United
        States
 Securities
        and Exchange Commission
 Washington,
        D.C. 20549
 
 **____________________________________**
 
 **FORM
        10-Q**
  [X]
          Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
          Act
          of 1934
 
 For
          the
          Quarterly Period Ended **June 30, 2006**
 
 OR
 
 [
          ]
          Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
          Act
          of 1934
 
 For
          the
          Transition Period From **________** to **________** .
 
 
 **Commission
          file number** **0-10593**
  
 **ICONIX
        BRAND GROUP, INC.**
  (Exact
        name of registrant as specified in its charter)
 
 
 Delaware
                11-2481903(State
                    or other jurisdiction ofincorporation
                    or organization)
                (I.R.S.
                    Employer Identification No.)1450
                    Broadway, New York, NY
                10018(Address
                    of principal executive offices)
                (Zip
                    Code)
 (212)
        730-0030
  (Registrant’s
        telephone number, including area code)
 
 
  (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter periods that the registrant was
        required to file such reports), and (2) has been subject to such filing
        requirements for the past 90 days. Yes X No .
 
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act):
 
 Large
        accelerated filer ___   Accelerated
        filer _X__   Non-accelerated
        filer ___
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act) Yes ___ No.
        _X__
 
 Indicate
        the number of shares outstanding of each of the issuer’s classes of Common
        Stock, as of the latest practicable date.
 
 Common
        Stock, $.001 Par Value - 39,184,715 shares as of July 27, 2006.
 
 
 
  
  **INDEX**
 
 **FORM
        10-Q**
 
 **Iconix
        Brand Group, Inc. and Subsidiaries**
 
  Part
                    I.
                Financial
                    Information
                Page
                    No.Item
                    1.
                Financial
                    Statements – (Unaudited)Condensed
                    Consolidated Balance Sheets – June 30, 2006 and December 31,
                    2005
                3Condensed
                    Consolidated Income Statements – Three and Six Months Ended June 30, 2006
                    and 2005
                4Condensed
                    Consolidated Statement of Stockholders’ Equity – Six Months Ended June 30,
                    2006
                5Condensed
                    Consolidated Statements of Cash Flows – Six Months Ended June 30, 2006 and
                    2005
                6Notes
                    to Condensed Consolidated Financial Statements
                7Item
                    2.
                Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operations
                20Item
                    3.
                Quantitative
                    and Qualitative Disclosures about Market Risk
                26Item
                    4.
                Controls
                    and Procedures
                26Part
                    II.
                Other
                    InformationItem
                    1.
                Legal
                    Proceedings
                27Item
                    1A.
                Risk
                    Factors
                27Item
                    6.
                Exhibits
                28Signatures
                
                29
 2
   Part
        I.  Financial
        Information
 
 Item
        1.
        FINANCIAL STATEMENTS
 
 **Iconix
        Brand Group, Inc. and Subsidiaries**
 Condensed
        Consolidated Balance Sheets
 (in
        thousands, except par value)
 
 June
                  30,
              December
                  31,2006
              2005**Assets**
              (Unaudited)Current
                  Assets:Cash
                  and cash equivalents (including restricted cash of $9,003 in 2006
                  and
                  $4,094 in 2005)
              $13,592
              $11,687Marketable
                  securities
              911
              553Accounts
                  receivable, net of reserve of $885 in 2006 and $260 in
                  2005
              8,246
              3,532Due
                  from affiliate
              219
              193Deferred
                  income taxes
              6,978
              3,716Prepaid
                  advertising and other
              2,851
              2,664Total
                  Current Assets
              32,797
              22,345Property
                  and equipment:Furniture,
                  fixtures and equipment at cost
              2,585
              2,027Less:
                  Accumulated depreciation and amortization
              (1,276)
              (1,175)1,309
              852Other
                  Assets:Restricted
                  cash
              8,546
              4,982Goodwill
              42,528
              32,835Other
                  intangibles, net
              229,758
              139,281Deferred
                  financing costs, net
              3,759
              3,597Deferred
                  income taxes
              15,302
              11,978Other
              1,142
              1,374301,035
              194,047Total
                  Assets
              $
                  335,141
              $
                  217,244**Liabilities
                  and Stockholders' Equity**Current
                  liabilities:Accounts
                  payable and accrued expenses
              $3,890
              $3,360Promissory note payable
              750
              -Accounts
                  payable, subject to litigation
              4,886
              4,886Deferred
                  revenue
              2,645
              4,782Current
                  portion of long-term debt
              32,469
              13,705Total
                  current liabilities
              44,640
              26,733Deferred
                  income taxes
              6,640
              4,201Long-term
                  debt, less current maturities
              111,238
              85,414Contingencies
                  and commitments
              -
              -Stockholders'
                  Equity:Common
                  stock, $.001 par value-shares authorized 75,000;shares
                  issued 39,059 and 35,540 respectively
              39
              36Additional
                  paid-in capital
              192,698
              136,842Accumulated
                  other comprehensive income
              166
              -Retained
                  deficit
              (19,613)
              (35,315)Treasury
                  stock - 198 shares at cost
              (667)
              (667)Total
                  stockholders’ equity
              172,623
              100,896Total
                  Liabilities and Stockholders' Equity
              $
                  335,141
              $
                  217,244
 
 See
        Notes
        to Condensed Consolidated Financial Statements.
    3
  **Iconix
        Brand Group, Inc. and Subsidiaries**
 
 
 Condensed
        Consolidated Income Statements - (Unaudited)
 (in
        thousands, except earnings per share data)
 
 Three
                  Months Ended June 30,
              Six
                  Months Ended June 30,2006
              2005
              
              2006
              
              2005Licensing
                  and commission revenue
              $
                  18,409
              $
                  4,287
              
              $
                  31,678
              
              $
                  8,587Selling,
                  general and administrative expenses(net
                  ofrecovery
                  in 2005 pursuant to an agreement. See Note H)
              6,817
              2,734
              
              11,501
              
              5,308Special
                  charges
              712
              328
              
              1,268
              
              707Operating
                  income
              10,880
              1,225
              
              18,909
              
              2,572Other
                  expenses:Interest
                  expense
              3,073
              525
              
              5,178
              
              1,089Interest
                  income
              (191)
              (21)
              
              (352)
              
              (35)Interest
                  expense - net
              2,882
              504
              
              4,826
              
              1,054Income
                  before income taxes
              7,998
              721
              
              14,083
              
              1,518Income
                  taxes (benefits)
              (347)
              (1,790)
              
              (1,619)
              
              (1,780)Net
                  income
              $
                  8,345
              $
                  2,511
              
              $
                  15,702
              
              $
                  3,298Earnings
                  per share:Basic
              $
                  0.22
              $
                  0.09
              
              $
                  0.42
              
              $
                  0.12Diluted
              $
                  0.19
              $
                  0.08
              
              $
                  0.37
              
              $
                  0.11Weighted
                  average number of common shares outstanding:Basic
              38,680
              28,602
              
              37,208
              
              28,516Diluted
              44,712
              30,247
              
              42,872
              
              30,115
 
 See
        Notes
        to Condensed Consolidated Financial Statements.
  4
  **Iconix
        Brand Group, Inc. and Subsidiaries**
 
 Condensed
        Consolidated Statement of Stockholders’ Equity
 (Unaudited)
 
 Six
        Months Ended June 30, 2006
 ***(in
        thousands)***
  Additional
              
              
              AccumulatedCommon
                  Stock
              Paid
                  - in
              Retained
              Treasury
              Other
                  Compre-Shares
              Amount
              Capital
              Deficit
              Stock
              hensive
                  Income
              TotalBalance
                  at January 1, 2006
              35,540
              $
                  36
              $
                  136,842
              $
                  (35,315)
              $
                  (667)
              $
                  -
              $
                  100,896Issuance
                  of common stock related to acquisition of Mudd ®
              3,269
              3
              47,859
              -
              -
              -
              47,862Warrants
                  granted to non-employees related to acquisition
              -
              -
              4,596
              -
              -
              -
              4,596Exercise
                  of stock options
              250
              -
              931
              -
              -
              -
              931Option
                  compensation expense recognized
              -
              -
              90
              -
              -
              -
              90Release
                  of valuation allowance from Net Operating Loss (“NOL”) related to options
                  exercised previously
              -
              -
              2,380
              -
              -
              -
              2,380Unrealized
                  gain on marketable securities (net of tax)
              -
              -
              -
              -
              -
              166
              166Net
                  income
              -
              -
              -
              15,702
              -
              -
              15,702Balance
                  at June 30, 2006
              39,059
              $
                  39
              $
                  192,698
              $
                  (19,613)
              $
                  (667)
              $166
              $
                  172,623
 
 
 
 
 
 
 
 
 
 See
        Notes
        to Condensed Consolidated Financial Statements.
 
  5
  **Iconix
        Brand Group, Inc. and Subsidiaries**
 
 Condensed
        Consolidated Statements of Cash Flows
 (Unaudited)
 
 
 (000’s
                  omitted)
              Six
                  Months Ended June 30,2006
              2005Net
                  cash provided by operating activities
              $7,806
              $
                  2,119Cash
                  flows used in investing activities:Purchases
                  of fixed assets
              (558)
              (26)Purchase
                  of marketable securities
              (78)
              -Acquisition
                  of Mudd
              (45,785)
              -Purchase
                  of trademarks
              (829)
              (218)Net
                  cash used in investing activities
              (47,250)
              (244)Cash
                  flows (used in) provided by financing activities:Proceeds
                  from long-term debt
              49,000
              -Repayment
                  of loans from related parties
              -
              (2,000)Proceeds
                  from exercise of stock options and warrants
              931
              749Payment
                  of long-term debt
              (4,528)
              (1,430)Deferred
                  financing costs
              (490)
              -Restricted
                  cash - Current
              (4,909)
              444Restricted
                  cash - Non Current
              (3,564)
              -Net
                  cash provided by (used in) financing activities
              36,440
              (2,237)Net
                  (decrease) increase in cash and cash equivalents
              (3,004)
              (362)Cash
                  and cash equivalents, beginning of period
              7,593
              798Cash
                  and cash equivalents, end of period
              $
                  4,589
              $
                  436Balance
                  of restricted cash - Current
              9,003
              79Total
                  cash and cash equivalents including current restricted cash, end
                  of
                  period
              $13,592
              $515
 
 **Supplemental
        disclosure of cash flow information:**
 Six
                  Months Ended June 30,2006
              2005Cash
                  paid during the year:Interest
              $4,157
              $775
 
 **Supplemental
        disclosures of non-cash investing and financing
        activities:**
 
 Six
                  Months Ended June 30,2006
              2005Acquisitions:Common
                  stock issued
              $47,862
              $
                  -Warrants
                  issued - acquisition cost
              $4,596
              $
                  -Issuance
                of
                promissory note:Issuance
                of promissory note
              $750
              $-
 
 See
        Notes
        to Condensed Consolidated Financial Statements.
  6
  **Iconix
        Brand Group, Inc. and Subsidiaries**
 
 Notes
        to
        Condensed Consolidated Financial Statements (Unaudited)
 June
        30,
        2006
 
 NOTE
        A  BASIS OF
        PRESENTATION
  The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with generally accepted accounting principles for
        interim
        financial information and with the instructions to Form 10-Q and Article
        10 of
        Regulation S-X. Accordingly, they do not include all the information and
        footnotes required by generally accepted accounting principles for complete
        financial statements. In the opinion of management, all adjustments (consisting
        primarily of normal recurring accruals) considered necessary for a fair
        presentation have been included. Operating results for the three months
        (“Current Quarter”) and the six months (“Current Six Months”) ended June 30,
        2006 are not necessarily indicative of the results that may be expected for
        a
        full fiscal year.
 
 Beginning
        in January 2005, the Company changed its business practices with respect
        to
        Bright Star Footwear, Inc (“Bright Star”), a subsidiary of the Company, which
        resulted in Bright Star acting only as an agent of the Company. Accordingly,
        after January 1, 2005 Bright Star net commissions are recognized as revenue
        rather than gross product sales which were recognized prior to that date.
 
 The
        Candie’s and Bongo trademarks had previously been amortized on a straight-line
        basis over their estimated useful lives of approximately 20 years. Effective
        July 1, 2005, the Company changed for accounting purposes, the estimated
        useful
        lives of the Candie’s and Bongo trademarks to be an indefinite life.
        Accordingly, the recorded value of these trademarks are no longer amortized,
        but
        instead will be tested for impairment on an annual basis. Amortization expenses
        recorded for Candies and Bongo trademarks in the quarter (“Prior Year Quarter”)
        and the six months (“Prior Year Six-Months”) ended June 30, 2005, prior to this
        change in estimate, were $296,000 and $593,000, respectively.
  Impairment
        losses are recognized for long-lived assets, including certain intangibles,
        used
        in operations when indicators of impairment are present and the undiscounted
        cash flows estimated to be generated by those assets are not sufficient to
        recover the assets' carrying amount. Impairment losses are measured by comparing
        the fair value of the assets to their carrying amount.
 
 Effective
        July 1, 2005, the Company changed its corporate name to Iconix Brand Group,
        Inc.
        and its NASDAQ symbol to ICON.
 
 For
        further information, refer to the consolidated financial statements and
        footnotes thereto included in the Company’s annual report on Form 10-K for the
        year ended December 31, 2005.
 
 NOTE
        B -
        MARKETABLE SECURITIES
 
 Marketable
        securities consist of the common stock of Mossimo Inc. (“Mossimo”), acquired by
        the Company. These equity shares will be cancelled upon the closing of the
        proposed merger with Mossimo as previously announced by the Company. See
        Note O.
        These securities, which are classified as available-for-sale, are carried
        at
        fair value, with unrealized gains and losses, net of any tax effect, reported
        in
        stockholders' equity as accumulated other comprehensive income. The values
        of
        these securities may fluctuate as a result of changes in market price of
        Mossimo’s stock.
 
