |       
|                                                           | Foreign currency gain                                  |                                                 |        | 54         |         |   |        |           |         |   |        | 136        |       
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|                                                           |                                                        | Total other income (expense)                    |        |            | 1,101   |   |        |            | (6      | ) |        |            | 106    | 
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|Income before provision for income taxes                   |                                                        |                                                 | 39,481 |            |         |   | 24,379 |            |         |   | 14,069 |           
|Provision for income taxes                                 |                                                        |                                                 | 10,475 |            |         |   | 374    |            |         |   | 214    |           
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|Income before equity in earnings of investee               |                                                        |                                                 | 29,006 |            |         |   | 24,005 |            |         |   | 13,855 |           
|Equity in earnings of investee                             |                                                        |                                                 | 331    |            |         |   | 588    |            |         |   | 407    |           
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|Net income                                                 |                                                        | $                                               | 29,337 |            |         | $ | 24,593 |            |         | $ | 14,262 |           
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|Net income per share:                                      |                                                        |                                                 |        |            |         |   |        |            |         |   |        |           
|                                                           | Basic                                                  |                                                 | $      | 1.36       |         |   | $      | 1.28       |         |   | $      | 0.75       |       
|                                                           | Diluted                                                |                                                 | $      | 1.34       |         |   | $      | 1.26       |         |   | $      | 0.73       |       
|Weighted average shares outstanding:                       |                                                        |                                                 |        |            |         |   |        |            |         |   |        |           
|                                                           | Basic                                                  |                                                 |        | 21,627,821 |         |   |        | 19,142,275 |         |   |        | 19,054,109 |       
|                                                           | Diluted                                                |                                                 |        | 21,839,626 |         |   |        | 19,534,945 |         |   |        | 19,530,873 |       
|Pro forma net income data (unaudited):                     |                                                        |                                                 |        |            |         |   |        |            |         |   |        |           
|                                                           | Income before provision for income taxes, as reported  |                                                 | $      | 39,481     |         |   | $      | 24,379     |         |   | $      | 14,069     |       
|                                                           | Pro forma provision for income taxes                   |                                                 |        | 16,223     |         |   |        | 10,178     |         |   |        | 5,909      |       
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|                                                           | Pro forma income before equity in earnings of investee |                                                 |        | 23,258     |         |   |        | 14,201     |         |   |        | 8,160      |       
|                                                           | Equity in earnings of investee                         |                                                 |        | 331        |         |   |        | 588        |         |   |        | 407        |       
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|                                                           | Pro forma net income                                   |                                                 | $      | 23,589     |         |   | $      | 14,789     |         |   | $      | 8,567      |       
|                                                           |                                                        |                                                 |        |            |         |   |        |            |        
|Pro forma net income per share (unaudited):                |                                                        |                                                 |        |            |         |   |        |            |         |   |        |           
|                                                           | Basic                                                  |                                                 | $      | 1.09       |         |   | $      | 0.77       |         |   |        |            |       
|                                                           | Diluted                                                |                                                 | $      | 1.08       |         |   | $      | 0.76       |         |   |        |            |       
|Pro forma weighted average shares outstanding (unaudited): |                                                        |                                                 |        |            |         |   |        |            |         |   |        |           
|                                                           | Basic                                                  |                                                 |        | 21,627,821 |         |   |        | 19,142,275 |         |   |        |            |       
|                                                           | Diluted                                                |                                                 |        | 21,839,626 |         |   |        | 19,534,945 |         |   |        |            |       



