**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**




**Washington,
      D.C. 20549**




**FORM
      10-K**




x
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934** **FOR
                THE FISCAL YEAR ENDED DECEMBER 31,
                2006**  **OR**


**o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 **FOR
                  THE TRANSITION PERIOD****FROM
                  _______ TO _______**
  **0-10593**


**(Commission
      File Number)**


**ICONIX
      BRAND GROUP, INC.**


*(Exact
      name of registrant as specified in its charter)*




**Delaware**
            
            **11-2481903***(State
                or other jurisdiction*
              *of
                incorporation or organization)*
            
            *(I.R.S.
                employer identification no.)*





**1450
      Broadway, New York, New York 10018**


*(Address
      of principal executive offices) ( zip code)*





Registrant's
      telephone number, including area code: (212) 730-0030


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


***Title
                of each class*****
            
            **Name
                of each exchange on which registered**Common
                Stock, $.001 Par Value
              Preferred
                Share Purchase Rights
            
            The
                NASDAQ Stock Market LLC (NASDAQ Global
                Market)





Securities
      registered pursuant to Section 12(g) of the Act: None





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





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





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





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










Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated filer  o
      Accelerated filer x Non-accelerated
      filer o





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




The
      aggregate market value of the registrant's Common Stock held by non-affiliates
      of the registrant as of the close of business on June 30, 2006 was approximately
      $640 million. As of March 1, 2007, 56,353,258 shares of the registrant's Common
      Stock, par value $.001 per share, were outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE:** None.










**ICONIX
      BRAND GROUP, INC. -FORM 10-K**





**TABLE
      OF CONTENTS**





**Page**PART
                IItem
                1.
            
            Business
            
            3Item
                1A.
            
            Risk
                Factors
            
            12Item
                1B.
            
            Unresolved
                Staff Comments
            
            18Item
                2.
            
            Properties
            
            18Item
                3.
            
            Legal
                Proceedings
            
            18Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            20PART
                IIItem
                5.
            
            Market
                for Registrant's Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            20Item
                6.
            
            Selected
                Financial Data
            
            22Item
                7.
            
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            24Item
                7A.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            38Item
                8.
            
            Financial
                Statements and Supplementary Data
            
            39Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            39Item
                9A.
            
            Controls
                and Procedures
            
            39Item
                9B.
            
            Other
                Information
            
            42PART
                IIIItem
                10.
            
            Directors,
                Executive Officers and Corporate Governance
            
            42Item
                11.
            
            Executive
                Compensation
            
            47Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            63Item
                13.
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            65Item
                14.
            
            Principal
                Accountant Fees and Services
            
            66PART
                IVItem
                15.
            
            Exhibits,
                Financial Statement Schedules
            
            67Signatures
            
            68Consolidated
                Financial Statements
            
            F-1


2




***Unless
      the context requires otherwise, references in this Form 10-K to the “Company”,
“Iconix”, “we”, “us”, “our”, or similar pronouns refer to Iconix Brand Group,
      Inc. and its consolidated subsidiaries, including: IP Holdings LLC, which is
      referred to as IP Holdings; Badgley Mischka Licensing LLC, which is referred
      to
      as Badgley Mischka Licensing;******Mossimo Holdings LLC,
      which is referred to as Mossimo Holdings; OP Holdings LLC, which is referred
      to
      as OP Holdings; and Studio IP Holdings LLC, which is referred to as Studio
      IP
      Holdings.***




**PART
      I**




**Item
      1.**  **Business**





**Introduction**




The
      Company, which was incorporated in Delaware in 1978 and operated under the
      name
      Candie's, Inc. until July 2005, is a
      brand
      management company engaged in licensing, marketing and providing trend direction
      for a portfolio of owned consumer brands. The Company currently owns ten brands,
      Candie's®, Bongo®, Badgley Mischka®, Joe Boxer®, Rampage®, Mudd®, London Fog®,
      Mossimo®, Ocean Pacific® and Danskin®, which it licenses directly to leading
      retailers, wholesalers and suppliers for use across a wide range of product
      categories, including apparel, accessories, footwear, beauty and fragrance
      and
      home accessories. The Company’s brands are sold across a variety of distribution
      channels, from the mass tier to the luxury market. The Company supports its
      brands with innovative advertising and promotional campaigns designed to
      increase brand awareness, and provides its licensees with coordinated trend
      direction to enhance product appeal and assist maintaining and building brand
      integrity. The Company also continues to arrange, as agent, through its
      wholly-owned subsidiary, Bright Star Footwear, Inc. ***(“Bright Star*** ”),
      for
      the manufacture of footwear products for mass market and discount retailers
      under their private label brands. Bright Star has no inventory and earns
      commissions.