 NOTE
        C **** STOCK
        OPTIONS/WARRANTS
 
 Under
        the
        Company's various stock options plans, options to purchase common stock of
        the
        Company may be granted to any person, including, but not limited to, employees,
        directors, independent agents, consultants, attorneys and advisors of the
        Company by the Board of Directors or by the Company's Governance Committee.
        The
        term of options/warrants range from five to ten years with a vesting period
        up
        to five years. The exercise price for options/warrants is the trading price
        of
        the common shares of the Company on the NASDAQ Global Market on the day of
        the
        grant.
 
 Effective
        January 1, 2006, the Company adopted Statement No. 123(R), “Accounting for
        Share-Based Payment” (“SFAS 123(R)”), which requires companies to measure and
        recognize compensation expense for all stock-based payments at fair value.
        Under
        SFAS 123(R), using the modified prospective method, compensation expense
        is
        recognized for all share-based payments granted prior to, but not yet vested
        as
        of, January 1, 2006.
 
 7
 In
        December 2005, the Company’s Board of Directors approved the accelerated vesting
        of all employee service-based stock options previously granted under the
        Company’s various non-qualified stock option plans, which would have been
        unvested as of December 31, 2005. As a result, all options granted as of
        December 31, 2005, except certain options based on performance became
        exercisable immediately. The number of shares, exercise prices and other
        terms
        of the options subject to the acceleration remain unchanged. The acceleration
        of
        such option vesting resulted in an additional $446,000 of compensation expense
        reflected in pro-forma net income for the prior year, an amount that would
        have
        otherwise been recorded as compensation expense in the years ending December
        31,
        2006 and 2007, but had no impact on compensation recognition in 2005 as the
        options would have been otherwise vested.
 As
        of
        June 30, 2006, 8.8 million stock options/warrants were outstanding. The
        following table includes summary information for stock options/warrants for
        employees and non-employee directors and consultants for the six months ended
        June 30, 2006:
  Weighted-Average
              Aggregate
                  IntrinsicShares
              
              Exercise
                  Price
              ValueOutstanding
                  at December 31, 2005
              9,573,292
              
              $
                  5.09Granted
              698,333
              *
              10.45Canceled
              (1,217,750)
              
              8.71Exercised
              (250,000)
              
              3.75Expired
              -
              
              -Outstanding
                  at June 30, 2006
              8,803,875
              **
              $
                  5.05
              $99,416,861Exercisable
                  at June 30, 2006
              8,286,207
              
              $
                  4.95
              $97,135,772
 
 *
        Includes 40,000 options granted to its employees at the market price, and
        the
        658,333 warrants granted to non-employee consultants in connection with
        acquisitions. See Notes K and O.
 
 **
        Includes 1,750,000 warrants outstanding at prices ranging from $5.98 to $15.93,
        and a weighted average exercise price of $8.19 per share, subject to adjustment
        in certain circumstances. Of these warrants, warrants to purchase 1,370,000
        shares of common stock were immediately exercisable as of June 30, 2006.
        The
        warrants expire on dates ranging from August 26, 2012 to June 2,
        2016.
 
 The
        intrinsic value of options exercised during the six months ended June 30,
        2006
        was based on the closing prices of the Company’s common stock on the dates of
        exercise. The aggregate intrinsic value for options outstanding and exercisable
        at June 30, 2006 was based on the closing price of the Company’s common stock at
        June 30, 2006, which was $16.34.
 
 Options/warrants
        outstanding and exercisable at June 30, 2006 were as follows:
  
  Options/Warrants
                  Outstanding
              Options/Warrants
                  ExercisableWeighted
                  Average
              Weighted
              
              WeightedRange
                  of
              Number
              Average
              Average
              Number
              AverageExercise
                  Prices
              Outstanding
              Contractual
                  Life
              Exercise
                  Price
              Exercisable
              Exercise
                  Price$0.24-1.14
              426,625
              4.00
              $1.07
              426,625
              $1.07$1.15-1.50
              370,500
              4.38
              $1.25
              370,500
              $1.25$1.51-2.50
              986,500
              6.53
              $1.99
              986,500
              $1.99$2.51-3.50
              2,419,750
              4.19
              $3.14
              2,419,750
              $3.14$3.51-5.00
              1,320,250
              8.47
              $4.62
              1,218,582
              $4.63$5.01-10.19
              3,280,250
              9.04
              $8.50
              2,864,250
              $7.738,803,875
              6.90
              $5.05
              8,286,207
              $4.62
 
 In
        the
        Current Quarter and Current Six Months, the Company recorded a $50,000 and
        $90,000 expense, with a estimated forfeiture rate of 3%, for options granted
        with a vesting term from the dates of grants through May 2010. The fair value
        for these options was estimated at the date of grant using a Black-Scholes
        option-pricing model. The key assumptions used in determining the fair value
        of
        the stock options awarded were: expected life ranging from 3-5 years, risk-free
        interest rate from 3.0-5.0%, expected volatility from 30-55%, and expected
        dividend yield of 0%. The Company considers the following factors when
        estimating the expected lives of options: vesting period of the award, expected
        volatility of the underlying stock, employees’ historical exercise behavior and
        external data. The risk-free interest rate reflects the interest rate on
        zero-coupon U.S. government bonds available at the time each option was granted
        having a remaining life approximately equal to the option’s expected life. When
        making assumptions on the expected volatilities, the Company considered the
        historical volatilities of the Company’s common stock, the volatilities of its
        peers’ stocks, as well as the judgment of the Company’s management. Based on
        these assumptions, the weighted-average fair value of each stock option granted
        was $2.63 for 2005 and $7.20 for the Current Quarter
 
 8
 Prior
        to
        the adoption of SFAS 123(R), the Company accounted for its stock-based
        compensation plans under the recognition and measurement principles of
        Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued
        to Employees”, and related interpretations. Accordingly, the compensation cost
        for stock options had been measured as the excess, if any, of the quoted
        market
        price of the Company’s stock at the date of the grant over the amount the
        employee must pay to acquire the stock. In accordance with the modified
        prospective transition method, the consolidated financial statements have
        not
        been restated to reflect the impact of SFAS 123(R). The following table
        illustrates the effect on net income and earnings per share if the Company
        had
        applied the fair value recognition provisions of SFAS 123 to options granted
        under the Company’s stock option plans for the three months and six months ended
        June 30, 2005.
 
 (in
                  thousands except per share data)
              Three
                  months ended June 30, 2005
              
              Six
                  months ended June 30, 2005Net
                  income - as reported
              $2,511
              
              $3,298Add:
                  Stock-based employee compensation included in reported net
                  income
              -
              
              -Deduct:
                  Stock-based employee compensation determined under the fair value
                  based
                  method
              (734)
              
              (2,440)Pro
                  forma net income
              $1,777
              
              $858Basic
                  earnings per share:As
                  reported
              $0.09
              
              $0.12Pro
                  forma
              $0.06
              
              $0.03Diluted
                  earnings per share:As
                  reported
              $0.08
              
              $0.11Pro
                  forma
              $0.06
              
              $0.03
 
 NOTE
        D  FINANCING AGREEMENTS
  *Asset-Backed
        Notes*
 
 In
        August
        2002, IP Holdings, LLC (“IPH”), a subsidiary of the Company, issued in a private
        placement $20 million of asset-backed notes secured by intellectual property
        assets (trade names, trademarks, license agreements and payments and proceeds
        with respect thereto) of IPH (such notes and all other notes issued by IPH,
        the
“Asset-Backed Notes”). The Asset-Backed Notes had a 7-year term with a fixed
        interest rate of 7.93% with quarterly principal and interest payments of
        approximately $859,000. After funding a liquidity reserve account in the
        amount
        of $2.9 million, the net proceeds of the Asset-Backed Notes ($16.2 million)
        were
        used by the Company to reduce amounts due by the Company under its then-existing
        revolving credit facilities. In April 2004, IPH issued an additional $3.6
        million in subordinated Asset-Backed Notes secured by its intellectual property
        assets. The additional borrowing had a maturity date of August 2009, with
        a
        floating interest rate of LIBOR + 4.45% and quarterly principal and interest
        payments and $500,000 of interest prepaid at closing. The net proceeds of
        $2.9
        million were used for general working capital purposes. As of July 22, 2005,
        the
        total principal on these notes was approximately $17.5 million, which were
        refinanced in connection with the Joe Boxer acquisition described
        below.
 
 In
        the
        fiscal quarter ended September 30, 2005, the Company, through IPH, acquired
        the
        Joe Boxer brand from Joe Boxer Company, LLC and its affiliates, and the Rampage
        brand from Rampage Licensing, LLC. See Notes I and J. The financing for the
        acquisitions was accomplished through two private placements by IPH of
        Asset-Backed Notes, secured by the intellectual property assets owned by
        IPH.
        The combined proceeds of the Asset-Backed Notes, totaling $103 million, were
        used as follows: approximately $17.5 million was used to refinance previously
        issued Asset-Backed Notes, $40.0 million was paid to the sellers of the Joe
        Boxer brand, approximately $25.8 million was paid to the sellers of the Rampage
        brand, $1.7 million was placed in a liquidity reserve account as required
        by the
        holder of the Asset-Backed Notes, approximately $1.8 million was used to
        pay
        costs associated with the debt issuance, approximately $200,000 was paid
        to
        legal professionals associated with the acquisitions, approximately $4.0
        million
        was available to for working capital purposes, and $12 million was deposited
        in
        an escrow account for the benefit of the holder of the Asset-Backed Notes,
        to be
        used by IPH solely for the purchase of certain intellectual property assets.
        IPH
        redeemed $12 million of the Asset-Backed Notes without penalty as the purchase
        of these intellectual property assets did not occur. Costs associated with
        the
        debt issuances of approximately $1.8 million have been deferred and are being
        amortized using the interest method over the 7 year life of the Asset-Backed
        Notes.
 
 9
 In
        April
        2006, the Company, through IPH, acquired certain assets of Mudd (USA) LLC
        (“Mudd
        (USA)”) related to the Mudd brand, including trademarks, intellectual property
        and related names worldwide, excluding China, Hong Kong, Macau and Taiwan.
        The
        financing for the acquisition was accomplished through the private placement
        on
        April 11, 2006 by IPH of approximately $136 million principal amount of
        Asset-Backed Notes. The issuance of the Asset-Backed Notes raised $49 million
        in
        new financing for IPH (before giving effect to the payment of expenses in
        connection with the issuance of the Asset-Backed Notes and required deposits
        to
        reserve funds), and approximately $87 million principal amount of the
        Asset-Backed Notes was exchanged for Asset Backed Notes previously issued
        by
        IPH. The Asset-Backed Notes are secured by the acquired assets, as well as
        by
        other intellectual property assets owned by IPH. The payment of the principal
        of
        and interest on the Asset-Backed Notes has been made from amounts received
        by
        IPH under license agreements with various licensees of the acquired assets
        and
        IPH’s other intellectual property assets.
 
 The
        portion of the Asset-Backed Notes representing new financing were used as
        follows: $45.0 million was paid to the sellers of the Mudd brand, approximately
        $490,000 was used to pay costs associated with the financing, approximately
        $2.45 million was placed in a liquidity reserve account, approximately $785,000
        was used to pay professional fees associated with the acquisition and
        approximately $275,000 of which was available for working capital purposes.
        The
        costs relating to the $49 million in new financing of approximately $490,000
        have been deferred and are being amortized over the 5 year life of the financed
        debt.
 
 Subject
        to terms of the Asset-Backed Notes, if by April 1, 2006, IPH had not entered
        into or renewed certain licensing agreement(s) with respect to the Joe Boxer
        brand that guarantees certain royalty thresholds, IPH is required to deposit,
        from revenues generated from the Joe Boxer brand, to a renewal reserve account
        $3.75 million for each quarter beginning in April 2006 and ending in December
        2007. Such deposits shall continue to be made until IPH enters into or renews
        such licensing agreement(s) with respect to the Joe Boxer brand meeting the
        minimum royalty thresholds, at which time any funds on deposit in the renewal
        reserve account will be released to IPH. If IPH does not enter into or renew
        such licensing agreement(s) by January 1, 2007, any funds on deposit in the
        renewal reserve account will be applied as a reduction of the principal without
        penalty and all future payments that are deposited to the renewal reserve
        account will also be applied as a reduction of the principal without penalty.
        As
        of July 27, 2006, IPH had not entered into or renewed such licensing
        agreement(s); accordingly, IPH made one payment of $3.75 million to the renewal
        reserve account, which was included in current restricted cash, and classified
        $15 million principal amount of the Asset Backed Notes from long-term debt
        to
        current debt on its balance sheet. If IPH enters into or renews such licensing
        agreement(s) by January 1, 2007 IPH will adjust the related debt classification
        on its balance sheet accordingly.
 
 Cash
        on
        hand in the bank account of IPH is restricted at any point in time up to
        the
        amount of the next debt principal and interest payment required under the
        Asset-Backed Notes. Accordingly, $9.0 million and $4.1 million as of June
        30,
        2006 and December 31, 2005, respectively, have been disclosed as restricted
        cash
        within the Company’s current assets. Further, in connection with IPH’s issuance
        of Asset Backed Notes, a reserve account has been established and the funds
        on
        deposit in such account will be applied to the last principal payment with
        respect to the Asset Backed Notes. Accordingly, $8.5 million and $5.0 million
        as
        of June 30, 2006 and December 31, 2005, respectively, have been disclosed
        as
        restricted cash within the Company’s other assets.
 