F-5



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                  |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |   |   |        |        |   |   |         |        |  
|------------------------------------------------- | ------------------------------------------------------ | --------------------------------- | ---------- | - | ---------- | - | -- | ----------- |  | ----- | ------------- | - |  | ------------- | ------- | ------ | ------ | - | --- | ----- | - | - | ------ | ------ | - | - | ------- | ------ | -
|                                                  |                                                        |                                   |            |   |            |   |    | Accumulated |  |       |               |   | 
|                                                  |                                                        | Common Stock                      |            |   | Additional |   |    |             |  | Other |               |   |  |               |        
|                                                  |                                                        |                                   |            |   | Paid-In    |   |    | Retained    |  |       | Comprehensive |   |  | Comprehensive |         |        |       
|                                                  |                                                        | Shares                            |            |   | Amount     |   |    | Capital     |  |       | Earnings      |   |  | Income        |         |        | Income |   |     | Total |  
|                                                  |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |  
|                                                  |                                                        | (In thousands, except share data) |           
|Balance at January 1, 2003                        |                                                        |                                   | 19,054,109 |   |            | $ | 19 |             |  | $     | 1,045         |   |  | $             | 7,933   |        |        | $ | 22  |       |   |   |        |        |   | $ | 9,019   |       
|Distributions                                     |                                                        |                                   |           |   |            |   |   |             |  |       |              |   |  |               | (5,380  | )      |        |   |    |       |   |   |        |        |   |   | (5,380  | )     
|Comprehensive income:                             |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |   |   |        |        |   |   |         |       
|                                                  | Net income                                             |                                   |            |  |            |   |    |            |  |       |               |  |  |               |         | 14,262 |        |   |     |      |   |   | $      | 14,262 |   |   |         | 14,262 |  
|                                                  | Foreign currency translation of equity method investee |                                   |            |  |            |   |    |            |  |       |               |  |  |               |         |       |        |   |     | 143   |   |   |        | 143    |   |   |         | 143    |  
|                                                  |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |  
|Comprehensive income                              |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |   | $ | 14,405 |        |   |   |         |       
|                                                  |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |  
|Balance at December 31, 2003                      |                                                        |                                   | 19,054,109 |   |            | $ | 19 |             |  | $     | 1,045         |   |  | $             | 16,815  |        |        | $ | 165 |       |   |   |        |        |   | $ | 18,044  |       
|Exercise of stock options                         |                                                        |                                   | 116,596    |   |            |   |   |             |  |       | 5             |   |  |               |        |        |        |   |    |       |   |   |        |        |   |   | 5       |       
|Stock-based compensation                          |                                                        |                                   |           |   |            |   |   |             |  |       | 31            |   |  |               |        |        |        |   |    |       |   |   |        |        |   |   | 31      |       
|Distributions                                     |                                                        |                                   |           |   |            |   |   |             |  |       |              |   |  |               | (13,275 | )      |        |   |    |       |   |   |        |        |   |   | (13,275 | )     
|Comprehensive income:                             |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |   |   |        |        |   |   |         |       
|                                                  | Net income                                             |                                   |            |  |            |   |    |            |  |       |               |  |  |               |         | 24,593 |        |   |     |      |   |   | $      | 24,593 |   |   |         | 24,593 |  
|                                                  | Foreign currency translation of equity method investee |                                   |            |  |            |   |    |            |  |       |               |  |  |               |         |       |        |   |     | 104   |   |   |        | 104    |   |   |         | 104    |  
|                                                  |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |  
|Comprehensive income                              |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |   | $ | 24,697 |        |   |   |         |       
|                                                  |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |  
|Balance at December 31, 2004                      |                                                        |                                   | 19,170,705 |   |            | $ | 19 |             |  | $     | 1,081         |   |  | $             | 28,133  |        |        | $ | 269 |       |   |   |        |        |   | $ | 29,502  |       
|Initial public offering, net of offering costs    |                                                        |                                   | 4,640,625  |   |            |   | 4  |             |  |       | 80,127        |   |  |               |        |        |        |   |    |       |   |   |        |        |   |   | 80,131  |       
|Stock-based compensation                          |                                                        |                                   |           |   |            |   |   |             |  |       | 178           |   |  |               |        |        |        |   |    |       |   |   |        |        |   |   | 178     |       
|Issuance of restricted stock                      |                                                        |                                   | 20,000     |   |            |   |   |             |  |       |              |   |  |               |        |        |        |   |    |       |   |   |        |        |   |   |        |       
|Exercise of stock options                         |                                                        |                                   | 382,790    |   |            |   | 1  |             |  |       | 199           |   |  |               |        |        |        |   |    |       |   |   |        |        |   |   | 200     |       
|Tax benefits related to exercise of stock options |                                                        |                                   |           |   |            |   |   |             |  |       | 2,833         |   |  |               |        |        |        |   |    |       |   |   |        |        |   |   | 2,833   |       
|Distributions                                     |                                                        |                                   |           |   |            |   |   |             |  |       |              |   |  |               | (39,204 | )      |        |   |    |       |   |   |        |        |   |   | (39,204 | )     
|Comprehensive income:                             |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |   |   |        |        |   |   |         |       
|                                                  | Net income                                             |                                   |            |  |            |   |    |            |  |       |               |  |  |               |         | 29,337 |        |   |     |      |   |   | $      | 29,337 |   |   |         | 29,337 |  
|                                                  | Foreign currency translation of equity method investee |                                   |            |  |            |   |    |            |  |       |               |  |  |               |         |       |        |   |     | (269  | ) |   |        | (269   | ) |   |         | (269   | )
|                                                  | Foreign currency translation adjustment                |                                   |            |  |            |   |    |            |  |       |               |  |  |               |         |       |        |   |     | (28   | ) |   |        | (28    | ) |   |         | (28    | )
|                                                  |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |  
|Comprehensive income                              |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |   | $ | 29,040 |        |   |   |         |       
|                                                  |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |  
|Balance at December 31, 2005                      |                                                        |                                   | 24,214,120 |   |            | $ | 24 |             |  | $     | 84,418        |   |  | $             | 18,266  |        |        | $ | (28 | )     |   |   |        |        |   | $ | 102,680 |       
|                                                  |                                                        |                                   |            |   |            |   |    |             |  |       |               |   |  |               |         |        |        |   |     |       |  