The
      Company has a business strategy designed to maximize the value of its existing
      brands by entering into strategic licenses with partners that have the
      responsibility for manufacturing and selling the licensed products. These
      licensees have been selected based upon the Company's belief that they will
      be
      able to produce and sell top quality products in the categories of their
      specific expertise and that they are capable of exceeding the minimum sales
      targets and guaranteed royalties that the Company generally requires from its
      licensees. In addition, the Company plans to continue to build its portfolio
      by
      acquiring additional brands. In
      assessing potential acquisitions, the Company primarily evaluates the strength
      of the target brand and the viability of future royalty streams. This focused
      approach allows the Company to screen a wide pool of consumer brand candidates,
      quickly evaluate acquisition targets and efficiently complete due diligence
      for
      potential acquisitions.




Until
      2004, the Company designed, procured the manufacture of, and sold footwear
      and
      jeans wear under the two trademarks it owned at the time: Candie's and Bongo.
      In
      2003, however, the Company made a strategic decision to change its business
      model and become a brand management and licensing company in order to maximize
      its core competencies in marketing and managing brands. By mid-2004, the Company
      had licensed out all of its footwear and jeans wear operations and eliminated
      its entire retail and manufacturing operations thereby and embarked on its
      strategy of becoming a company that owns, licenses and manages a broad and
      diversified portfolio of consumer brands.




3





In
      connection with its transformation into a brand management company, the Company
      has acquired the following eight brands since October 2004:




**Date
                  acquired**
              
              **Brand**October
                  2004
              
              Badgley
                  MischkaJuly
                  2005
              
              Joe
                  BoxerSeptember
                  2005
              
              RampageApril
                  2006
              
              MuddAugust
                  2006
              
              London
                  FogOctober
                  2006
              
              MossimoNovember
                  2006
              
              Ocean
                  PacificMarch
                  2007
              
              Danskin




With
      its
      new licensing model, the Company has eliminated its inventory risk,
      substantially reduced its operating exposure, improved its cash flows
      and net income margins, and benefited from the model's scalability, which
      enables the Company to leverage new licenses with its existing infrastructure.
      The Company's objective is to capitalize on its brand management expertise
      and
      relationships and continue to build a diversified portfolio of consumer brands
      that generate increasing revenues. To achieve this, the Company intends to
      continue pursuing organic growth through its existing brands, to add new brands
      to its trademark portfolio, and to pursue additional international licensing
      arrangements.




**Additional
      information**




The
      Company was incorporated under the laws of the state of Delaware in 1978. Its
      principal executive offices are located at 1450 Broadway, New York, New York
      10018 and our telephone number is (212) 730-0300. Our web site address is
      www.iconixbrand.com. The information on our web site does not constitute part
      of
      this Form 10-K. We have included our website address in this document as an
      inactive textual reference only. Candie’s ® ,
      Bongo ® ,
      Joe
      Boxer ® ,
      Rampage ® ,
      Mudd ® and
      London Fog ® are the
      registered trademarks of our wholly-owned subsidiary, IP Holdings; Badgley
      Mischka ® is the
      registered trademark of our wholly-owned subsidiary, Badgley Mischka Licensing;
      Mossimo ® is the
      registered trademark of our wholly-owned subsidiary, Mossimo Holdings; Ocean
      Pacific ® is the
      registered trademark of our wholly-owned subsidiary, OP Holdings;
      and Danskin® is the registered trademark of our wholly-owned subsidiary,
      Studio IP Holdings. Each of the other trademarks, trade names or service marks
      of other companies appearing in this Form 10-K is the property of its respective
      owner.