 Interest
        rates and terms on the outstanding principal amount of the Asset-Backed Notes
        are as follows: $63 million principal amount bears interest at a fixed interest
        rate of 8.45% with a 7-year term, $28 million principal amount bears interest
        at
        a fixed rate of 8.12% with a 7- year term, and $49 million principal amount
        bears interest at a variable interest rate of LIBOR + 4% in the first year
        of
        the 5-year term and a fixed interest rate of applicable treasury rate + 4.5%
        for
        the remaining 4 years. There are no principal payments required with respect
        to
        $49 million in new financing in the first year.
 
 Neither
        the Company nor any of its subsidiaries (other than IPH) is obligated to
        make
        any payment with respect to the Asset-Backed Notes, and the assets of the
        Company and its subsidiaries (other than IPH) are not available to IPH’s
        creditors. The assets of IPH are not available to the creditors of the Company
        or its subsidiaries (other than IPH).
 
 *The
        Kmart Note*
 
 In
        connection with the acquisition of Joe Boxer in July, 2005, the Company assumed
        a promissory note, dated August 13, 2001 in the amount of $10.8 million that
        originated with the execution of the exclusive license with Kmart Stores,
        Inc.
        by the former owners of Joe Boxer (the “Kmart Note”).   The Kmart Note
        provides for interest at 5.12% and is payable in three (3) equal annual
        installments, on a self-liquidating basis, on the last day of each year
        commencing on December 31, 2005 and continuing through December 31, 2007. 
Payments due under the Kmart Note may be off-set against any royalties owed
        under the Kmart License.  As of June 30, 2006, the outstanding balance of
        the note was $7.4 million. The Kmart Note may be pre-paid without penalty.
  The
        following is a summary of debt maturities for the periods indicated that
        existed
        as of June 30, 2006 (amounts in thousands):
 
 10
 Debt
                  Maturities
              Total
              2006
              2007
                  -2008
              2009-2010
              After
                  2010Kmart
                  Note
              $7,377
              $3,596
              $3,781
              $
                  -
              $
                  -Sweet
                  Note (See Notes G and H)
              3,054
              -
              -
              -
              3,054Asset-backed
                  Notes *
              133,276
              12,458
              51,121
              39,704
              29,993Total
                  Debt Maturitis
              $143,707
              $16,054
              $54,902
              $39,704
              $33,047
 
 *
        Includes the additional quarter payment of $3.75 million deposited in the
        renewal reserve account beginning in April 2006 and ending December 2007.
        See
“Assets Backed Notes” above.
 
 NOTE
        E  EARNINGS
        PER SHARE
 
 Basic
        earnings per share includes no dilution and is computed by dividing earnings
        attributable to common shareholders by the weighted average number of common
        shares outstanding for the period. Diluted earnings per share reflects, in
        periods in which they have a dilutive effect, the effect of common shares
        issuable upon exercise of stock options and warrants. As a result of the
        Company’s decision to accelerate the vesting of options granted as of December
        31, 2005, all options except certain options based on performance became
        exercisable immediately and were included in the calculation of dilution.
        At
        June 30, 2006, 8.8 million options/warrants were outstanding.
 
 The
        following is a reconciliation of the shares used in calculating basic and
        diluted earnings per share:
 
 Three
                  months ended June 30,
              
              Six
                  months ended June 30,2006
              2005
              
              2006
              2005Basic
              38,680
              28,602
              
              37,208
              28,516Effect
                  of assumed conversions of stock options and warrants
              6,032
              1,645
              
              5,664
              1,599Diluted
              44,712
              30,247
              
              42,872
              30,115
 
 NOTE
        F  INCOME
        TAXES
  The
        Company accounts for income taxes in accordance with Statement of Financial
        Accounting Standards No. 109, (“SFAS 109”) “Accounting for Income Taxes.” Under
        SFAS No. 109, deferred tax assets and liabilities are determined based on
        differences between the financial reporting and tax basis of assets and
        liabilities and are measured using the enacted tax rates and laws that will
        be
        in effect when the differences are expected to reverse. A valuation allowance
        is
        established when necessary to reduce deferred tax assets to the amount expected
        to be realized. In determining the need for a valuation allowance, management
        reviews both positive and negative evidence pursuant to the requirements
        of SFAS
        No. 109, including current and historical results of operations, the annual
        limitation on utilization of net operating loss carry forwards pursuant to
        Internal Revenue Code section 382, future income projections and the overall
        prospects of the Company’s business. Based upon management’s assessment of all
        available evidence, including the Company’s completed transition into a
        licensing business, estimates of future profitability based on projected
        royalty
        revenues from its licensees, and the overall prospects of the Company’s
        business, management concluded in the Current Quarter that it is more likely
        than not that a portion of previously unrecognized deferred income tax benefits
        will be realized. Accordingly, the Company reduced a portion of the related
        valuation allowance which resulted in a $347,000 and $1.6 million net tax
        benefit for the Current Quarter and Current Six Months, respectively.
        Approximately $2.4 million was recorded as a credit to additional paid in
        capital for realization of deferred tax assets generated from exercise of
        stock
        options in prior years. Based on current estimates of pre-tax income for
        the
        year ending December 31, 2006, the management anticipates a net income tax
        expense for this year.
 
 NOTE
        G  COMMITMENTS AND CONTINGENCIES
 
 ***Sweet
        Sportswear/Unzipped litigation***
 
 On
        August
        5, 2004, the Company, along with its subsidiaries, Unzipped Apparel LLC
        (“Unzipped”), Michael Caruso & Co. Inc. and IPH (collectively referred to as
        the “plaintiffs”), commenced a lawsuit in the Superior Court of California, Los
        Angeles County, against Unzipped's former manager, former supplier and former
        distributor, Sweet Sportswear LLC (“Sweet”), Azteca Production International,
        Inc. (“Azteca”), and Apparel Distribution Services, LLC (“ADS”), respectively,
        and a principal of these entities and former member of the Company’s board of
        directors, Hubert Guez (collectively referred to as the “defendants”).
        Plaintiffs amended their complaint on November 22, 2004. In the amended
        complaint, plaintiffs alleged that defendants fraudulently induced them to
        purchase Sweet's 50% interest in Unzipped for an inflated price, that Sweet
        and
        Azteca committed material breaches of the Unzipped management agreement and
        supply and distribution agreements, described below, and that Mr. Guez
        materially breached his fiduciary obligations to the Company while a member
        of
        its Board of Directors. Also, plaintiffs alleged that defendants have imported,
        distributed and sold goods bearing the Company’s Bongo trademarks in violation
        of federal and California law. Plaintiffs sought damages in excess of $50
        million. Defendants filed a motion to dismiss certain of the claims asserted
        in
        the amended complaint, which was denied by the Court in its entirety on February
        7, 2005.
 
 11
 By
        order
        dated June 8, 2006, the Court entered summary judgment in defendants’ favor with
        respect to plaintiffs’ fraud claims  asserted
        within plaintiffs' amended complaint.  However, by order dated July 19,
        2006, the Court granted plaintiffs' request to assert new fraud claims via
        a
        second amended complaint.  Plaintiffs' second amended complaint also
        incorporates the non-fraud claims asserted within plaintiffs' amended complaint,
        and seeks damages in excess of $50 million.
  On
        March
        10, 2005, Sweet, Azteca and ADS (collectively referred to as the
“cross-complainants”), filed an answer to plaintiffs' amended complaint and a
        cross-complaint against plaintiffs and the Company’s chief executive officer,
        Neil Cole (collectively referred to as the “cross-defendants”), seeking
        compensatory, punitive and exemplary damages and litigation costs, as well
        as
        the establishment of a constructive trust for their benefit. The
        cross-complainants alleged that some or all of the cross-defendants breached
        the
        Unzipped management agreement and supply and distribution agreements; that
        IPH
        and Mr. Cole interfered with Sweet's performance under the Unzipped management
        agreement; and that the Company, Caruso and Mr. Cole interfered with
        cross-complainants' relationships with Unzipped and caused Unzipped to breach
        its agreements with Azteca and ADS. Cross-complainants also alleged that
        some or
        all of the Company, Caruso and Mr. Cole fraudulently induced Sweet to sell
        its
        50% interest in Unzipped to the Company for a deflated price and accept the
        8%
        senior subordinated note in the principal amount of $11 million that the
        Company
        issued to Sweet in connection therewith.
  The
        Company had previously entered into a management agreement with Sweet wherein
        Sweet guaranteed that the net income of Unzipped, as defined, would be no
        less
        than $1.7 million for each year during the term. In the event that this
        guaranteed amount of net income was not met, Sweet was obligated to pay the
        difference between the actual net income, as defined, and such guaranteed
        amount, referred to as the shortfall payment. The cross-complaint alleged
        that
        the Company breached its obligations to Sweet arising under the Company’s 8%
        note to Sweet by, among other things, understating Unzipped's earnings for
        the
        fiscal year ended January 31, 2004 and the first three quarters of the fiscal
        year ended January 31, 2005 for the purpose of causing Unzipped to fall short
        of
        the guaranteed net income amount for these periods, and improperly offsetting
        the shortfall payment against the note. Lastly, the cross-complaint alleged
        that
        the understatements in Unzipped's earnings and offsets against the 8% note
        were
        incorporated into the Company’s public filings for the periods identified above,
        causing it to overstate materially its earnings and understate its liabilities
        for such period with the effect of improperly inflating the public trading
        price
        of the Company’s common stock.
  Cross-defendants
        filed a motion to dismiss certain of the claims asserted in the cross-complaint,
        and, on June 28, 2005, the Court granted cross-defendants' motion in part.
        On
        July 22, 2005, cross-complainants amended their cross-complaint, omitting
        their
        previously asserted claim that some or all of the Company, Caruso and Mr.
        Cole
        fraudulently induced Sweet to sell its 50% interest in Unzipped for a deflated
        price and accept the 8% note. Although the amended cross-complaint no longer
        sought relief for this purported fraud, the substance of the allegations
        remained largely unchanged and cross-complainants' alleged that they were
        entitled to equivalent relief because cross-defendants' actions instead
        constituted a breach of fiduciary duty.
  Cross-defendants
        filed a motion to dismiss certain of the claims asserted in the amended
        cross-complaint, and, on October 25, 2005, the Court granted cross-defendants’
motion in part, dismissing all claims asserted against Mr. Cole along with
        the
        cross-complainants' sole remaining fraud claim. On March 24, 2006,
        cross-defendants filed a motion seeking the dismissal of cross-complainants'
        claim for breach of fiduciary duty, and on June 21, 2006, the Court dismissed
        this claim.
 
 The
        remaining cross-defendants deny cross-complainants' allegations and intend
        to
        vigorously defend against the amended cross-complaint.
 
 ***Sweet/Cole
        litigation***
 
 On
        May
        11, 2006, Sweet commenced a related lawsuit in the Superior Court of California,
        Los Angeles County, against Mr. Cole and the Company’s independent registered
        public accountants. In this lawsuit, Sweet alleges that Mr. Cole and the
        Company’s accountants induced the breach of and/or interfered with the Unzipped
        management agreement, the Company’s 8% note to Sweet and an engagement agreement
        entered into between Sweet, on behalf of Unzipped, and the Company’s accountants
        whereby they agreed to audit Unzipped’s financial performance for the year ended
        January 31, 2004. Sweet alleges that Mr. Cole and the accountants agreed
        to
        inaccurately certify the value of Unzipped’s inventory and thereby improperly
        enabled the Company to avoid payments required under the 8% note. Mr. Cole
        intends to seek dismissal of each of the claims asserted against him.
 
 12
 ***Bader/Unzipped
        litigation***
 
 On
        November 5, 2004, Unzipped commenced a lawsuit in the Supreme Court of New
        York,
        New York County, against Unzipped's former president of sales, Gary Bader,
        alleging that Mr. Bader breached certain fiduciary duties owed to Unzipped
        as
        its president of sales, unfairly competed with Unzipped and tortuously
        interfered with Unzipped's contractual relationships with its employees.
        On
        October 5, 2005, Unzipped amended its complaint to assert identical claims
        against Bader's company, Sportswear Mercenaries, Ltd. On October 14, 2005,
        Bader
        and Sportswear Mercenaries filed an answer containing counterclaims to
        Unzipped's amended complaint, and a third-party complaint against The Company
        and Mr. Cole, seeking unspecified damages in excess of $4 million. On December
        2, 2005, The Company, together with Unzipped and Mr. Cole, filed motions
        seeking
        the dismissal of the majority of the claims asserted against them by Bader
        and
        Sportswear Mercenaries. By order dated June 9, 2006, the Court granted these
        motions in their entirety, thereby dismissing The Company and Mr. Cole from
        this
        litigation. Unzipped denies the one remaining claim asserted against it,
        a claim
        that it failed to pay Bader and Sportswear Mercenaries $72,000 in commissions
        and bonuses, and intends to vigorously defend against such claim.
 