F-6



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |      |        |         |         |      |        |        |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------ | ------ | ------ | ------- | ---- | ------ | ------- | ------- | ---- | ------ | ------ | -
|                                                   |                                                                                       | Year Ended December 31,                                   |                                          
|                                                   |                                                                                       |                                                           |                                          
|                                                   |                                                                                       | 2005                                                      |                                           |                                                     | 2004   |        |        | 2003    |     
|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |     
|                                                   |                                                                                       | (In thousands)                                            |                                          
|Cash flows from operating activities:              |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |      |        |         |        
|                                                   | Net income                                                                            |                                                           | $                                         | 29,337                                              |        |        | $      | 24,593  |      |        | $       | 14,262  |     
|                                                   | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                           |                                           |                                                     |        |        |        |         |      |        |         |         |     
|                                                   |                                                                                       | Depreciation and amortization                             |                                           |                                                     | 623    |        |        |         | 332  |        |         |         | 186  |       
|                                                   |                                                                                       | Equity in earnings of investee, net of dividends received |                                           |                                                     | (331   | )      |        |         | (361 | )      |         |         | (351 | )     
|                                                   |                                                                                       | Provision for doubtful accounts                           |                                           |                                                     | 68     |        |        |         | 67   |        |         |         | 108  |       
|                                                   |                                                                                       | Loss on disposal of property and equipment                |                                           |                                                     | 30     |        |        |         |     |        |         |         |     |       
|                                                   |                                                                                       | Tax benefits related to exercise of stock options         |                                           |                                                     | 2,833  |        |        |         |     |        |         |         |     |       
|                                                   |                                                                                       | Stock-based compensation                                  |                                           |                                                     | 178    |        |        |         | 31   |        |         |         |     |       
|                                                   |                                                                                       | Deferred income taxes                                     |                                           |                                                     | (1,150 | )      |        |         | 11   |        |         |         | 4    |       
|                                                   |                                                                                       | Changes in operating assets and liabilities:              |                                           |                                                     |        |        |        |         |      |        |         |         |      |       
|                                                   |                                                                                       |                                                           | Accounts receivable                       |                                                     |        | (4,219 | )      |         |      | (6,815 | )       |         |      | (2,242 | )     
|                                                   |                                                                                       |                                                           | Inventories                               |                                                     |        | (5,025 | )      |         |      | (30    | )       |         |      | (1,583 | )     
|                                                   |                                                                                       |                                                           | Prepaid expenses and other current assets |                                                     |        | (867   | )      |         |      | (110   | )       |         |      | (278   | )     
|                                                   |                                                                                       |                                                           | Income taxes receivable/payable           |                                                     |        | (479   | )      |         |      | (81    | )       |         |      | 98     |       
|                                                   |                                                                                       |                                                           | Other assets                              |                                                     |        | (54    | )      |         |      | 13     |         |         |      | (19    | )     
|                                                   |                                                                                       |                                                           | Accounts payable                          |                                                     |        | 799    |        |         |      | 1,475  |         |         |      | 621    |       
|                                                   |                                                                                       |                                                           | Accrued expenses                          |                                                     |        | 1,242  |        |         |      | 299    |         |         |      | 13     |       
|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |     
|                                                   |                                                                                       |                                                           |                                           | Net cash provided by operating activities           |        |        | 22,985 |         |      |        | 19,424  |         |      |        | 10,819 |  
|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |     
|Cash flows from investing activities:              |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |      |        |         |        
|                                                   | Purchase of property and equipment                                                    |                                                           |                                           | (2,933                                              | )      |        |        | (550    | )    |        |         | (257    | )   
|                                                   | Proceeds from sale of equity method investee                                          |                                                           |                                           | 1,391                                               |        |        |        |        |      |        |         |        |     
|                                                   | Business acquisition, net of cash acquired                                            |                                                           |                                           | (1,115                                              | )      |        |        |        |      |        |         |        |     
|                                                   | Purchase of additional shares in cost method investee                                 |                                                           |                                           |                                                    |        |        |        | (261    | )    |        |         |        |     
|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |     
|                                                   |                                                                                       |                                                           |                                           | Net cash (used in) investing activities             |        |        | (2,657 | )       |      |        | (811    | )       |      |        | (257   | )
|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |     
|Cash flows from financing activities:              |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |      |        |         |        
|                                                   | Proceeds from borrowings on line of credit                                            |                                                           |                                           |                                                    |        |        |        | 1,401   |      |        |         | 49,160  |     
|                                                   | Payments on line of credit                                                            |                                                           |                                           |                                                    |        |        |        | (1,401  | )    |        |         | (50,374 | )   
|                                                   | Principal payments on capital lease obligations                                       |                                                           |                                           | (86                                                 | )      |        |        | (63     | )    |        |         | (30     | )   
|                                                   | Proceeds from initial public offering, net of offering costs                          |                                                           |                                           | 80,131                                              |        |        |        |        |      |        |         |        |     
|                                                   | Proceeds from the exercise of stock options                                           |                                                           |                                           | 200                                                 |        |        |        | 5       |      |        |         |        |     
|                                                   | Distributions                                                                         |                                                           |                                           | (39,204                                             | )      |        |        | (13,275 | )    |        |         | (5,380  | )   
|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |     
|                                                   |                                                                                       |                                                           |                                           | Net cash provided by (used in) financing activities |        |        | 41,041 |         |      |        | (13,333 | )       |      |        | (6,624 | )
|                                                   | Effect of exchange rate changes on cash                                               |                                                           |                                           | (16                                                 | )      |        |        |        |      |        |         |        |     
|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |     
|Net increase in cash and cash equivalents          |                                                                                       |                                                           | 61,353                                    |                                                     |        |        | 5,280  |         |      |        | 3,938   |        
|Cash and cash equivalents  Beginning of period    |                                                                                       |                                                           | 10,359                                    |                                                     |        |        | 5,079  |         |      |        | 1,141   |        
|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |     
|Cash and cash equivalents  End of period          |                                                                                       | $                                                         | 71,712                                    |                                                     |        | $      | 10,359 |         |      | $      | 5,079   |        
|                                                   |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |     
|Supplemental disclosures of cash flow information: |                                                                                       |                                                           |                                           |                                                     |        |        |        |         |      |        |         |        
|                                                   | Cash paid during the period for:                                                      |                                                           |                                           |                                                     |        |        |        |         |      |        |         |         |     
|                                                   |                                                                                       | Interest                                                  |                                           | $                                                   | 21     |        |        | $       | 21   |        |         | $       | 30   |       
|                                                   |                                                                                       | Income taxes                                              |                                           |                                                     | 9,274  |        |        |         | 450  |        |         |         | 97   |       



F-7



---



##### Table of Contents



Supplemental disclosures of noncash investing and financing
activities:








F-8



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Organization and Summary of Significant Accounting
    Policies







Principles of Consolidation


Basis of Presentation


Initial Public Offering


Cash and Cash Equivalents


Concentration of Credit Risks




F-9



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Inventories (first-in,


Property and Equipment


Investments in Unconsolidated Investees




Long-Lived Assets Accounting for the
Impairment or Disposition of Long-Lived Assets


Goodwill and Intangible Assets Goodwill and Intangible Assets


Fair Value of Financial Instruments Disclosures About Fair Values of
Financial Instruments


F-10



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Revenue Recognition




Shipping and Handling


Significant Concentrations




Advertising and Promotion


Income Taxes




F-11



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




S Corporation Distributions


Stock Split


Comprehensive Income




Net Income Per Share Earnings Per Share


|                                                                                                  |                                    |                                   |            |         |      |   |            |         |  |   |            |         | 
|------------------------------------------------------------------------------------------------- | ---------------------------------- | --------------------------------- | ---------- | ------- | ---- | - | ---------- | ------- |  | - | ---------- | ------- | 
|                                                                                                  |                                    | Year Ended December 31,           |           
|                                                                                                  |                                    |                                   |           
|                                                                                                  |                                    | 2005                              |            |         | 2004 |   |            | 2003    | 
|                                                                                                  |                                    |                                   |            |         |      |   |            |         | 
|                                                                                                  |                                    | (In thousands, except share data) |           
|Numerator  Net income applicable to common
    stockholders                                      |                                    | $                                 | 29,337     |         |      | $ | 24,593     |         |  | $ | 14,262     |        
|                                                                                                  |                                    |                                   |            |         |      |   |            |         | 
|Denominator:                                                                                      |                                    |                                   |            |         |      |   |            |         |  |   |            |        
|Weighted average common stock outstanding for basic earnings per
    share                        |                                    |                                   | 21,627,821 |         |      |   | 19,142,275 |         |  |   | 19,054,109 |        
|Effect of dilutive securities:                                                                    |                                    |                                   |            |         |      |   |            |         |  |   |            |        
|                                                                                                  | Stock options and restricted stock |                                   |            | 211,805 |      |   |            | 392,670 |  |   |            | 476,764 | 
|                                                                                                  |                                    |                                   |            |         |      |   |            |         | 
|Adjusted weighted average common stock and assumed conversions
    for diluted earnings per share |                                    |                                   | 21,839,626 |         |      |   | 19,534,945 |         |  |   | 19,530,873 |        
|                                                                                                  |                                    |                                   |            |         |      |   |            |         | 