**The
      Company's brands**




**Candie’s**




Candie’s
      is known primarily as a young women’s footwear, apparel and accessories brand
      and has achieved brand recognition for its sexy, flirty and fun image, value
      prices and affiliations with celebrity spokespeople. The Company purchased
      the
      brand from a predecessor company in 1993, making it the Company’s longest held
      trademark. The primary licensee of Candie’s is Kohl’s Department Stores, Inc. ***(“Kohl’s”),*** which
      commenced the roll out of the brand in July 2005 in all of its stores with
      a
      multi-category line of Candie’s lifestyle products, including sportswear, denim,
      footwear, handbags, intimate apparel, children’s apparel, fragrance and home
      accessories Celebrity spokespeople for the Candie’s brand over the past two
      decades have included Jenny McCarthy, Destiny’s Child, Alyssa Milano, Kelly
      Clarkson, Ashlee Simpson, Hilary Duff, Pat Benatar and, currently, Fergie from
      the popular band, the Black-Eyed Peas.




The
      Company intends to grow the Candie’s brand through the partnership with Kohl’s
      and through international expansion. The Company expects that Candie’s domestic
      growth will be driven primarily by Kohl’s anticipated door expansion. The
      Company also believes that Candie’s has opportunities with other retailers
      around the world who might seek to emulate the brand’s U.S. success.




4




**Bongo**




The
      Bongo
      brand is positioned as a California lifestyle brand, with a broad range of
      women’s and children’s casual apparel and accessories, including denim,
      sportswear, eyewear, fragrance and watches. The brand was established in 1982
      and was purchased by the Company in 1998. Bongo products are sold primarily
      through mid-tier department stores, such as JC Penney, Kohl’s, Sears, Goody’s
      and Mervyn’s. The Company has also licensed the brand internationally to
      wholesalers in South America and Central America. Celebrity spokespeople for
      the
      Bongo brand have included Liv Tyler, Rachel Bilson, Nicole Richie and the stars
      of the top rated MTV television reality show *Laguna
      Beach* .
      Currently, Vanessa Minnillo is the spokesperson for the brand.




The
      Company intends to increase Bongo’s sales by building its core denim business
      and increase awareness of the brand through additional lifestyle products and
      marketing. The Company recently replaced its denim licensee for the brand with
      new licensing partners who the Company believes will more actively support
      the
      brand for future growth. The Company has also capitalized on a successful Bongo
      national advertising campaign with the cast of *Laguna
      Beach* by
      expanding into a new marketing campaign focused on “young Hollywood.”




**Badgley
      Mischka**




The
      Badgley Mischka brand is known as one of the premiere couture eveningwear
      brands. The brand was established in 1988 and was acquired by the Company in
      October 2004. Badgley Mischka products are sold in luxury department and
      specialty stores, including Bergdorf Goodman, Neiman Marcus and Saks Fifth
      Avenue, with its largest retail categories being women’s apparel and
      accessories. The Company currently has 13 licenses, and in January 2006, the
      Company introduced Badgley Mischka’s first bridge-priced collection of
      eveningwear and sportswear into over 300 better department stores in an effort
      to continue to develop the brand into a lifestyle brand available to a broader
      range of customers.




The
      Company launched Badgley Mischka’s first national advertising in the spring of
      2006, and currently has a campaign featuring actress Sharon Stone. Badgley
      Mischka designs have been worn by ****** such
      celebrities as Angelina Jolie, Catherine Zeta Jones, Halle Berry, Kate Winslet,
      and Ashley and Mary Kate Olsen.




**Joe
      Boxer**




Joe
      Boxer
      is a highly recognized underwear, sleepwear and loungewear brand known for
      its
      irreverent and humorous image and provocative promotional events. The brand
      was
      established in 1985 and was acquired by the Company in July 2005. Kmart, a
      wholly-owned subsidiary of Sears Holding Corp., has held the exclusive license
      in the U.S. covering Joe Boxer apparel, apparel accessories and home goods
      for
      men, women, teens and children since 2001. In September 2006, the Company
      expanded the license with Kmart to extend the brand into Sears’ stores for a
      combined potential of more than 3,700 doors by December 2007.