 ***Redwood
        Shoe litigation***
 
 In
        January 2002, Redwood Shoe Corporation, one of the Company’s former buying
        agents of footwear, filed a complaint in the U.S. District Court for the
        Southern District of New York, alleging that the Company breached various
        contractual obligations to Redwood and seeking to recover damages in excess
        of
        $20 million plus its litigation costs. The Company filed a motion to dismiss
        certain counts of the complaint based upon Redwood's failure to state a claim,
        in response to which Redwood has filed an amended complaint. The Company
        also
        moved to dismiss certain parts of the amended complaint. The magistrate assigned
        to the matter granted, in part, the Company’s motion to dismiss. By Order dated
        November 28, 2005, the District Court adopted the Magistrate's ruling in
        its
        entirety, thereby accepting the Company’s position that it never agreed to
        purchase a minimum quantity of footwear from Redwood and dismissing
        approximately $20 million of Redwood's asserted claims. On December 14, 2005,
        the Company filed an answer asserting 13 counterclaims against Redwood and
        Redwood's affiliate, Mark Tucker, Inc., or MTI. On the same date, the Company
        filed a motion to have MTI joined with Redwood as a defendant in the action,
        and
        that motion was granted by the District Court. MTI filed a motion seeking
        to
        have all of the counterclaims asserted against it dismissed. Redwood has
        filed a
        motion seeking the dismissal of certain of these counterclaims. These motions
        are pending before the District Court.
  The
        Company intends to vigorously defend the lawsuit, and to vigorously prosecute
        the claims it has asserted against Redwood and MTI. At June 30, 2006 and
        December 31, 2005, the payable to Redwood totaled approximately $1.8 million
        which is subject to any claims, offsets or other deductions the Company may
        assert against Redwood, and was reflected in The Company’s consolidated
        financial statements under “Accounts payable, subject to
        litigation.”
 
 ***The
        Bongo Apparel, Inc. Litigation***
 
 On
        or
        about June 12, 2006, one of The Company’s licensees, Bongo Apparel, Inc., or
        BAI, filed a complaint in the Supreme Court of the State of New York, County
        of
        New York, against the Company and its subsidiary, IPH. BAI alleges that
        defendants engaged in conduct that damaged the Bongo apparel brand and/or
        BAI’s
        relationships with its customers. BAI asserts various claims of breach of
        contract, breach of the covenant of good faith and fair dealing, fraudulent
        inducement and unfair competition, and seeks damages of at least $25 million
        and
        recovery of its litigation costs as well as seeking a declaratory judgment
        that
        the Company and IPH breached certain license agreements between the parties
        and
        that BAI is not in breach of those agreements. The Company and IPH believe
        that,
        in addition to other defenses and counterclaims that they intend to assert,
        the
        claims in the lawsuit are the subject of a release and settlement agreement
        that
        was entered into by the parties in August 2005, and they intend to file a
        motion
        to dismiss the complaint based on the release, among other reasons. The Company
        is in the process of transitioning the Bongo jeanswear license to another
        licensee.
 
 ***Other***
 
 From
        time
        to time, the Company is also made a party to litigation incurred in the normal
        course of business. While any litigation has an element of uncertainty, the
        Company believes that the final outcome of any of these routine matters will
        not
        have a material effect on its financial position or future liquidity. Except
        as
        set forth herein, the Company knows of no material legal proceedings, pending
        or
        threatened, or judgments entered, against any of its directors or officers
        in
        their capacity as such.
 
 13
 NOTE
        H  UNZIPPED
        APPAREL, LLC
 
 **Equity
        Investment:**
 
 On
        October 7, 1998, the Company formed Unzipped with joint venture partner Sweet,
        the purpose of which was to market and distribute apparel under the BONGO
        label.
        The Company and Sweet each had a 50% interest in Unzipped. Pursuant to the
        terms
        of the joint venture, the Company licensed the BONGO trademark to Unzipped
        for
        use in the design, manufacture and sale of certain designated apparel products.
 
 **Acquisition:**
 
 On
        April
        23, 2002, the Company acquired the remaining 50% interest in Unzipped from
        Sweet
        for a purchase price of three million shares of the Company’s common stock and
        $11 million in debt evidenced by the Sweet Note. In connection with the
        acquisition of Unzipped, the Company filed a registration statement with
        the SEC
        for the three million shares of the Company’s common stock issued to Sweet,
        which was declared effective by the SEC on July 29, 2003.
 
 **Related
        Party Transactions:**
 
 Prior
        to
        August 5, 2004, Unzipped was managed by Sweet pursuant to the Management
        Agreement, pursuant to which Sweet was obligated to manage the operations
        of
        Unzipped in return for, commencing in the fiscal year ended January 31, 2004
        (“Fiscal 2004”), a management fee based upon certain specified percentages of
        net income that Unzipped would achieve during the three-year term. In addition,
        Sweet entered into the Guarantee that the net income, as defined, of Unzipped
        commencing in Fiscal 2004 would be no less than $1.7 million for each year
        during the term. In the event that the Guarantee was not met, under the
        Management Agreement, Sweet was obligated to pay to the Company the difference
        between the actual net income of Unzipped, as defined, and the Guarantee.
        The
        Shortfall Payment could be offset against the amounts due under the Sweet
        Note
        at the option of either Sweet or the Company.
 
 Unzipped’s
        operation has been discontinued since January 31, 2005. For the Current Six
        Months, Unzipped had no operations, as compared to a net loss (as defined
        for
        the purpose of determining if the Guarantee had been met) of $296,000 in
        the
        quarter ended March 31, 2005. Consequently for the Current Six Months there
        was
        no Shortfall Payment, as compared to a Shortfall Payment of $438,000 in the
        Prior Year Six Months. The adjusted Shortfall Payment had been recorded in
        the
        consolidated income statements as a reduction of Unzipped’s cost of sales (since
        the majority of Unzipped’s operations were with entities under common ownership
        with Sweet, including all of the purchases of inventory) and on the balance
        sheet as a reduction of the Sweet Note based upon the right to offset in
        the
        Management Agreement. After adjusting for the Shortfall Payment in Prior
        Year
        Six Month, Unzipped reported a net loss of $37,500 on sales of $448,000.
        Due to
        the immaterial nature of the related amounts, the net loss of $37,500 from
        Unzipped was included in the selling, general and administrative expense
        in the
        Company’s Condensed Consolidated Income Statements for the Prior Year Six
        Months.
 
 On
        August
        5, 2004, Unzipped terminated the Management Agreement with Sweet, the supply
        agreement with Azteca and the distribution agreement with ADS and commenced
        a
        lawsuit against Sweet, Azteca, ADS and Mr. Guez. See Note G.
 
 At
        June
        30, 2006, the Company included in “accounts payable, subject to litigation”
amounts due to Azteca and ADS of $847,000 and $2.3 million respectively,
        the
        same as reported as of December 31, 2005. See Note F.
 
 In
        a
        separate transaction concerning Unzipped with BAI, BAI is the licensee of
        the
        BONGO jeans wear business formerly managed by Sweet. Prior to August 26,
        2005,
        BAI managed the operations of Unzipped following the termination of Sweet
        as the
        manager on August 5, 2004. In connection with BAI’s license and this transition,
        the designees of TKO Apparel (an affiliate of BAI) purchased one million
        shares
        of the common stock of the Company at a price of $2.20 per share. In a separate
        transaction, TKO Apparel agreed to lend Unzipped $2.5 million, which the
        Company
        repaid in 2005. See Note F.
 
 NOTE
        I  ACQUISITION OF JOE BOXER
 
 On
        July
        22, 2005, the Company acquired the Joe Boxer brand from Joe Boxer Company,
        LLC
        and its affiliates. Joe Boxer is a leading lifestyle brand of apparel, apparel
        accessories and home goods for men, women, teens and children. The Joe Boxer
        brand is currently licensed exclusively to Kmart in the United States and
        internationally to manufacturers in Canada, Mexico and Scandinavia.
 
 14
 The
        aggregate purchase price paid was $88.9 million as detailed in the table
        below.
        Based on the Company’s assessment of the fair value of the assets acquired,
        approximately $79.8 million has been assigned to the Joe Boxer trademark.
        Under
        the purchase method of accounting, tangible and identifiable intangible assets
        acquired and liabilities assumed are recorded at their estimated fair values.
        The estimated fair values and useful lives of intangible assets acquired
        have
        been supported by third party valuation based on a discounted cash flow
        analysis. The Joe Boxer trademark has been determined to have an indefinite
        useful life and accordingly, consistent with FAS 142, no amortization will
        be
        recorded in the Company’s consolidated statements of operations. Instead, the
        related intangible asset will be tested for impairment at least annually,
        using
        discounted cash flow analysis and estimates of future sales proceeds with
        any
        related impairment charge recorded to the statement of operations at the
        time of
        determining such impairment.
 
 Total
        purchase price was comprised as follows (in thousands):
 Cash
                  paid for acquisition
              $
                  40,755Fair
                  value of 4,350,000 restricted shares of common stock at $8.33 per
                  share
              36,236Value
                  of warrants issued as a cost of the acquisition
              788Total
                  equity consideration
              37,024Assumption
                  of Kmart loan, including $3,509 due within 12 months
              10,798Accrued
                  interest, Kmart loan
              309Total
                  cost of acquisition
              $
                  88,886
 
 The
        purchase price was allocated to the estimated fair value of the assets acquired
        as follows (in thousands):
 Accounts
                  receivable
              $
                  3,121Deferred
                  tax asset
              2,700Licensing
                  contracts
              1,333Joe
                  Boxer trademark
              79,800Goodwill
              1,932Total
                  allocated purchase price
              $
                  88,886
 
 The
        $1.3
        million of licensing contracts is being amortized on a straight-line basis
        over
        the remaining contractual period of approximately 29 months. The goodwill
        of
        $1.9 million is not being amortized but instead is subject to a test for
        impairment on at least an annual basis. Any adjustments resulting from the
        finalization of the purchase price allocations will affect the amounts assigned
        to goodwill.
 
 As
        part
        of this acquisition, the Company entered into an employment agreement with
        Mr.
        William Sweedler (“Sweedler”) as Executive Vice President of the Company and
        President of the Joe Boxer division. As part of his compensation, on July
        22,
        2005, he was granted 1,425,000 stock options of which 225,000 vested
        immediately, and 1,200,000 would vest contingent upon achievement by the
        Joe
        Boxer division of certain revenues levels. On June 8, 2006, the Company and
        Sweedler entered into an agreement (the “Sweedler Agreement”), which provides
        for the termination of the employment agreement between the Company and Sweedler
        dated July 22, 2005, the resignation of Sweedler as Executive Vice President
        of
        the Company, President of its Joe Boxer Division and a member of the Company’s
        Board of Directors, and the termination of the approximately 1,200,000 unvested
        options previously issued to Sweedler in connection with the employment
        agreement. Under the Sweedler Agreement, Sweedler will be employed on a
        part-time basis to assist the Company during a transition period of between
        30
        and 120 days, after which the Company will enter into a consulting agreement
        with Sweedler whereby he will perform services for the Company with respect
        to
        finding, negotiating, financing or otherwise advising the Company regarding
        potential acquisition opportunities (the “Consulting Agreement”). Under the
        Consulting Agreement, the Company will issue to Sweedler ten-year warrants,
        with
        certain registration rights, to purchase 400,000 shares of the Company’s common
        stock at an exercise price of $8.81 per share (the “Sweedler Warrants”), vesting
        at the rate of one-third, one-third, one-third upon the closing of each of
        the
        first three Qualified Company Acquisitions (as defined in the Consulting
        Agreement) and pay him a fee of approximately $333,333 upon the closing of
        each
        of such Qualified Company Acquisitions. The Sweedler Warrants will be issued
        pursuant to an exemption from registration under Section 4(2) of the Securities
        Act of 1933 (the “Act”).
 
 The
        Company obtained $40 million in cash to pay a portion of the purchase price
        for
        the Joe Boxer assets through the debt issuance by IPH of a $63 million
        Asset-Backed Note. Approximately $17.5 million of the proceeds of the
        Asset-Backed Notes were used to refinance previously existing Asset-Backed
        Notes, as described in Note D ,
        $40.0
        million was paid to the sellers, approximately $1.0 million was used to pay
        costs associated with the debt issuance, $310,000 was deposited in a reserve
        account as required by the holder
        of
        the Asset-Backed Note ,
        and
        approximately $4.0 million was available to the Company for working capital
        purposes. Costs associated with the debt issuance of approximately $1.0 million
        have been deferred and are being amortized over the 7-year life of the
        refinanced debt.
 
 15
 UCC
        Capital Corporation (“UCC”) acted as a financial advisor to IPH in connection
        with the Joe Boxer and the Rampage brand acquisitions. On June 7, 2005, the
        Company entered into a financial advisory agreement with UCC to issue UCC
        a
        ten-year warrant ("Warrant") to purchase an aggregate of 1,000,000 shares
        of the
        Company's common stock ("Warrant Shares") at a price of $5.98 per share,
        subject
        to anti-dilution adjustments under certain conditions. One third of the Warrant
        Shares vests upon consummation of each acquisition, for a total of three
        acquisitions. On July 22, 2005, 333,334 of the Warrants Shares vested, with
        a
        fair value of $788,000, upon consummation of the acquisition of Joe
        Boxer.
 
 Pursuant
        to this financial advisory agreement, UCC acted as the Company's exclusive
        advisor in connection with providing various advisory services relating to
        the
        Company's acquisitions. On June 2, 2006, the Company and UCC agreed to terminate
        the existing exclusive financial advisory agreement and effect a new
        non-exclusive arrangement for advisory services rendered by UCC in connection
        with the Company’s previously announced agreement to acquire Mossimo (the
“Mossimo Acquisition”) (the “Non-Exclusive Agreement”). See Note O.
  The
        Non-Exclusive Agreement provides for the Company to pay to UCC, upon the
        closing
        of the Mossimo Acquisition, a one-time $2.5 million fee (the “UCC Fee”) and to
        issue to its designees ten-year non-transferable warrants to purchase an
        aggregate of 250,000 shares of the Company’s common stock, at a price of $15.93
        per share (the “UCC Warrants”) in consideration of the advisory services
        rendered by UCC in connection with the Mossimo Acquisition. The Company may
        defer payment of up to $500,000 of the UCC Fee through the issuance of a
        promissory note, which would mature and become payable, together with interest
        accruing at the rate of 6% per annum, on October 31, 2006. The UCC Warrants,
        which were issued pursuant to an exemption from registration under Section
        4(2)
        of the Act on June 2, 2006, contain certain registration rights and will
        vest
        upon the consummation of the Mossimo Acquisition.
 