Stock-Based Compensation Accounting


F-12



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


for Stock Issued to Employees Accounting for
Stock-Based Compensation 96-18, Accounting for Equity Instruments That are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling
Goods or Services


Accounting for Stock-Based
Compensation  Transition and Disclosure








|                                                                                                                                                    |  |                   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | -
|                                                                                                                                                    |  | Year Ended        |       
|                                                                                                                                                    |  | December 31, 2005 |       
|                                                                                                                                                    |  |                   |       
|                                                                                                                                                    |  | (In thousands,    |       
|                                                                                                                                                    |  | except per        |       
|                                                                                                                                                    |  | share data)       |       
|Net income:                                                                                                                                         |  |                   |        |  
|As reported                                                                                                                                         |  | $                 | 29,337 |  
|Add: Stock-based employee compensation expense included in
    reported net income, net of related tax effects                                      |  |                   | 33     |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |  |                   | (849   | )
|                                                                                                                                                    |  |                   |       
|Pro forma                                                                                                                                           |  | $                 | 28,521 |  
|Basic net income per share:                                                                                                                         |  |                   |        |  
|As reported                                                                                                                                         |  | $                 | 1.36   |  
|Pro forma                                                                                                                                           |  | $                 | 1.32   |  
|Diluted net income per share:                                                                                                                       |  |                   |        |  
|As reported                                                                                                                                         |  | $                 | 1.34   |  
|Pro forma                                                                                                                                           |  | $                 | 1.31   |  

F-13



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Related party transactions


Use of Estimates in the Preparation of the Financial
Statements


Recent Accounting Pronouncements Inventory-Costs an Amendment of ARB No. 43,
Chapter 4


Share-Based Payment




F-14



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                     
|-- | ----------------------------------------------------
|2. | Allowances for Doubtful Accounts and Product Returns

|                           |            |                   |     |     |                 |   |     |        |   |   |     |  | 
|-------------------------- | ---------- | ----------------- | --- | --- | --------------- | - | --- | ------ | - | - | --- |  | 
|                           |            | Allowance for     |     |     | Allowance for   |   |     |       
|                           |            | Doubtful Accounts |     |     | Product Returns |   |     | Total  |  
|                           |            |                   |     |     |                 |   |     |        |  
|                           |            | (In thousands)    |    
|Balance, January 1, 2003   |            | $                 | 55  |     |                 | $ | 119 |        |   | $ | 174 | 
|                           | Provision  |                   |     | 108 |                 |   |     | 1,162  |   |   |     |  | 
|                           | Deductions |                   |     | (31 | )               |   |     | (1,208 | ) |   |     |  | 
|                           |            |                   |     |     |                 |   |     |        |  
|Balance, December 31, 2003 |            |                   | 132 |     |                 |   | 73  |        |   |   | 205 | 
|                           | Provision  |                   |     | 67  |                 |   |     | 1,504  |   |   |     |  | 
|                           | Deductions |                   |     | (53 | )               |   |     | (1,345 | ) |   |     |  | 
|                           |            |                   |     |     |                 |   |     |        |  
|Balance, December 31, 2004 |            |                   | 146 |     |                 |   | 232 |        |   |   | 378 | 
|                           | Provision  |                   |     | 68  |                 |   |     | 2,139  |   |   |     |  | 
|                           | Deductions |                   |     | (24 | )               |   |     | (1,831 | ) |   |     |  | 
|                           |            |                   |     |     |                 |   |     |        |  
|Balance, December 31, 2005 |            | $                 | 190 |     |                 | $ | 540 |        |   | $ | 730 | 
|                           |            |                   |     |     |                 |   |     |        |  





|   |            
|-- | -----------
|3. | Inventories



|                |  |                    |        |  |      |   |       | 
|--------------- |  | ------------------ | ------ |  | ---- | - | ----- | 
|                |  | As of December 31, |       
|                |  |                    |       
|                |  | 2005               |        |  | 2004 |  
|                |  |                    |        |  |      |  
|                |  | (In thousands)     |       
|Finished goods  |  | $                  | 10,188 |  |      | $ | 5,042 | 
|Work-in-process |  |                    | 312    |  |      |   | 220   | 
|Raw materials   |  |                    | 333    |  |      |   | 358   | 
|                |  |                    |        |  |      |  
|                |  | $                  | 10,833 |  |      | $ | 5,620 | 
|                |  |                    |        |  |      |  



F-15



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                       
|-- | ----------------------
|4. | Property and Equipment



|                              |  |                    |        |   |      |   |       |  
|----------------------------- |  | ------------------ | ------ | - | ---- | - | ----- | -
|                              |  | As of December 31, |       
|                              |  |                    |       
|                              |  | 2005               |        |   | 2004 |  
|                              |  |                    |        |   |      |  
|                              |  | (In thousands)     |       
|Furniture and fixtures        |  | $                  | 600    |   |      | $ | 383   |  
|Office equipment              |  |                    | 1,062  |   |      |   | 673   |  
|Computer equipment            |  |                    | 1,141  |   |      |   | 817   |  
|Leasehold improvements        |  |                    | 128    |   |      |   | 74    |  
|Land and building             |  |                    | 2,004  |   |      |   |      |  
|                              |  |                    |        |   |      |  
|                              |  |                    | 4,935  |   |      |   | 1,947 |  
|Less accumulated depreciation |  |                    | (1,468 | ) |      |   | (884  | )
|                              |  |                    |        |   |      |  
|Property and equipment  net  |  | $                  | 3,467  |   |      | $ | 1,063 |  
|                              |  |                    |        |   |      |  





|   |                                       
|-- | --------------------------------------
|5. | Investment in Unconsolidated Investees