The
      brand
      is also being developed internationally, with 13 international licensees,
      including licenses in Canada, Mexico and Scandinavia.




**Rampage**




Rampage
      was established in 1982 and is known as a contemporary/junior women’s sportswear
      brand. The brand was acquired by the Company in September 2005. Rampage products
      are sold through better department stores such as Macy’s, with the largest
      retail categories being sportswear, footwear, intimate apparel and swimwear.
      The
      Company currently licenses the brand to 15 wholesalers in the United States
      and
      to partners in parts of South and Central America. Supermodel Petra Nemcova
      is
      the spokesperson for the brand and has modeled for its campaigns for the past
      few seasons.




The
      Company expects to grow the Rampage brand by continuing to position it as a
      contemporary apparel brand and maximizing the opportunity with better department
      stores. Since purchasing the Rampage brand in September 2005, the Company has
      worked with the brand’s licensees to continue to improve the quality and design
      of their Rampage apparel products so as to appeal to a more sophisticated
      customer. The Company also believes there are growth opportunities for product
      categories such as denim and home accessories.




5




**Mudd**




In
      April
      2006, the Company acquired the Mudd brand, a highly recognizable junior apparel
      brand in the junior denim category for over two decades. There are currently
      14
      licensees for Mudd products, which are distributed through mid-level department
      stores such as JC Penney, including jeans wear, footwear, eyewear and a variety
      of other accessories.




The
      Company expects to grow Mudd by optimizing the core denim license and by
      expanding into new product categories, including swimwear and home accessories.
      The Company is also rolling out new advertising campaigns to help support and
      grow the strong identity of the Mudd brand.




**London
      Fog**




London
      Fog is a classic brand known worldwide for its outerwear, cold weather
      accessories, umbrellas, luggage and travel products. The brand was established
      over 80 years ago and was acquired by the Company in August 2006. The brand
      is
      sold through the better department store channel. The Company currently
      has 8 licensees, including a direct to retail license agreement with
      Hudson’s Bay Corporation in Canada, covering London Fog apparel, accessories and
      lifestyle products.




The
      Company believes there are growth opportunities for the London Fog brand in
      sportswear, fragrance and other lifestyle products. The Company is planning
      a
      coordinated retail launch with a new advertising campaign scheduled for Fall
      of
      2007.




**Mossimo**





Mossimo
      is known as a contemporary, active and youthful lifestyle brand and is one
      of
      the largest apparel brands in the United States. The brand was established
      in
      1995 and acquired by the Company in October 2006 in connection with the merger
      with Mossimo, Inc. In the United States, Target Corporation ( **“** ***Target”*** )
      holds
      the exclusive Mossimo brand license covering apparel products for men, women
      and
      children, including casual sportswear, denim, swimwear, body wear, watches,
      handbags and other fashion accessories. The brand is also licensed to wholesale
      and retail partners in Australia, New Zealand, South America, Mexico and Japan.




The
      Company expects to grow the Mossimo brand through the partnership with Target
      through door expansions and internationally through new licenses.




**Ocean
      Pacific**




Ocean
      Pacific is a global action-sports lifestyle apparel brand which traces its
      heritage to its roots as a 1960’s surfboard label. The Company acquired the
      brand in November 2006 from Warnaco, Inc. (“ ***Warnaco*** ”),
      and
      assumed 15 domestic licenses covering such product categories as footwear,
      sunglasses, kids’ apparel and fragrance. In addition, the Company assumed 12
      international licenses, including a license in Japan with Mitsubishi Corporation
      that has been in place since 1983 and which extends through 2014. Upon acquiring
      the Ocean Pacific brand, the Company granted Warnaco the license for junior
      swimwear, a core category of the brand.




The
      Company expects to grow the Ocean Pacific brand by capitalizing on its extensive
      history and high brand recognition with retailers. The Company believes there
      are growth opportunities for the brand within the young men’s and junior
      sportswear product categories, both in the United States and internationally.