 On
        September 19, 2005, the Company filed with the SEC a registration statement
        covering the resale of certain of the shares of common stock issued in
        connection with the acquisition of Joe Boxer and the resale of the Warrant
        Shares. The registration statement was declared effective by the SEC on October
        12, 2005.
 
 NOTE
        J  ACQUISITION OF RAMPAGE
 
 On
        September 16, 2005, the Company acquired the Rampage brand from Rampage
        Licensing, LLC, a California limited liability company.
 
 The
        purchase price for the acquisition was $48.1 million as detailed in the table
        below. Based on the Company’s preliminary assessment of the fair value of the
        assets acquired, approximately $41.1 million has been assigned to the Rampage
        trademark. Under the purchase method of accounting, tangible and identifiable
        intangible assets acquired and liabilities assumed are recorded at their
        estimated fair values. The estimated fair values and useful lives of the
        intangible assets acquired have been supported by third party valuation.
        The
        Rampage trademark has been determined to have an indefinite useful life,
        and
        accordingly, consistent with FAS 142, no amortization will be recorded in
        the
        Company’s consolidated statements of operations. Instead, the related intangible
        asset will be tested for impairment at least annually, with any related
        impairment charge recorded to the statement of operations at the time of
        determining such impairment.
 
 Total
        purchase price was determined as follows (in thousands):
 Cash
                  paid for acquisition
              $
                  26,159Fair
                  value of 2,171,336 restricted shares of common stock at $9.28 per
                  share
              20,150Value
                  of warrants issued as a cost of the acquisition
              1,653Total
                  equity consideration
              21,803Other
                  estimated costs of acquisition
              150Total
                  cost of acquisition
              $
                  48,112
 
 The
        purchase price was allocated to the estimated fair value of the assets acquired
        as follows (in thousands):
 
 Rampage
                  licensing contract
              $
                  550Rampage
                  domain name
              230Rampage
                  non-compete agreement
              600Rampage
                  trademark
              41,070Goodwill
              5,662Total
                  allocated purchase price
              $
                  48,112
 
 The
        licensing contracts are to be amortized on a straight-line basis over the
        remaining contractual period of approximately 3 years, the Rampage domain
        name
        is to be amortized on a straight-line basis over 5 years, and the value of
        the
        non-compete agreement is to be amortized on a straight-line basis over 2
        years.
        A net adjustment of $669,000 resulted from the finalization of the purchase
        price allocations was made in prior year to increase the amounts assigned
        to
        goodwill previously. The goodwill of approximately $5.7 million is subject
        to a
        test for impairment on an annual basis.
 
 16
 The
        Company obtained $25.8 million in cash to pay a portion of the purchase price
        of
        the Rampage assets through the debt issuance by IPH of $103 million of
        Asset-Backed Notes. Approximately $63 million of the proceeds of the
        Asset-Backed Notes were used to refinance the previously issued Asset-Backed
        Note described in Note I, $25.8 million was paid to the sellers of the Rampage
        brand, approximately $774,000 was used to pay costs associated with the debt
        issuance, $1.4 million was deposited in a liquidity reserve account, and
        $12
        million was deposited in an escrow account for the benefit of the holders
        of the
        Asset-Backed Notes, to be used by IPH only for the purchase of additional
        intellectual property assets. The purchase did not occur prior to November
        15,
        2005 so IPH redeemed $12 million principal amount of the Asset-Backed Notes
        in
        November 2005 with no penalty. Costs associated with the debt issuance have
        been
        deferred and are being amortized over the 7-year life of the Asset-Backed
        Notes.
 
 In
        accordance with the agreement with UCC (See Note I), an additional 333,333
        of
        the Warrants Shares vested on September 16, 2005 with a fair value of
        approximately $1.7 million upon consummation of the Rampage acquisition,
        for
        which UCC acted as a financial advisor to IPH
 
 On
        October 17, 2005, the Company filed with the SEC a registration statement
        covering the resale of the shares of common stock issued in connection with
        the
        acquisition of Rampage. The registration statement was declared effective
        by the
        SEC on October 27, 2005.
 
 NOTE
        K -
        ACQUISITION OF MUDD
 
 In
        April
        2006, the Company, through IPH, acquired certain assets of Mudd (USA) LLC
        related to the Mudd brand, including trademarks, intellectual property and
        related names worldwide, excluding China, Hong Kong, Macau and Taiwan. In
        consideration for the purchase of the assets, the Company paid the seller
        $45
        million in cash and issued to the seller 3,269,231 restricted shares of the
        Company common stock. In connection with this acquisition, IPH entered into
        a
        license agreement with Mudd (USA) giving Mudd (USA) the exclusive right to
        use
        the Mudd trademark in connection with the design, manufacture, sale and
        distribution of women’s and children’s jeanswear and related products in the
        United States, in return for which Mudd (USA) has guaranteed IPH a minimum
        amount of revenues with respect to the royalties due to IPH under its license
        and royalties due to IPH from all other license agreements assumed by IPH
        with
        respect to the Mudd brand for a period of two years. Mudd (USA)’s obligations to
        IPH under the guarantee and to the Company under other agreements are secured
        by
        its pledge of a portion of the cash and shares issued by the Company as
        consideration in the acquisition. The Company agreed to file a registration
        statement to allow the seller to publicly sell the shares issued to it in
        connection with the acquisition and the seller agreed to certain contractual
        restriction on the sale of the shares by it.
 
 The
        financing for the purchase of the Mudd brand was accomplished through the
        private placement on April 11, 2006 by IPH of approximately $136 million
        principal amount of Asset-Backed Notes. The issuance of the Asset-Backed
        Notes
        raised $49 million in new financing for IPH (before giving effect to the
        payment
        of expenses in connection with the issuance of the Asset-Backed Notes and
        required deposits to reserve accounts), and approximately $87 million principal
        amount of the Asset-Backed Notes was exchanged for notes previously issued
        by
        IPH. The Asset-Backed Notes are secured by the intellectual property assets
        owned by IPH, including those related to the Mudd brand.
 
 The
        portion of the Asset Backed Notes representing new financing were used as
        follows: $45.0 million was paid to the sellers of the Mudd brand, approximately
        $490,000 was used to pay costs associated with the financing, approximately
        $2.45 million was placed in a liquidity reserve account, approximately $785,000
        was used to pay professional fees associated with the acquisition and
        approximately $275,000 of which was available for working capital purposes.
        The
        costs relating to the $49 million in new financing of approximately $490,000
        have been deferred and are being amortized over the 5 year life of the financed
        debt.
 
 Total
        purchase price was determined as follows (in thousands):
 Cash
                  paid for acquisition
              $
                  45,000Fair
                  value of 3,269,231 shares of $.001 par value common stock at $14.64
                  fair
                  market value per share
              47,862Value
                  of 408,334 warrants ($5.98 exercise price for 333,334 and $8.58
                  exercise
                  price for 75,000) issued as a cost of the acquisition
              4,596Total
                  equity consideration
              52,458Other
                  estimated costs of acquisition, including $990 to be paid after
                  closing
              1,775Total
                  cost of acquisition
              $
                  99,233
 
 The
        purchase price was allocated to the estimated fair value of the assets acquired
        as follows (in thousands):
 
 17
 Mudd
                  Trademarks
              $
                  87,100Mudd
                  domain name
              340Mudd
                  license agreements
              700Mudd
                  non-compete agreement
              1,400Goodwill
              9,693Total
                  allocated purchase price
              $
                  99,233
 The
        licensing contracts are being amortized on a straight-line basis over the
        remaining contractual period of approximately 2 years, the Mudd domain name
        is
        being amortized on a straight-line basis over 5 years, and the value of the
        non-compete agreement is being amortized on a straight-line basis over 4
        years.
        The goodwill of approximately $9.7 million is subject to a test for impairment
        on an annual basis. Any adjustments resulting from the finalization of the
        purchase price allocations will affect the amounts assigned to
        goodwill.
 
 In
        accordance with the agreement with UCC (See Note I), an additional 408,334
        of
        the Warrants Shares vested on April 11, 2006 with a fair value of $4.6 million
        upon consummation of the Mudd acquisition, for which UCC acted as a financial
        advisor to IPH.
 
 The
        following unaudited pro-forma information presents a summary of the Company's
        consolidated results of operations as if the Mudd acquisition and its related
        financing had occurred on January 1, 2005. These pro forma results have been
        prepared for comparative purposes only and do not purport to be indicative
        of
        the results of operations which actually would have resulted had the acquisition
        occurred on January 1, 2005, or which may result in the future.
  Three
                  Months Ended June 30,
              Six
                  Months Ended June 30,2006*
              2005**
              
              2006
              2005(000's
                  omitted, except per share)Licensing
                  revenues
              
              $18,409
              $8,300
              
              $36,284
              $28,961Operating
                  income
              
              $10,880
              $4,323
              
              $22,691
              $17,072Net
                  Income
              
              
              $8,345
              $3,774
              
              $17,416
              $9,873Basic
                  earnings per common share
              $0.22
              $0.12
              
              $0.43
              $0.26Diluted
                  earnings per common share
              $0.19
              $0.11
              
              $0.37
              $0.25
 *
        Due to
        the Mudd acquisition on April 11, 2006, the financial results for three months
        ended June 30, 2006 included the operation of Mudd from April 11, 2006. The
        financial results from April 1 to 10, 2006 were not deemed
        material.
 **
        The
        financial results related to the Joe Boxer and Rampage for the three months
        ended June 30, 2005 was not available and therefore was not included in the
        pro
        forma information for the three months ended June 30, 2005.
  NOTE
        L  SPECIAL
        CHARGES
 
 During
        the Current Quarter and Current Six Months, the Company recorded $712,000
        and
        $1.3 million of special charges in connection with its litigation related
        to
        Unzipped, compared to $328,000 and $707,000 in the Prior Year Quarter and
        Prior
        Year Six Months, respectively. See Note G.
 
 NOTE
        M -
        COMPREHENSIVE INCOME
  Comprehensive
          income for the Six Months was $15.9 million. Included in comprehensive
          income is
          $166,000 of other comprehensive income, net of taxes, representing unrealized
          gain on marketable securities (common stock of Mossimo).
 
 NOTE
        N  RECENT
        ACCOUNTING STANDARDS
 
 In
        February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
        Financial Instruments -an amendment of FASB Statements No. 133 and 140,"
        which
        simplifies accounting for certain hybrid financial instruments by permitting
        fair value remeasurement for any hybrid instrument that contains an embedded
        derivative that otherwise would require bifurcation and eliminates a restriction
        on the passive derivative instruments that a qualifying special-purpose entity
        may hold. SFAS No. 155 is effective for all financial instruments acquired,
        issued or subject to a remeasurement (new basis) event occurring after the
        beginning of an entity's first fiscal year that begins after September 15,
        2006.
        The adoption of SFAS No. 155 will have no impact on the Company’s results of
        operations or its financial position.
 
 In
        March
        2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial
        Assets - an amendment of FASB Statement No. 140," which establishes, among
        other
        things, the accounting for all separately recognized servicing assets and
        servicing liabilities by requiring that all separately recognized servicing
        assets and servicing liabilities be initially measured at fair value, if
        practicable. SFAS No. 156 is effective as of the beginning of an entity's
        first
        fiscal year that begins after September 15, 2006. The adoption of SFAS No.
        156
        will have no impact on the Company’s results of operations or its financial
        position.
 
 18
 In
        June
        2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
        for
        Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,"
        which establishes that the financial statement effects of a tax position
        taken
        or expected to be taken in a tax return are to be recognized in the financial
        statements when it is more likely than not, based on the technical merits,
        that
        the position will be sustained upon examination. FIN 48 is effective for
        fiscal
        years beginning after December 15, 2006. The adoption of FIN 48 is not expected
        to have a material impact on the Company’s results of operations or its
        financial position.
 
 NOTE
        O  MERGER
        WITH MOSSIMO INC
 
 On
        April
        3, 2006, the Company announced that it had entered into a definitive agreement
        (the “Merger Agreement”) to acquire Mossimo, Inc. (“Mossimo”), a public company
        in the business of licensing the MOSSIMO brand. Subject to the terms of the
        Merger Agreement, the Company will acquire all of the outstanding shares
        of
        Mossimo through a merger (the “Merger”) in consideration for cash and common
        stock of the Company worth $7.50 per Mossimo share, totaling approximately
        15.9
        million Mossimo shares as of March 31, 2006, provided, however that if the
        Company’s common stock does not close at or above $18.71 during a specified
        period following the Merger, the Company will issue additional shares of
        the
        Company’s common stock such that the total value of the cash and common stock of
        the Company issued to the Mossimo shareholders in connection with the Merger
        will be worth $8.50 per Mossimo share.
 
 On
        April
        27, 2006, Mossimo received an unsolicited proposal from Cherokee, Inc.
        (“Cherokee”) to acquire all of the outstanding shares of Mossimo. While unable
        to conclude that Cherokee’s proposal was, in fact, a superior proposal within
        the meaning of the merger agreement, Mossimo’s board agreed to provide
        information to Cherokee pursuant to a confidentiality agreement as restrictive
        as the one executed between Mossimo and Iconix. Cherokee and Iconix subsequently
        entered into a termination and settlement agreement pursuant to which Cherokee
        agreed to withdraw its proposal (and not to reinstate or make any new offer)
        to
        acquire all or substantially all of the capital stock of Mossimo and to
        terminate, simultaneously with the merger, a finders agreement between Mossimo
        and Cherokee in respect of Mossimo’s royalties from Target Stores in exchange
        for Iconix’s agreement to pay Cherokee $33 million upon the closing of the
        merger.
 