Volcom Europe






Volcom Australia


F-16



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                               
|-- | ------------------------------
|6. | Goodwill and Intangible Assets



|                      |  |                  |       | 
|--------------------- |  | ---------------- | ----- | 
|                      |  | As of            |      
|                      |  | October 25, 2005 |      
|                      |  |                  |      
|                      |  | (In thousands)   |      
|Current assets        |  | $                | 1,198 | 
|Long-term assets      |  |                  | 67    | 
|Intangible assets     |  |                  | 510   | 
|Goodwill              |  |                  | 158   | 
|                      |  |                  |      
|Total assets acquired |  |                  | 1,933 | 
|Current liabilities   |  |                  | 421   | 
|                      |  |                  |      
|Net assets acquired   |  | $                | 1,512 | 
|                      |  |                  |      



|                       |  |                         |     |  |                         |   |    |                |  |              |   |  |  |   |   | 
|---------------------- |  | ----------------------- | --- |  | ----------------------- | - | -- | -------------- |  | ------------ | - |  |  | - | - | 
|                       |  | As of December 31, 2005 |     |  | As of December 31, 2004
|                       |  |                         |     |  |                        
|                       |  | Gross Carrying          |     |  | Accumulated             |   |    | Gross Carrying |  | Accumulated 
|                       |  | Amount                  |     |  | Amortization            |   |    | Amount         |  | Amortization
|                       |  |                         |     |  |                         |   |    |                |  |             
|                       |  | (In thousands)         
|Customer relationships |  | $                       | 310 |  |                         | $ | 5  |                |  | $            |  |  |  | $ |  | 
|Backlog                |  |                         | 160 |  |                         |   | 53 |                |  |              |  |  |  |   |  | 
|Non-compete agreements |  |                         | 40  |  |                         |   | 1  |                |  |              |  |  |  |   |  | 
|                       |  |                         |     |  |                         |   |    |                |  |              |   | 
|                       |  | $                       | 510 |  |                         | $ | 59 |                |  | $            |  |  |  | $ |  | 
|                       |  |                         |     |  |                         |   |    |                |  |              |   | 



F-17



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |  |                |     | 
|-------------------------------------- |  | -------------- | --- | 
|Annual estimated amortization expense: |  | (In thousands) |    
|                                       |  |                |    
|Fiscal year ending December 31, 2006   |  | $              | 142 | 
|Fiscal year ending December 31, 2007   |  |                | 35  | 
|Fiscal year ending December 31, 2008   |  |                | 35  | 
|Fiscal year ending December 31, 2009   |  |                | 35  | 
|Fiscal year ending December 31, 2010   |  |                | 35  | 



|   |                                               
|-- | ----------------------------------------------
|7. | Accrued Expenses and Other Current Liabilities



|                             |  |                    |       |  |      |   |       | 
|---------------------------- |  | ------------------ | ----- |  | ---- | - | ----- | 
|                             |  | As of December 31, |      
|                             |  |                    |      
|                             |  | 2005               |       |  | 2004 |  
|                             |  |                    |       |  |      |  
|                             |  | (In thousands)     |      
|Payroll and related accruals |  | $                  | 1,079 |  |      | $ | 671   | 
|Other                        |  |                    | 1,508 |  |      |   | 461   | 
|                             |  |                    |       |  |      |  
|                             |  | $                  | 2,587 |  |      | $ | 1,132 | 
|                             |  |                    |       |  |      |  



|   |               
|-- | --------------
|8. | Line of Credit





|   |                              
|-- | -----------------------------
|9. | Commitments and Contingencies

Operating Leases




|                         |  |   |       | 
|------------------------ |  | - | ----- | 
|Year Ending December 31, |  |  
|                         |  |  
|2006                     |  | $ | 908   | 
|2007                     |  |   | 910   | 
|2008                     |  |   | 934   | 
|2009                     |  |   | 521   | 
|2010                     |  |   | 76    | 
|                         |  |   |      
|                         |  | $ | 3,349 | 
|                         |  |   |      

F-18



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Capital Leases


|                                                        |  |   |     |  
|------------------------------------------------------- |  | - | --- | -
|Year Ending December 31,                                |  |  
|                                                        |  |  
|2006                                                    |  | $ | 87  |  
|2007                                                    |  |   | 87  |  
|2008                                                    |  |   | 75  |  
|2009                                                    |  |   | 34  |  
|                                                        |  |   |    
|Total payments including interest                       |  |   | 283 |  
|Less interest portion                                   |  |   | (28 | )
|                                                        |  |   |    
|Total principal payments remaining at December 31, 2005 |  | $ | 255 |  
|                                                        |  |   |    
|Current portion of capital lease obligation             |  | $ | 72  |  
|Long-term portion of capital lease obligation           |  |   | 183 |  
|                                                        |  |   |    
|Total capital lease obligation at December 31, 2005     |  | $ | 255 |  
|                                                        |  |   |    

Professional Athlete Sponsorships


|                         |  |   |       | 
|------------------------ |  | - | ----- | 
|Year Ending December 31, |  |  
|                         |  |  
|2006                     |  | $ | 3,439 | 
|2007                     |  |   | 2,874 | 
|2008                     |  |   | 709   | 
|                         |  |   |      
|                         |  | $ | 7,022 | 
|                         |  |   |      



Litigation




F-19



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Indemnities and Guarantees




|    |                     
|--- | --------------------
|10. | Stockholders Equity