6




**Recent
      Acquisition of the Danskin® Brand**





On
      March
      9, 2007, the Company completed its acquisition of the Danskin® brand and certain
      of the assets and rights related to the business of designing, marketing,
      licensing and/or managing the Danskin® brand. Danskin is a 125 year-old iconic
      brand of women's activewear, legwear, dancewear, yoga apparel and fitness
      equipment. The brand is sold through better department, specialty and sporting
      goods stores, and through freestanding Danskin boutiques and Danskin.com.
      Danskin also has a partnership with Wal-Mart Stores for its Danskin Now® brand
      of apparel and fitness equipment.




The
      purchase price for the Danskin assets was $70 million in cash, together with
      the
      assumption of certain liabilities and contingent additional consideration of
      up
      to $15 million based on certain criteria relating to the achievement of revenue
      and performance targets involving the licensing of the Danskin assets; all
      or a
      portion of the contingent consideration may be paid in shares of the Company’s
      common stock. The cash portion of the purchase price paid was self-funded from
      the Company's cash reserves. Upon the closing, the sellers delivered the Danskin
      assets to Studio IP Holdings, which entered into a license agreement with
      Danskin relating to Danskin’s continued operation of its wholesale business and
      freestanding retail stores.




**Proposed
      Acquisition of the Rocawear® Brand**





On
      March
      6, 2007, the Company entered into an Assets Purchase Agreement with Rocawear
      Licensing LLC (“Rocawear”) and each of Shawn Carter (“Carter”), Arnold Bize and
      Naum Chernyavsky to purchase the Rocawear **®** brand
      and certain of the assets and rights related to the business of designing,
      marketing, licensing and/or managing the Rocawear brand. Rocawear is a leading
      lifestyle apparel brand sold through better department and specialty stores.
      As
      part of the transaction, Carter will enter into an Endorsement/Services
      Agreement pursuant to which Carter will oversee all product development,
      marketing and licensing for the Rocawear **®** brand.
      The Company will also separately enter into an equal ownership joint venture
      agreement with Carter to establish a new brand management and licensing company
      which will identify brands to be acquired and/or developed across a broad
      spectrum of consumer product categories, including the luxury brand “Shawn
      Carter Collection”.




The
      purchase price for the Rocawear assets will be $204 million in cash and
      additional contingent consideration of up to $35 million based on certain
      criteria relating to the achievement of revenue and performance targets
      involving the licensing of the Rocawear assets; all or a portion of the
      contingent consideration may be paid in shares of the Company’s common stock.
      The cash portion of the purchase price due at closing of the acquisition will
      be
      funded from proceeds of a loan made by one or more affiliates of Lehman Brothers
      Inc. Upon the closing, the seller will deliver the Rocawear assets to a
      subsidiary of the Company, which will enter into a license agreement with ROC
      Apparel LLC, relating to the continued operation of the Men’s Rocawear wholesale
      distribution business. The Company currently expects the transaction, which
      is
      subject to certain closing conditions, to close in March 2007.




**The
      Company’s history and former operations**





In
      1993,
      the Company purchased the Candie’s trademark and certain related licenses from
      New Retail Concepts, Inc., a company which the Company acquired in 1998, and
      commenced designing, manufacturing, selling and marketing Candie’s footwear. The
      Company built the Candie’s brand into one of the most well-recognized brands in
      the U.S. for junior footwear and positioning the brand as a concept brand,
      including by licensing a number of categories, including fragrance and eyewear,
      and operating retail and outlet stores.




In
      1995,
      the Company began designing, manufacturing, selling and marketing footwear
      under
      the Bongo name, which the Company licensed from Michael Caruso & Co., Inc.
      ( ***“Caruso”*** ).
      In
      1998, the Company acquired Caruso, together with its Bongo brand and jeans
      wear
      operations, and formed a joint venture with Sweet Sportswear LLC ***(“Sweet*** ”)
      for
      the purpose of marketing and distributing apparel and jeans wear under the
      Bongo
      label.