 On
        June
        30, 2006, the Company filed a registration statement with the SEC, covering
        the
        issuance by the Company of its shares of common stock to the holders of Mossimo
        common stock in the Merger and the resale of certain of the shares by certain
        of
        the Mossimo stockholders. The registration statement has not yet become
        effective.
 
 NOTE
        P  OTHER
 
 In
        June
        2006, the Company agreed to purchase all of the rights, title and interest
        of
        certain parties, relating to a 5% interest in the Badgley Mischka trademark
        (the
“Rights”) under the Letter Agreement dated October 29, 2004 between the Company
        and UCC Funding Corporation (“UCCF”) which UCCF subsequently assigned to certain
        third parties. The Company purchased from these parties the Rights under
        the
        Letter Agreement for $1.5 million, of which $750,000 was paid in cash upon
        execution of the agreement and the remaining $750,000 was evidenced by the
        Company’s issuance of promissory notes, which accrue interest at the rate of 6%
        per annum and mature and become payable on October 31, 2006. The
        Company allocated approximately $1.35 million of the purchase price to the
        purchase of the parties’ rights under the Letter Agreement to receive a cash
        payment calculated under a formula based on the sales price should the Company
        sell all or substantially all of the acquired Badgley Mischka assets. In
        addition, the Company allocated the balance of approximately $150,000 relating
        to its purchase of the parties’ rights under the Letter Agreement to receive a
        fee of 5% of the gross revenues that the Company derives from the Badgley
        Mischka trademark and all derivative trademarks.
  19
  **Item
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
 
 *Safe
        Harbor Statement under the Private Securities Litigation Reform Act of
        1995* .
        The
        statements that are not historical facts contained in this report are forward
        looking statements that involve a number of known and unknown risks,
        uncertainties and other factors, all of which are difficult or impossible
        to
        predict and many of which are beyond the control of the Company, which may
        cause
        the actual results, performance or achievements of the Company to be materially
        different from any future results, performance or achievements expressed
        or
        implied by such forward looking statements. These risks are detailed in the
        Company's Form 10-K for the fiscal year ended December 31, 2005 and other
        SEC
        filings. The words "believe", "anticipate," "expect", "confident", "project",
        provide "guidance" and similar expressions identify forward-looking statements.
        Readers are cautioned not to place undue reliance on these forward looking
        statements, which speak only as of the date the statement was made.
 
 *Executive
        Summary.* The
        Company is in the business of owning, licensing and marketing a growing and
        diversified portfolio of consumer brands that are sold across every major
        segment of retail distribution from the luxury market to the mass market.
        During
        the Current Quarter, the Company owned six brands, five of which it owned
        prior
        to the Current Quarter, CANDIE'S®, BONGO®, BADGLEY MISCHKA®, JOE BOXER® and
        RAMPAGE®, and one that was acquired on April 11, 2006, MUDD®. The Company
        licenses its brands to retailers and wholesalers worldwide for use in connection
        with a broad variety of consumer products including apparel, footwear,
        accessories, fragrance and beauty products and home accessories. The Company’s
        business model is designed to allow the Company to focus on its core competency
        of marketing and managing brands without the risk, complexity and investment
        inherent under the traditional operating model. The Company has long term
        contracts with minimum guaranteed sales, and therefore has greater revenue
        predictability than traditional operating businesses.
 
 The
        Company's growth strategy is focused on increasing licensing revenue from
        its
        existing portfolio of brands, continuing to acquire new brands that further
        diversify the Company’s portfolio and licensing its brands to a growing network
        of retailers and wholesalers internationally.
 
 ***Results
        of Operations***
  *For
        the three months ended June 30, 2006*
  *Revenue.* Revenue
        for the Current Quarter increased to $18.4 million, from $4.3 million in
        the
        Prior Year Quarter. This revenue growth of $14.1 million was balanced between
        the growth in revenue generated from brands that were owned in the prior
        year
        quarter, notably the Company’s Candie’s brand, that is licensed to Kohl’s
        Department Stores and new revenues of approximately $11.8 million associated
        with the two brands acquired in the third quarter of last year, Joe Boxer
        and
        Rampage, and the Mudd acquisition completed in the Current Quarter.
  *Operating
        Expenses.* Selling,
        general and administrative ( **“** SG&A”)
        expenses totaled $6.8 million in the Current Quarter compared to $2.7 million
        in
        the Prior Year Quarter, an increase of $4.1 million. The increase in SG&A
        expense was primarily related to increased advertising obligations connected
        to
        the growth in licensing revenue, additional operating expense related to
        the
        Mudd licensing operation, and compensation related to new executives that
        joined
        the Company in the Joe Boxer and Rampage transactions. Further in the Current
        Quarter, the Company recorded a $625,000 reserve against its accounts
        receivables, compared to no reserve in the Prior Year Quarter. For the Current
        Quarter and Prior Year Quarter, the Company’s special charges included $712,000
        and $328,000 respectively, incurred by the Company relating to litigation
        involving Unzipped. See Note H of Notes to Condensed Consolidated Financial
        Statements.
 
 Operating
        Income for the Current Quarter increased to $10.9 million, or approximately
        59%
        of total revenue compared to $1.2 million or 29% of total revenue in the
        Prior
        Year Quarter.
 
 *Net* *Interest
        Expense* .
        Net
        Interest expense increased by $2.4 million in the Current Quarter to $2.9
        million, compared to $504,000 in the Prior Year Quarter. This increase was
        due
        primarily to an increase in the Company’s debt through financing arrangements in
        connection with the acquisitions of Joe Boxer and Rampage, and the acquisition
        of Mudd in April 2006. See Notes I, J and K of Notes to Condensed Consolidated
        Financial Statements. Included in the interest expense was $163,000 amortization
        expense of deferred financing cost, compared to $104,000 amortization expense
        reclassified from SG&A in the Prior Year Quarter. In addition, $37,000 in
        interest expense was included in the Current Quarter from the Sweet Note
        as
        compared to $38,000 in the Prior Year Quarter. A total of $191,000 in interest
        income for the Current Quarter partially offset the increase in interest
        expense, compared to $21,000 offset in the Prior Year Quarter.
 
 20
 *Provision
        (Benefit) for Income Taxes.* The
        Company accounts for income taxes in accordance with Statement of Financial
        Accounting Standards No. 109, (“SFAS 109”) “Accounting for Income Taxes.” Under
        SFAS No. 109, deferred tax assets and liabilities are determined based on
        differences between the financial reporting and tax basis of assets and
        liabilities and are measured using the enacted tax rates and laws that will
        be
        in effect when the differences are expected to reverse. A valuation allowance
        is
        established when necessary to reduce deferred tax assets to the amount expected
        to be realized. In determining the need for a valuation allowance, management
        reviews both positive and negative evidence pursuant to the requirements
        of SFAS
        No. 109, including current and historical results of operations, the annual
        limitation on utilization of net operating loss carry forwards pursuant to
        Internal Revenue Code section 382, future income projections and the overall
        prospects of the Company’s business. Based upon management’s assessment of
        information which became available in the Current Quarter management concluded
        that it is more likely than not that a portion of previously unrecognized
        deferred income tax benefits will be realized. Accordingly, the Company reduced
        the balance of the related valuation allowance which resulted in a $347,000
        net
        tax benefit for the Current Quarter. Approximately $2.4 million was recorded
        in
        the Current Quarter as a credit to additional paid in capital for realization
        of
        deferred tax assets generated from exercise of stock options in prior years.
        Based on current estimates of pre-tax income for the year ending December
        31,
        2006, management expects to record a net income tax expense for the year.
        See
        Note F of Notes to Condensed Consolidated Financial Statements.
 
 *Net
        income* .
        The
        Company’s net income was $8.3 million in the Current Quarter, compared to net
        income of $2.5 million in the Prior Year Quarter, as a result of the factors
        discussed above.
 
 *For
        the* *six months ended June 30, 2006*
  *Revenue.* Revenue
        for the Current Six Months increased to $31.7 million, from $8.6 million
        in the
        Prior Year Six Months. This revenue growth of $23.1 million was balanced
        between
        expansion of brands the Company owned in the Prior Year Six Months, notably
        the
        Company’s Candie’s brand, whose license with Kohl’s Department Stores continues
        to rollout, and new revenue of approximately $19.4 million associated with
        the
        two acquisitions completed in the third quarter of last year, Joe Boxer and
        Rampage, and the acquisition of Mudd completed in April 2006.
  *Operating
        Expenses.* SG&A
        expenses totaled $11.5 million in the Current Six Months compared to $5.3
        million in the Prior Year Six Months, an increase of $6.2 million. The increase
        in SG&A expense was primarily related to increased advertising obligations
        connected to the growth in licensing revenue, additional operating expense
        related to the Mudd licensing operation, as well as new executives that joined
        the Company in the Joe Boxer and Rampage transactions. Included in the Prior
        Year Six Months’s SG&A expense was $37,500 for Unzipped’s net loss which was
        related to the Company’s transition of the Bongo jeanswear business into a
        licensing business. For the Current Six Months and Prior Year Six Months,
        the
        Company’s special charges included $1.3 million and $707,000 respectively,
        incurred by the Company relating to litigation involving Unzipped.
 
 Operating
        Income for the Current Six Months increased to $18.9 million, or approximately
        60% of total revenue compared to $2.6 million or 30% of total revenue in
        the
        Prior Year Six Months.
 
 *Net* *Interest
        Expense* .
        Net
        Interest expense increased by approximately $3.8 million in the Current Six
        Months to $4.8 million, compared to approximately $1.1 million in the Prior
        Year
        Six Months. This increase was due primarily to an increase in the Company’s debt
        through financing arrangements in connection with the acquisitions of Joe
        Boxer
        and Rampage in the third quarter of 2005 and the most recent acquisition
        of Mudd
        in April 2006. See Notes I, J and K of Notes to Condensed Consolidated Financial
        Statements. Included in the interest expense in the Current Six Month was
        $295,000 amortization expense of deferred financing cost, compared to $209,000
        amortization expense reclassified from SG&A in the Prior Year Six Months. A
        total of $352,000 in interest income for the Current Six Months partially
        offset
        the increase in interest expense, compared to $35,000 offset in the Prior
        Year
        Six Months.
 
 *Provision
        (Benefit) for Income Taxes.* The
        Company accounts for income taxes in accordance with Statement of Financial
        Accounting Standards No. 109, (“SFAS 109”) “Accounting for Income Taxes.” Under
        SFAS No. 109, deferred tax assets and liabilities are determined based on
        differences between the financial reporting and tax basis of assets and
        liabilities and are measured using the enacted tax rates and laws that will
        be
        in effect when the differences are expected to reverse. A valuation allowance
        is
        established when necessary to reduce deferred tax assets to the amount expected
        to be realized. In determining the need for a valuation allowance, management
        reviews both positive and negative evidence pursuant to the requirements
        of SFAS
        No. 109, including current and historical results of operations, the annual
        limitation on utilization of net operating loss carry forwards pursuant to
        Internal Revenue Code section 382, future income projections and the overall
        prospects of the Company’s business. Based upon management’s assessment of
        information which became available in the Current Six Months management
        concluded that it is more likely than not that a portion of previously
        unrecognized deferred income tax benefits will be realized. Accordingly,
        the
        Company reduced the balance of the related valuation allowance which resulted
        in
        a $1.6 million net tax benefit for the Current Six Months. Approximately
        $2.4
        million was recorded in the Current Quarter as a credit to additional paid
        in
        capital for realization of deferred tax assets generated from exercise of
        stock
        options in prior years. Based on current estimates of pre-tax income for
        the
        year ended December 31, 2006, management expects to record a net income tax
        expense for that period. See Note E of Notes to Condensed Consolidated Financial
        Statements.
 
 21
 *Net
        income* .
        The
        Company’s net income was $15.7 million in the Current Six Months, compared to
        net income of $3.3 million in the Prior Year Six Months, as a result of the
        factors discussed above.
 
 
 ***Liquidity
        and Capital Resources***
  
 *Liquidity*
 
 The
        Company’s primary sources of cash is from cash from operations. As of June 30,
        2006 and December 31, 2005 the Company’s cash and cash equivalents totaled $13.6
        million and $11.7 million, including $9.0 million and $4.1 million restricted
        cash, respectively. The increase resulted from the timing of receipt of certain
        royalty payments at end of the Current Six Months as well as the additional
        quarterly payment of $3.75 million deposited in the renewal reserve account
        that
        was classified as short-term restricted cash. See Note D of Notes to Condensed
        Consolidated Financial Statements.
 
 The
        Company’s cash requirements to support working capital needs, including
        operating expenses, interest payments and its minimal capital expenditures,
        are
        met from its existing cash and cash provided from its operations. Based on
        the
        Company’s current internal estimates, the Company believes that its existing
        cash and cash provided from future operations will be sufficient to meet
        its
        cash requirements over the next twelve months.
 
 *Changes
        in Working Capital*
 
 At
        June
        30, 2006 and December 31, 2005 the working capital ratio (current assets
        to
        current liabilities) was 0.73 to 1 and 0.84 to 1 respectively. The main driver
        of the decrease is that as
        of
        June 30, 2006, the Company classified $15 million in debt from long-term
        to
        current liabilities on its balance sheet as the Company has not entered into
        or
        renewed certain licensing arrangements with respect to the Joe Boxer brand.
        Subject to terms in the Asset-Backed Notes, since by April 1, 2006, the Company
        had not entered into or renewed certain licensing agreement(s) with respect
        to
        the Joe Boxer brand that guarantees certain thresholds, the Company is required
        to make additional quarterly principal payments of $3.75 million in the seven
        quarters following April 2006, without penalty, which are deposited in the
        renewal reserve account as restricted cash. If the Company, prior to December
        1,
        2006, enters into or renews such licensing arrangements, above certain royalty
        thresholds, the requirement to pay such additional quarterly principal payments
        will cease and the Company will adjust the related debt classification on
        its
        balance sheet appropriately. The additional restricted liquidity reserve
        fund
        deposited in the renewal reserve account will be released and become available
        to the Company for working capital purpose. See Note D of
        Notes
        to Condensed Consolidated Financial Statements .
 