Stock Option Plan




F-20



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                               |                       |                          |         |           |          |   |       |           |           |  |          |          |   |           |      |      |          |  |         |   |  |   |      |   | 
|-------------------------------------------------------------- | --------------------- | ------------------------ | ------- | --------- | -------- | - | ----- | --------- | --------- |  | -------- | -------- | - | --------- | ---- | ---- | -------- |  | ------- | - |  | - | ---- | - | 
|                                                               |                       | Years Ended December 31, |        
|                                                               |                       |                          |        
|                                                               |                       | 2005                     |         |           | 2004     |   |       | 2003      |          
|                                                               |                       |                          |         |           |          |   |       |           |          
|                                                               |                       |                          |         | Weighted- |          |   |       |           | Weighted- |  |          |          |   | Weighted- |     
|                                                               |                       |                          |         | Average   |          |   |       |           | Average   |  |          |          |   | Average   |     
|                                                               |                       | Number of                |         |           | Exercise |   |       | Number of |           |  | Exercise |          |   | Number of |      |      | Exercise | 
|                                                               |                       | Options                  |         |           | Price    |   |       | Options   |           |  | Price    |          |   | Options   |      |      | Price    | 
|                                                               |                       |                          |         |           |          |   |       |           |           |  |          |          |   |           |      |      |          | 
|Outstanding, beginning of year                                 |                       |                          |        |           |          | $ |      |           |           |  | 116,596  |          |   | $         | 0.04 |      |          |  | 116,596 |   |  | $ | 0.04 |  
|                                                               | Granted               |                          |         | 586,526   |          |   |       | 19.00     |           |  |          |         |   |           |      |     |          |  |         |  |  |   |      |  | 
|                                                               | Exercised             |                          |         | (10,526   | )        |   |       | 19.00     |           |  |          | (116,596 | ) |           |      | 0.04 |          |  |         |  |  |   |      |  | 
|                                                               | Canceled or forfeited |                          |         |          |          |   |       |          |           |  |          |         |   |           |      |     |          |  |         |  |  |   |      |  | 
|                                                               |                       |                          |         |           |          |   |       |           |           |  |          |          |   |           |      |      |          | 
|Outstanding, end of year                                       |                       |                          | 576,000 |           |          | $ | 19.00 |           |           |  |         |          |   | $         |     |      |          |  | 116,596 |   |  | $ | 0.04 |  
|                                                               |                       |                          |         |           |          |   |       |           |           |  |          |          |   |           |      |      |          | 
|Options exercisable, end of year                               |                       |                          | 185,000 |           |          | $ | 19.00 |           |           |  |         |          |   | $         |     |      |          |  | 116,596 |   |  | $ | 0.04 |  
|                                                               |                       |                          |         |           |          |   |       |           |           |  |          |          |   |           |      |      |          | 
|Weighted average fair value of options granted during the year |                       |                          |         |           |          | $ | 7.97  |           |           |  |          |          |   | $         |     |      |          |  |         |   |  | $ |     |  
|                                                               |                       |                          |         |           |          |   |       |           |           |  |          |          |   |           |      |      |          | 



|       |  |                     |         |           |                     |  |           |          |  |   |           |           |  |          |         |  |  |   |       | 
|------ |  | ------------------- | ------- | --------- | ------------------- |  | --------- | -------- |  | - | --------- | --------- |  | -------- | ------- |  |  | - | ----- | 
|       |  | Options Outstanding |         |           | Options Exercisable | 
|       |  |                     |         |           |                     | 
|       |  |                     |         | Weighted- |                     |  | Weighted- |          |  |   |           | Weighted- | 
|       |  |                     |         | Average   |                     |  | Average   |          |  |   |           | Average   | 
|       |  | Number of           |         |           | Remaining           |  |           | Exercise |  |   | Number of |           |  | Exercise |        
|       |  | Options             |         |           | Life (yrs)          |  |           | Price    |  |   | Options   |           |  | Price    |        
|       |  |                     |         |           |                     |  |           |          |  |   |           |           |  |          |        
|$19.00 |  |                     | 576,000 |           |                     |  | 9.5       |          |  | $ | 19.00     |           |  |          | 185,000 |  |  | $ | 19.00 | 

Employee Share-Based Compensation


Nonemployee Share-Based Compensation




F-21



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services






|    |                        
|--- | -----------------------
|11. | Retirement Savings Plan





|    |          
|--- | ---------
|12. | Licensing





|             |  |                         |                   |  |                            |  |                   | 
|------------ |  | ----------------------- | ----------------- |  | -------------------------- |  | ----------------- | 
|Licensee     |  | Initial Expiration Date |                   |  | Extension Termination Date | 
|             |  |                         |                   |  |                            | 
|Europe       |  |                         | December 31, 2006 |  |                            |  | N/A               | 
|Australia    |  |                         | June 30, 2007     |  |                            |  | June 30, 2012     | 
|Brazil       |  |                         | December 31, 2008 |  |                            |  | December 31, 2013 | 
|South Africa |  |                         | December 31, 2006 |  |                            |  | December 31, 2011 | 
|Indonesia    |  |                         | December 31, 2009 |  |                            |  | December 31, 2014 | 

F-22



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |             
|--- | ------------
|13. | Income Taxes





|         |  |                          |        |   |      |   |     |      |  |   |     | 
|-------- |  | ------------------------ | ------ | - | ---- | - | --- | ---- |  | - | --- | 
|         |  | Years Ended December 31, |       
|         |  |                          |       
|         |  | 2005                     |        |   | 2004 |   |     | 2003 | 
|         |  |                          |        |   |      |   |     |      | 
|         |  | (In thousands)           |       
|Current  |  | $                        | 11,625 |   |      | $ | 364 |      |  | $ | 209 | 
|Deferred |  |                          | (1,150 | ) |      |   | 10  |      |  |   | 5   | 
|         |  |                          |        |   |      |   |     |      | 
|         |  | $                        | 10,475 |   |      | $ | 374 |      |  | $ | 214 | 
|         |  |                          |        |   |      |   |     |      | 



|                                                      |  |              |       |  
|----------------------------------------------------- |  | ------------ | ----- | -
|                                                      |  | Year Ended   |      
|                                                      |  | December 31, |      
|                                                      |  | 2005         |      
|                                                      |  |              |      
|Provision for taxes at U.S. Federal statutory rate    |  |              | 35.0  | %
|State income taxes, net of federal income tax benefit |  |              | 4.1   |  
|Effect of S corporation tax status                    |  |              | (11.8 | )
|Equity in earnings of investee                        |  |              | 0.3   |  
|Other                                                 |  |              | (1.1  | )
|                                                      |  |              |      
|Effective income tax rate                             |  |              | 26.5  | %
|                                                      |  |              |      

F-23



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                      |                                                      |                                |       |     |       |   |    |     |     |  
|------------------------------------- | ---------------------------------------------------- | ------------------------------ | ----- | --- | ----- | - | -- | --- | --- | -
|                                      |                                                      | 2005                           |       |     | 2004  |  
|                                      |                                                      |                                |       |     |       |  
|                                      |                                                      | (In thousands)                 |      
|Deferred tax assets:                  |                                                      |                                |       |     |       |   |    |    
|                                      | Accrued liabilities                                  |                                | $     | 173 |       |   | $  | 5   |    
|                                      | State income taxes                                   |                                |       | 568 |       |   |    |    |    
|                                      | Allowances for doubtful accounts and product returns |                                |       | 320 |       |   |    |    |    
|                                      | Foreign net operating losses                         |                                |       | 9   |       |   |    |    |    
|                                      | Other                                                |                                |       | 58  |       |   |    | 4   |    
|                                      |                                                      |                                |       |     |       |  
|                                      |                                                      | Total deferred tax assets      |       |     | 1,128 |   |    |     | 9   |  
|Deferred tax liabilities:             |                                                      |                                |       |     |       |   |    |    
|                                      | Intangible assets                                    |                                |       | (98 | )     |   |    | (17 | )  
|                                      | Other                                                |                                |       |    |       |   |    | (1  | )  
|                                      |                                                      |                                |       |     |       |  
|                                      |                                                      | Total deferred tax liabilities |       |     | (98   | ) |    |     | (18 | )
|                                      |                                                      |                                |       |     |       |  
|Net deferred tax assets (liabilities) |                                                      | $                              | 1,030 |     |       | $ | (9 | )  
|                                      |                                                      |                                |       |     |       |  





|    |                    
|--- | -------------------
|14. | Segment Information





|                            |  |                         |         |  |      |   |         |      |  |   |        | 
|--------------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------ | 
|                            |  | Year Ended December 31, |        
|                            |  |                         |        
|                            |  | 2005                    |         |  | 2004 |   |         | 2003 | 
|                            |  |                         |         |  |      |   |         |      | 
|                            |  | (In thousands)          |        
|Mens                        |  | $                       | 87,254  |  |      | $ | 61,451  |      |  | $ | 42,574 | 
|Girls                       |  |                         | 51,463  |  |      |   | 35,362  |      |  |   | 21,777 | 
|Snow                        |  |                         | 9,455   |  |      |   | 9,106   |      |  |   | 6,863  | 
|Boys                        |  |                         | 7,133   |  |      |   | 3,785   |      |  |   | 2,456  | 
|Other                       |  |                         | 1,411   |  |      |   | 897     |      |  |   | 719    | 
|                            |  |                         |         |  |      |   |         |      | 
|Subtotal product categories |  |                         | 156,716 |  |      |   | 110,601 |      |  |   | 74,389 | 
|Licensing revenues          |  |                         | 3,235   |  |      |   | 2,574   |      |  |   | 1,877  | 
|                            |  |                         |         |  |      |   |         |      | 
|Total consolidated revenues |  | $                       | 159,951 |  |      | $ | 113,175 |      |  | $ | 76,266 | 
|                            |  |                         |         |  |      |   |         |      | 



F-24



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|              |  |                         |         |  |      |   |         |      |  |   |        | 
|------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------ | 
|              |  | Year Ended December 31, |        
|              |  |                         |        
|              |  | 2005                    |         |  | 2004 |   |         | 2003 | 
|              |  |                         |         |  |      |   |         |      | 
|              |  | (In thousands)          |        
|United States |  | $                       | 128,159 |  |      | $ | 93,812  |      |  | $ | 63,302 | 
|Canada        |  |                         | 15,774  |  |      |   | 8,155   |      |  |   | 5,381  | 
|Asia Pacific  |  |                         | 6,622   |  |      |   | 5,174   |      |  |   | 3,371  | 
|Other         |  |                         | 6,161   |  |      |   | 3,460   |      |  |   | 2,335  | 
|              |  |                         |         |  |      |   |         |      | 
|              |  | $                       | 156,716 |  |      | $ | 110,601 |      |  | $ | 74,389 | 
|              |  |                         |         |  |      |   |         |      | 





|    |                                  
|--- | ---------------------------------
|15. | Pro Forma Information (Unaudited)



|                                            |  |                         |        |  |      |   |        |      |  |   |       | 
|------------------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ----- | 
|                                            |  | Year Ended December 31, |       
|                                            |  |                         |       
|                                            |  | 2005                    |        |  | 2004 |   |        | 2003 | 
|                                            |  |                         |        |  |      |   |        |      | 
|                                            |  | (In thousands)          |       
|Federal income taxes at the statutory rate  |  | $                       | 13,818 |  |      | $ | 8,533  |      |  | $ | 4,924 | 
|State income taxes  net of Federal benefit |  |                         | 2,268  |  |      |   | 1,401  |      |  |   | 813   | 
|Equity in earnings of investee              |  |                         | 116    |  |      |   | 240    |      |  |   | 166   | 
|Other                                       |  |                         | 21     |  |      |   | 4      |      |  |   | 6     | 
|                                            |  |                         |        |  |      |   |        |      | 
|Total pro forma income tax provision        |  | $                       | 16,223 |  |      | $ | 10,178 |      |  | $ | 5,909 | 
|                                            |  |                         |        |  |      |   |        |      | 

F-25



---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                     
|--- | ------------------------------------
|16. | Quarterly Financial Data (Unaudited)