 *Operating
        Activities*
 
 Net
        cash
        provided by operating activities totaled $7.8 million in the Current Six
        Months,
        as compared to $2.1 million of net cash provided in the Prior Year Six Months.
        Cash provided by operating activities in the Current Six Months was increased
        primarily due to net income of $15.7 million, offset by primary uses of cash
        from an increase of $5.3 million in accounts receivable, a decrease of $2.1
        million in deferred revenues. The Company continues to rely upon cash generated
        from licensing and commission operations to finance its operations. Further,
        the
        Company believes that such cash from operations will be sufficient to satisfy
        its anticipated working capital requirements for the foreseeable
        future.
 
 *Investing
        Activities*
 
 Net
        cash
        used in investing activities in the Current Six Months totaled $47.3 million,
        as
        compared to $244,000 in the Prior Year Six Months. In the Current Six Months,
        the Company paid $45.0 million in cash for certain assets relating to the
        Mudd
        brand. See Note K of Notes to Condensed Consolidated Financial Statements.
        Capital expenditures in the Current Six Months were $558,000, compared to
        $26,000 in capital expenditures in the Prior Year Six Month. Capital
        expenditures in the six months ended June 30, 2006 were primarily attributable
        to the acquisition of office equipment and leasehold improvements relating
        to
        the Company’s relocation of its headquarters and the construction of new
        showrooms in New York City. In June 2006, the Company acquired UCC’s right to
        receive a cash payment upon the Company’s sale of all or substantially all of
        the Badgley Mischka assets for approximately $600,000 in cash and $750,000
        in a
        promissory note (See Note P of Notes to Condensed Consolidated Financial
        Statements). In addition, the Company also spent $231,000 in connection with
        the
        registration and maintenance of its trademarks.
 
 *Financing
        Activities*
 
 Net
        cash
        provided by financing activities was $36.4 million in the Current Six Months,
        compared with $2.2 million net cash used in the Prior Year Six Month. Of
        the
        $38.8 million in net cash provided by financing activities, $49.0 million
        was
        provided from the net proceeds of the issuance of long-term asset - backed
        notes, and $931,000 from proceeds in connection with the exercise of stock
        options. This was offset by $4.5 million used for principal payments related
        to
        the Asset-Backed Notes, $3.6 million in cash placed in a non-current reserve
        account, $4.9 million in cash placed in a current reserve account (both reserve
        accounts are required by the lender in connection to the Asset-Backed Notes,
        including one additional quarterly payment of $3.75 million deposited in
        the
        renewal reserve account (See Notes D of Notes to Condensed Consolidated
        Financial Statements), and $490,000 used to pay the costs associated with
        the
        issuance of the long term debt (see Asset-Backed Notes below). In Prior Year
        Six
        Months, approximately $1.4 million was used for principal payments related
        to
        Asset-Backed Notes. The Company also repaid $2 million for a loan from TKO
        Apparel, which during the Prior Year Six Months was a related
        party.
 
 22
 *Asset-Backed
        Notes*
 
 In
        August
        2002, IPH, a subsidiary of the Company, issued in a private placement $20
        million of Asset-Backed Notes secured by intellectual property assets (trade
        names, trademarks, license agreements and payments and proceeds with respect
        thereto) of IPH. The Asset-Backed Notes had a 7-year term with a fixed interest
        rate of 7.93% with quarterly principal and interest payments of approximately
        $859,000. After funding a liquidity reserve account in the amount of $2.9
        million, the net proceeds of the Asset-Backed Notes ($16.2 million) were
        used by
        the Company to reduce amounts due by the Company under its then-existing
        revolving credit facilities. In April 2004, IPH issued an additional $3.6
        million in subordinated Asset-Backed Notes secured by its intellectual property
        assets. The additional borrowing had a maturity date of August 2009, with
        a
        floating interest rate of LIBOR + 4.45% and quarterly principal and interest
        payments and $500,000 of interest prepaid at closing. The net proceeds of
        $2.9
        million were used for general working capital purposes. As of July 22, 2005,
        the
        total principal on these notes was approximately $17.5 million, which were
        refinanced in connection with the Joe Boxer acquisition described
        below.
 
 In
        the
        fiscal quarter ended September 30, 2005, the Company, through IPH, acquired
        the
        Joe Boxer brand from Joe Boxer Company, LLC and its affiliates, and the Rampage
        brand from Rampage Licensing, LLC. See Notes I and J of Notes to Condensed
        Consolidated Financial Statements. The financing for the acquisitions was
        accomplished through two private placements by IPH of Asset-Backed Notes,
        secured by the intellectual property assets owned by IPH. The combined proceeds
        of the Asset-Backed Notes, totaling $103 million, were used as follows:
        approximately $17.5 million was used to refinance previously issued Asset-Backed
        Notes, $40.0 million was paid to the sellers of the Joe Boxer brand,
        approximately $25.8 million was paid to the sellers of the Rampage brand,
        $1.7
        million was placed in a liquidity reserve account as required by the holder
        of
        the Asset-Backed Notes, approximately $1.8 million was used to pay costs
        associated with the debt issuance, approximately $200,000 was paid to legal
        professionals associated with the acquisitions, approximately $4.0 million
        was
        available to the Company for working capital purposes, and $12 million was
        deposited in an escrow account for the benefit of the holder of the Asset-Backed
        Notes, to be used by IPH solely for the purchase of certain intellectual
        property assets. IPH redeemed $12 million of the Asset-Backed Notes without
        penalty as the purchase of the assets did not occur. Costs associated with
        the
        debt issuances of approximately $1.8 million have been deferred and are being
        amortized using the interest method over the 7 year life of the Asset-Backed
        Notes.
 
 In
        April
        2006, the Company, through IPH, acquired certain assets of Mudd (USA) related
        to
        the Mudd brand, including trademarks, intellectual property and related names
        worldwide, excluding China, Hong Kong, Macau and Taiwan. The financing for
        the
        acquisition was accomplished through the private placement on April 11, 2006
        by
        IPH of approximately $136 million principal amount of Asset-Backed Notes.
        The
        issuance of the Asset-Backed Notes raised $49 million in new financing for
        IPH
        (before giving effect to the payment of expenses in connection with the issuance
        of the Asset-Backed Notes and required deposits to reserve funds), and
        approximately $87 million principal amount of the Asset-Backed Notes was
        exchanged for Asset Backed Notes previously issued by IPH. The Asset-Backed
        Notes are secured by the acquired assets, as well as by other intellectual
        property assets owned by IPH. The payment of the principal of and interest
        on
        the Asset-Backed Notes will be made from amounts received by IPH under license
        agreements with various licensees of the acquired assets and IPH’s other
        intellectual property assets.
 
 The
        portion of the Asset-Backed Notes representing new financing were used as
        follows: $45.0 million was paid to the sellers of the Mudd brand, approximately
        $490,000 was used to pay costs associated with the financing, approximately
        $2.45 million was placed in a liquidity reserve account, approximately $785,000
        was used to pay professional fees associated with the acquisition and
        approximately $275,000 of which was available for working capital purposes.
        The
        costs relating to the $49 million in new financing of approximately $490,000
        have been deferred and are being amortized over the 5 year life of the financed
        debt.
 
 Subject
        to terms of the Asset-Backed Notes, if by April 1, 2006, IPH had not entered
        into or renewed certain licensing agreement(s) with respect to the Joe Boxer
        brand that guarantees certain royalty thresholds, IPH is required to deposit,
        from revenues generated from the Joe Boxer brand, to a renewal reserve account
        $3.75 million for each quarter beginning in April 2006 and ending in December
        2007. Such deposits shall continue to be made until IPH enters into or renews
        such licensing agreement(s) with respect to the Joe Boxer brand meeting the
        minimum royalty thresholds, at which time any funds on deposit in the renewal
        reserve account will be released to IPH. If IPH does not enter into or renew
        such licensing agreement(s) by January 1, 2007, any funds on deposit in the
        renewal reserve account will be applied as a reduction of the principal without
        penalty and all future payments that are deposited to the renewal reserve
        account will also be applied as a reduction of the principal without penalty.
        As
        of July 27, 2006, IPH had not entered into or renewed such licensing
        agreement(s); accordingly, IPH made one payment of $3.75 million to the renewal
        reserve account, which was included in current restricted cash, and classified
        $15 million principal amount of the Asset Backed Notes from long-term debt
        to
        current debt on its balance sheet. If IPH enters into or renews such licensing
        agreement(s) by January 1, 2007 IPH will adjust the related debt classification
        on its balance sheet accordingly.
 
 23
 Cash
        on
        hand in the bank account of IPH is restricted at any point in time up to
        the
        amount of the next debt payment required under the Asset-Backed Notes.
        Accordingly, $9.0 million and $4.1 million as of June 30, 2006 and December
        31,
        2005, respectively, have been disclosed as restricted cash within the Company’s
        current assets. Further, in connection with IPH’s issuance of Asset Backed
        Notes, a reserve account has been established and the funds on deposit in
        such
        account will be applied to the last principal payment with respect to the
        Asset
        Backed Notes. Accordingly, $8.5 million and $5.0 million as of June 30, 2006
        and
        December 31, 2005, respectively, have been disclosed as restricted cash within
        the Company’s other assets.
 
 Interest
        rates and terms on the outstanding principal amount of the Asset-Backed Notes
        are as follows: $63 million principal amount bears interest at a fixed interest
        rate of 8.45% with a 7-year term, $28 million principal amount bears interest
        at
        a fixed rate of 8.12% with a 7- year term, and $49 million principal amount
        bears interest at a variable interest rate of LIBOR + 4% in the first year
        of
        the 5-year term and a fixed interest rate of applicable treasury rate + 4.5%
        for
        the remaining 4 years. There are no principal payments required with respect
        to
        $49 million in new financing in the first year.
 
 Neither
        the Company nor any of its subsidiaries (other than IPH) is obligated to
        make
        any payment with respect to the Asset-Backed Notes, and the assets of the
        Company and its subsidiaries (other than IPH) are not available to IPH’s
        creditors. The assets of IPH are not available to the creditors of the Company
        or its subsidiaries (other than IPH).
 
 *Matters
        Pertaining to Unzipped* .
 
 See
        Notes
        G and H of Notes to Condensed Consolidated Financial Statements.
 
 For
        the
        Current Six Months, Unzipped had no operations, as compared to a net loss
        (as
        defined for the purpose of determining if the Guarantee had been met) of
        $296,000 in the Prior Year Six Months. Consequently for the Current Six Months
        there was no Shortfall Payment, as compared to a Shortfall Payment of $438,000
        in the Prior Year Six Months. The adjusted Shortfall Payment had been recorded
        in the Condensed Consolidated Income Statements as a reduction of Unzipped’s
        cost of sales (since the majority of Unzipped’s operations were with entities
        under common ownership with Sweet, including its exclusive supplier/ supply
        agent) and on the balance sheet as a reduction of the Sweet Note based upon
        the
        right to offset in the Management Agreement. After adjusting for the Shortfall
        Payment in Prior Year Six Months, Unzipped reported a net loss of $37,500
        on
        sales of $448,000. Due to the immaterial nature of the related amounts, the
        net
        loss of $37,500 from Unzipped was included in the SG&A in the Company’s
        Condensed Consolidated Income Statements for the Prior Year Six
        Months.
 
 ***Other*** ***Matters***
 
 *Summary
        of Significant Accounting Policies.*
 
 The
        condensed consolidated financial statements include the accounts of the Company
        and its wholly-owned subsidiaries. All significant intercompany transactions
        and
        items have been eliminated in consolidation. The Company acquired the Joe
        Boxer
        brand on July 22, 2005, the Rampage brand on September 16, 2005, and the
        Mudd
        brand on April 11, 2006. All acquisitions have been accounted for using purchase
        price accounting. The purchase method of accounting requires that the total
        purchase price of an acquisition be allocated to the assets acquired and
        liabilities assumed based on their fair values on the date of the business
        acquisition. Any excess of the purchase price over the estimated fair values
        of
        the net assets acquired is recorded as goodwill. See Notes I, J and K of
        Notes
        to Condensed Consolidated Financial Statements.
 
 The
        preparation of the condensed consolidated financial statements in conformity
        with accounting principles generally accepted in the United States requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the financial statements and the reported amounts of revenues
        and
        expenses during the reporting period. The Company reviews all significant
        estimates affecting the financial statements on a recurring basis and records
        the effect of any adjustments when necessary.
 
 In
        June
        2001, the FASB issued Statement of Financial Accounting Standards No. 142
        (SFAS
        No. 142), “Goodwill and Other Intangible Assets,” which changes the accounting
        for goodwill and other intangible assets without determinable lives from
        an
        amortization method to an impairment-only approach. The Candie’s and Bongo
        trademarks had previously been amortized on a straight-line basis over their
        estimated useful lives of approximately 20 years. Effective July 1, 2005
        the
        Company had a change in estimate of the useful lives of both the Candie’s and
        Bongo trademarks to indefinite life. The impact of this change in estimate
        for
        the Current Quarter and Current Six Months were a reduction in amortization
        expense relating to the Candie’s and Bongo trademarks totaling $296,000 and
        $593,000, respectively. As of June 30, 2006, the net book value of the Candie’s
        and Bongo trademarks totaled $14.3 million. Impairment losses are recognized
        for
        long-lived assets, including certain intangibles, used in operations when
        indicators of impairment are present and the undiscounted cash flows estimated
        to be generated by those assets are not sufficient to recover the assets'
        carrying amount. Impairment losses are measured by comparing the fair value
        of
        the assets to their carrying amount.
 