|                             |                               |               |   |        |         |  |   |              |  |  |             |        |  |  |   |        | 
|---------------------------- | ----------------------------- | ------------- | - | ------ | ------- |  | - | ------------ |  |  | ----------- | ------ |  |  | - | ------ | 
|                             |                               | Quarter Ended |  
|                             |                               |               |  
|                             |                               | March 31      |   |        | June 30 |  |   | September 30 |  |  | December 31 |       
|                             |                               |               |   |        |         |  |   |              |  |  |             |       
|Year ended December 31, 2005 |                               |               |   |        |         |  |   |              |  |  |             |        |  |  |   |       
|                             | Total revenues                |               | $ | 31,691 |         |  | $ | 35,853       |  |  | $           | 51,192 |  |  | $ | 41,215 | 
|                             | Gross profit                  |               |   | 16,407 |         |  |   | 18,697       |  |  |             | 26,110 |  |  |   | 20,105 | 
|                             | Operating income              |               |   | 6,044  |         |  |   | 7,639        |  |  |             | 15,441 |  |  |   | 9,256  | 
|                             | Net income                    |               |   | 6,262  |         |  |   | 4,630        |  |  |             | 11,292 |  |  |   | 7,153  | 
|                             | Net income per share, basic   |               | $ | 0.33   |         |  | $ | 0.24         |  |  | $           | 0.47   |  |  | $ | 0.30   | 
|                             | Net income per share, diluted |               | $ | 0.32   |         |  | $ | 0.24         |  |  | $           | 0.47   |  |  | $ | 0.29   | 
|Year ended December 31, 2004 |                               |               |   |        |         |  |   |              |  |  |             |        |  |  |   |       
|                             | Total revenues                |               | $ | 21,231 |         |  | $ | 24,373       |  |  | $           | 37,213 |  |  | $ | 30,358 | 
|                             | Gross profit                  |               |   | 10,407 |         |  |   | 12,166       |  |  |             | 17,901 |  |  |   | 14,496 | 
|                             | Operating income              |               |   | 2,829  |         |  |   | 5,411        |  |  |             | 9,794  |  |  |   | 6,351  | 
|                             | Net income                    |               |   | 3,150  |         |  |   | 5,116        |  |  |             | 10,103 |  |  |   | 6,224  | 
|                             | Net income per share, basic   |               | $ | 0.17   |         |  | $ | 0.27         |  |  | $           | 0.53   |  |  | $ | 0.32   | 
|                             | Net income per share, diluted |               | $ | 0.16   |         |  | $ | 0.26         |  |  | $           | 0.52   |  |  | $ | 0.32   | 



F-26



---



##### Table of Contents






SIGNATURES






| |             
| | ------------
| | VOLCOM, INC.



| |     |                        
| | --- | -----------------------
| | By: | /s/ Richard R. Woolcott

| |                                      
| | -------------------------------------
| |                                      
| | Richard R. Woolcott                  
| | President and Chief Executive Officer





|                                           |  |                                                           |  |                |  | 
|------------------------------------------ |  | --------------------------------------------------------- |  | -------------- |  | 
|Signature                                  |  | Title                                                     |  | Date          
|                                           |  |                                                           |  |               
|                                          
|/s/ Richard R. WoolcottRichard R. Woolcott |  | Chief Executive Officer
    (Principal Executive Officer) |  | March 20, 2006
|                                          
|/s/ Douglas P. CollierDouglas P. Collier   |  | Chief Financial Officer
    (Principal Financial Officer) |  | March 20, 2006
|                                          
|/s/ René R. WoolcottRené R. Woolcott       |  | Chairman of Board of Directors                            |  | March 20, 2006
|                                          
|/s/ Douglas S. IngramDouglas S. Ingram     |  | Director                                                  |  | March 20, 2006
|                                          
|/s/ Anthony M. PalmaAnthony M. Palma       |  | Director                                                  |  | March 20, 2006
|                                          
|/s/ Joseph B. TysonJoseph B. Tyson         |  | Director                                                  |  | March 20, 2006
|                                          
|/s/ Carl W. WomackCarl W. Womack           |  | Director                                                  |  | March 20, 2006
|                                          
|/s/ Kevin G. WulffKevin G. Wulff           |  | Director                                                  |  | March 20, 2006

F-27



---



##### Table of Contents



EXHIBIT INDEX


|       |    |             |  |                                                                                                                                                                                
|------ | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 3  | .1*         |  | Restated Certificate of Incorporation of Volcom, Inc.                                                                                                                          
|       | 3  | .2*         |  | Amended and Restated Bylaws of Volcom, Inc.                                                                                                                                    
|       | 3  | .3*         |  | Certificate of Amendment of Restated Certificate of
    Incorporation of Volcom, Inc.                                                                                          
|       | 4  | .1*         |  | Specimen Common Stock certificate.                                                                                                                                             
|       | 10 | .1*         |  | Form of Indemnification Agreement between Volcom and each of its
    directors and officers.                                                                                   
|       | 10 | .2*         |  | Credit Agreement by and between Bank of the West and Stone
    Boardwear, Inc., dated as of August 12, 2003.                                                                   
|       | 10 | .3*         |  | First Amendment to Credit Agreement by and between Bank of the
    West and Stone Boardwear, Inc. dated as of August 12, 2003,
    made and entered into as of October 8, 2004.
|       | 10 | .4*         |  | Lease dated as of May 19, 1999 by and between Griswold
    Industries and Stone Boardwear, Inc. for the real property known
    as 1740 Monrovia Avenue, Costa Mesa.           
|       | 10 | .5*         |  | Form of 2005 Incentive Award Plan.                                                                                                                                             
|       | 10 | .6*         |  | Form of Restricted Stock Award Grant Notice and Agreement.                                                                                                                     
|       | 10 | .7*         |  | Form of Stock Option Grant Notice and Agreement.                                                                                                                               
|       | 10 | .8*         |  | Software License Agreement by and between Innovative Systems,
    LLC and Volcom Stone Board Wear, Inc., made and effective
    September 1, 2002.                             
|       | 10 | .9         |  | 2006 Base Salaries and Performance Bonus Plan for Certain
    Executive Officers.                                                                                              
|       | 21 | .1          |  | Subsidiaries of Volcom, Inc.                                                                                                                                                   
|       | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm
    (Deloitte & Touche LLP).                                                                                          
|       | 23 | .2          |  | Consent of Independent Registered Public Accounting Firm (Moss
    Adams LLP).                                                                                                 
|       | 31 | .1          |  | Certification of the Principal Executive Officer, as required
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                   
|       | 31 | .2          |  | Certification of the Principal Financial Officer, as required
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                   
|       | 32 |             |  | Certifications of the Principal Executive Officer and Principal
    Financial Officer, as required pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.              






|  |                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------
|* | Incorporated by reference to Volcom, Inc.s Registration
    Statement on
    Form S-1 (File
    Number: 333-124498)



|  |                                                                                                                        
|- | -----------------------------------------------------------------------------------------------------------------------
| | Incorporated by reference to Volcom, Inc.s Current Report
    on Form 8-K filed
    with the SEC on February 13, 2006.