 24
 The
        Company has entered into various trade name license agreements that provide
        revenues based on minimum royalties and additional revenues based on a
        percentage of defined sales. Minimum royalty revenue is recognized on a
        straight-line basis over each period, as defined, in each license agreement.
        Royalties exceeding the defined minimum amounts are recognized as income
        during
        the period corresponding to the licensee’s sales. Beginning January 2005, the
        Company changed its business practices with respect to Bright Star Footwear,
        Inc
        (“Bright Star”), a subsidiary of the Company, which resulted in a change in
        revenue recognition from prior year. Bright Star now acts as an agent, therefore
        only net commission revenue is recognized commencing January 1, 2005.
 
 Effective
        January 1, 2006, the Company adopted Statement No. 123(R), “Accounting for
        Share-Based Payment” (“SFAS 123(R)”), which requires companies to measure and
        recognize compensation expense for all stock-based payments at fair value.
        Under
        SFAS 123(R), using the modified prospective method, compensation expense
        is
        recognized for all share-based payments granted prior to, but not yet vested
        as
        of, January 1, 2006. In
        December 2005, the Company’s Board of Directors approved the accelerated vesting
        of all employee service-based stock options previously granted under the
        Company’s various non-qualified stock option plans, which would have been
        unvested as of December 31, 2005. As a result, all options granted as of
        December 31, 2005, except certain options based on performance became
        exercisable immediately. The number of shares, exercise prices and other
        terms
        of the options subject to the acceleration remain unchanged. The acceleration
        of
        such option vesting resulted in an additional $446,000 of compensation expense
        reflected in pro forma net income for the year ended December 31, 2005, an
        amount that would have otherwise been recorded as compensation expense in
        the
        years ending December 31, 2006 and 2007, but had no impact on compensation
        recognition in 2005 as the options would have otherwise vested. Prior to
        the
        adoption of SFAS 123(R), the Company accounted for its stock-based compensation
        plans under the recognition and measurement principles of Accounting Principles
        Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and
        related interpretations. Accordingly, the compensation cost for stock options
        had been measured as the excess, if any, of the quoted market price of the
        Company’s stock at the date of the grant over the amount the employee must pay
        to acquire the stock. In accordance with the modified prospective transition
        method, the consolidated financial statements have not been restated to reflect
        the impact of SFAS 123(R). The
        impact on the Company's financial condition and results of operations of
        adopting FAS No. 123(R) will depend on the number and terms of stock options
        granted in future years under the modified prospective method, the amount
        of
        which can not currently be estimated by management.
 
 On
        July
        1, 2005, the Company changed its corporate name to Iconix Brand Group, Inc.
        and
        its NASDAQ symbol to ICON.
 
 *Seasonal
        and Quarterly Fluctuations* .
 
 The
        Company's results may fluctuate quarter to quarter as a result of its licensees'
        sales and business generally, which can be impacted by holidays, weather,
        the
        timing of product shipments, market acceptance of the applicable branded
        product, the mix, pricing and presentation of the product and general economic
        conditions beyond the Company’s control. Accordingly, the results of operations
        in any quarter will not necessarily be indicative of the results that may
        be
        achieved for a full fiscal year or any future quarter.
 
 *Other
        Factors*
 
 The
        Company continues to seek to expand and diversify the types of licensed products
        being produced under its various brands, as well as diversify the distribution
        channels within which licensed products are sold, in an effort to reduce
        dependence on any particular retailer, consumer or market sector. The success
        of
        the Company, however, will still largely remain dependent on its ability
        to
        contract with and retain key licensees, its licensee’s ability to predict
        accurately upcoming fashion trends among its customer base, to build and
        maintain brand awareness and to fulfill the product requirements of the retail
        channel within a global marketplace. Unanticipated changes in consumer fashion
        preferences, slowdowns in the United States economy, changes in the prices
        of
        supplies, gasoline, consolidation of retail establishments, among other factors
        noted herein and the Company’s other filing with the SEC, could adversely affect
        the Company's licensees’ from meeting and/or exceeding their contractual
        commitments to the Company and thereby adversely impact the Company’s future
        operating results.
 
 25
 *Effects
        of Inflation.* The
        Company does not believe that the relatively moderate rates of inflation
        experienced over the past few years in the United States, where it primarily
        competes, have had a significant effect on its revenues or
        profitability.
 
 
 **Item
        3.**  **Quantitative
        and Qualitative Disclosures about Market Risk**
 
 As
        a
        result of the Company’s financing activities, the Company was exposed to the
        risk of rising interest rates. The following table provides information on
        the
        Company’s fixed maturity debt as of June 30, 2006 that was sensitive to changes
        in interest rates.
 
 The
        IPH’s
        additional assets-backed note, in connection with the
 new
        financing for the acquisition of Mudd had an average interest
 rate
        of
        9.03% for the three month period ended June 30, 2006    $49.0
        million
 
 See
        Notes
        D and K of Notes to Condensed Consolidated Financial Statements.
 
 **Item
        4.**  **Controls
        and Procedures**
 
 The
        Company maintains “disclosure controls and procedures, “ as such term is defined
        under Rule 13a-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”),
        that are designed to ensure that information required to be disclosed in
        the
        Company’s Exchange Act reports is recorded, processed, summarized and reported
        within the time periods specified in the SEC’s rules and forms, and that such
        information is accumulated and communicated to its management, including
        its
        Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
        timely decisions regarding required disclosures. In designing and evaluating
        the
        disclosure controls and procedures, the Company’s management recognized that any
        controls and procedures, no matter how well designed and operated, can provide
        only reasonable assurance of achieving the desired control objectives and
        the
        Company’s management necessarily was required to apply its judgment in
        evaluating the cost-benefit relationship of possible controls and procedures.
        The Company has carried out an evaluation, as of the end of period covered
        by
        this report, under the supervision and with the participation of the Company’s
        management, including its Chief Executive Officer and Chief Financial Officer,
        of the effectiveness of the design and operation of the Company’s disclosure
        controls and procedures. Based upon the management’s evaluation and subject to
        the foregoing, the Chief Executive Officer and Chief Financial Officer concluded
        that the Company’s disclosure controls and procedures were effective in ensuring
        that material information relating to the Company that is required to be
        disclosed in the Company’s Exchange Act reports is made known to the Chief
        Executive Officer and Chief Financial Officer by others within the Company
        in a
        timely manner.
  There
        have been no significant changes in the Company’s internal control over
        financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred
        during the quarter and six months ended June 30, 2006 that have materially
        affected, or are reasonably likely to materially affect, the Company’s internal
        control over financial reporting.
 
 
 
  26
  PART
        II.
        Other Information
 
 
 **Item
        1.**  **Legal
        Proceedings**
 
 See
        Note
        G of Notes to Condensed Consolidated Financial Statements.
 
 **Item 1A.**  **Risk
        Factors.**
 
 In
        addition to the risk factors disclosed in Part 1, Item 1A, “Risk
        Factors” of our Annual Report on Form 10-K for the year ended December 31,
        2005 set forth below are certain factors that have affected, and in the future
        could affect, our operations or financial condition. The risks
        described below and in our Annual Report on Form 10-K for the year
        ended December 31, 2005 are not the only risks we face. Additional risks
        and
        uncertainties not currently known to us or that we currently deem to be
        immaterial also may materially adversely affect our financial condition
        and/or operating results.
 
 *Our
        business is dependent on continued market acceptance of our
        Candie* *’* *s,
        Bongo, Badgley Mischka, Joe Boxer, Rampage and Mudd trademarks and the products
        of our licensees bearing these brands.*
 
 Although
        the licensees of the current trademarks we own guarantee minimum net sales
        and
        minimum royalties to us, a failure of our current or future trademarks or
        of
        products utilizing our trademarks to achieve or maintain market acceptance
        could
        cause a reduction of our licensing revenues, thereby negatively affecting
        our
        cash flow. Such failure could also cause the devaluation of our trademarks,
        which are our primary assets, making it more difficult for us to renew our
        current licenses upon their expiration or enter into new or additional licenses
        for our trademarks. In addition, if such devaluation of our trademarks were
        to
        occur, a material impairment in the carrying value of one or more of our
        trademarks could also occur and be charged as an expense to our operating
        results. Continued market acceptance for our trademarks and our licensees’
products, as well as market acceptance of any future products bearing our
        trademarks, is subject to a high degree of uncertainty, made more so by
        constantly changing consumer tastes and preferences. Maintaining market
        acceptance for our licensees’ products and creating market acceptance for new
        products and categories of products bearing our marks will require our
        continuing and substantial marketing and product development efforts, which
        may,
        from time to time, also include our expenditure of significant additional
        funds,
        to keep pace with changing consumer demands. Additional marketing efforts
        and
        expenditures may not, however, result in either increased market acceptance
        of,
        or additional licenses for, our current or future trademarks or increased
        market
        acceptance, or sales, of our licensees’ products. Furthermore, while we believe
        that we currently maintain sufficient control over the products our licensees’
produce under our brand names through the provision of trend direction and
        our
        right to preview and approve a majority of such products as well as their
        presentation and packaging, we do not actually design or manufacture our
        licensed products and therefore have more limited control over such products’
quality and design than a traditional product manufacturer might
        have.
 
 *We
        will require additional capital to finance the acquisition of additional
        brands
        and our inability to raise such capital on beneficial terms or at all could
        restrict our growth*
  We
        will
        in the future require additional capital to help fund all or part of potential
        trademark acquisitions. If, at the time required, we have not generated
        sufficient cash from operations to finance those additional capital needs,
        we
        will need to raise additional funds through bank financing or other private
        or
        public equity and/or debt financing. We cannot assure you that, if and when
        needed, additional financing will be available to us on acceptable terms
        or at
        all. If additional capital is needed and is either unavailable or cost
        prohibitive, our growth may be limited as we may need to change our business
        strategy to slow the rate of, or eliminate, our expansion plans. In addition,
        any additional financing we undertake could impose covenants upon us that
        restrict our operating flexibility, and, if we issue equity securities to
        raise
        capital, our existing stockholders may experience dilution or the new securities
        may have rights senior to those of our common stock. Any such dilution could
        reduce the market price of our common stock unless and until we were able
        to
        achieve revenue growth or cost savings and other business economies sufficient
        to offset the effect of such an issuance. There is no guarantee that our
        stockholders will achieve greater returns as a result of any future acquisitions
        we complete.
  
  27
  **Item
        6.**  **Exhibits**
 
 **Exhibit**
 
 2.1 Amendment
        dated April 11, 2006 to Asset Purchase Agreement dated as of March 31, 2006
        between the Company and Mudd (USA), LLC.
 
 4.1 Fourth
        Amended and Restated Indenture dated as of April 11, 2006 by and among IP
        Holdings LLC, as issuer, and Wilmington Trust Company, as Trustee.
        (1)
 
 10.1 Termination
        and Settlement Agreement dated as of April 27, 2006 among the Company, Moss
        Acquisition Corp., and Cherokee Inc. (2)
 
 10.2 Agreement
        dated June 2, 2006 among the Company, UCC Consulting, Content Holdings, James
        Haran and Robert D’Loren. (3)
 
 10.3 Purchase
        and Sale Agreement dated June 2, 2006 by and among the Company, Content
        Holdings, Robert D’Loren, Seth Burroughs and Catherine Twist. (3)
 
 10.4 Stock
        Purchase Warrant dated June 2, 2006 issued to Content Holdings. (3)
 
 10.5 Stock
        Purchase Warrant dated June 2, 2006 issued to James Haran. (3)
  10.6 Non
        Competition and Non-Solicitation Agreement between the Company and Neil Cole.*
  10.7 Agreement
        dated June 8, 2006 between the Company and William Sweedler. (3)
  31.1  Certification
        of Chief Executive Officer Pursuant To Rule 13a-14 Or 15d-14 Of The Securities
        Exchange Act Of 1934, As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley
        Act Of 2002.
 
 31.2  Certification
        of Chief Financial Officer Pursuant To Rule 13a-14 Or 15d-14 Of The Securities
        Exchange Act Of 1934, As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley
        Act Of 2002.
 
 32.1  Certification
        of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As Adopted
        Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002.
 
 32.2  Certification
        of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted
        Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002.
  ________
 (1)
            Incorporated
                by reference to the applicable exhibit filed with the Company’s Current
                Report on Form 8-K for the event dated April 11,
                2006.  (2)
            Incorporated
                by reference to the applicable exhibit filed with the Company’s Current
                Report on Form 8-K for the event dated April 27,
                2006.  (3)
            Incorporated
                by reference to the applicable exhibit filed with the Company’s Current
                Report on Form 8-K for the event dated June 2,
                2006.  *
        Denotes
        management compensation plan or arrangement.
  28
  **Signatures**
 
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized.
  **Iconix
        Brand
        Group, Inc.**
 __________________________________
 (Registrant)
 
 
 Date:  August
        9,
        2006       /s/
        Neil
        Cole
 __________________________________  __________________________________
 Neil
        Cole
 Chairman
        of the
        Board, President
 and
        Chief Executive
        Officer
 (on
        Behalf of the
        Registrant)
 
 Date:  August
        9,
        2006     /s/
        Warren Clamen
 __________________________________  __________________________________
 Warren
        Clamen
 Chief
        Financial
        Officer
 
   
 29