In
      1998,
      the Company also began to implement a licensing program and entered into
      agreements with third parties for use of the Candie's brand on fragrance, socks
      and eyewear, and formed Unzipped Apparel, LLC (“ ***Unzipped*** ”),
      with
      its then 50% joint venture jeanswear partner, Sweet Sportswear LLC ( ***“Sweet*** ”
),
      for
      the purpose of marketing and distributing apparel and jeanswear under the Bongo
      brand. The Company licensed the Bongo trademark to Unzipped for use in the
      design, manufacture and sale of jeanswear and certain apparel products for
      a
      term ending in March 2003, and Sweet was responsible for operating Unzipped's
      Bongo jeanswear business.




7





In
      April
      2002, the Company acquired Sweet’s 50% interest in Unzipped and entered into a
      variety of agreements with Sweet and its affiliates relating to the operations
      of Unzipped. In August 2004, the Company terminated its contractual relations
      with Sweet and its affiliated entities, commenced litigation against them and
      the individual that controlled them, and, as described below, licensed the
      exclusive right to Bongo jeans wear to a third party. See “Item 3 - Legal
      proceedings.”




In
      January 2005, the Company changed its business practices with respect to the
      Bright Star subsidiary. Prior to such time, Bright Star acted as the indirect
      supplier of men’s footwear for discount and specialty retailer customers under
      various private label programs. In keeping with the Company’s current business
      model, the Company transitioned Bright Star’s business to provide only design
      direction and to arrange for the manufacture and distribution of its customers’
private label footwear products. Bright Star no longer assumes any ownership
      of
      goods or has any inventory.




**Transition
      to brand management company**




In
      May
      2003, the Company completed the first of a series of strategic
      transactions designed to transform the Company from a traditional apparel and
      footwear operating entity to a brand management company. In May 2003, the
      Company licensed out its Candies and Bongo footwear operations to Steven Madden
      Ltd. (“ Steve Madden “) and Kenneth Cole Productions, Inc., respectively. With
      respect to the Bongo footwear license, the Company immediately ceased all
      manufacturing and shipping of Bongo footwear, there by
      effectively eliminating the Bongo operations while maintaining the rights to
      the
      Bongo trademark. With respect to Candie’s footwear
      products, there was a transition period through the end of 2003 and, thereafter,
      in January 2004, Steve Madden commenced shipping Candie’s footwear.




In
      connection with these licenses, the Company ceased all manufacturing operations,
      closed all of the Candie’s retail and outlet stores, substantially reduced the
      workforce and closed its office in Valhalla, New York that housed its
      operational functions in order to consolidate the Company’s offices at the
      location of our showroom and marketing offices in New York City. Thereafter,
      the
      Company amended
      its footwear license with Steve Madden, giving it non-exclusive rights only
      through December 2006, and entered into a multi
      category license with Kohl’s. The
      next
      significant step in the transition to a brand management company was the
      licensing of Bongo jeans wear, which the Company commenced in August 2004.
      The
      Company subsequently transitioned the Bongo jeans wear license to another
      licensee in September 2006.




Effective
      July 2005, the Company changed its name from Candie’s Inc. to Iconix Brand
      Group, Inc. to more appropriately reflect the new business model as a brand
      management company.




**Bright
      Star**




Bright
      Star provides design direction and arranges for the manufacturing and
      distribution of men’s private label footwear products primarily for Wal-Mart
      under its private labels. Bright Star acts solely as an agent and never assumes
      ownership of the goods. For the years ended December 31, 2006, and December
      31,
      2005, respectively, Bright Star’s agency commissions represented 3% and 7%,
      respectively, of the Company’s revenues.




**Licensing
      relationships**




The
      Company's business strategy is to maximize the value of its brands by entering
      into strategic licenses with partners who have the responsibility for
      manufacturing and selling the licensed products. The Company licenses its brands
      with respect to a broad range of products, including, apparel, footwear,
      sportswear, home furnishings, beauty and fragrance. The Company seeks
      licensees with the ability to produce and sell quality products in their
      licensed categories and the demonstrated ability to meet and exceed minimum
      sales thresholds and royalty payments to the Company.




8




The
      Company maintains retail and wholesale licenses. The retail licenses restrict
      the sale of products under the brand to a single retailer but cover a broad
      range of product categories. For example, the Candie’s brand is licensed to
      Kohl’s in the United States across approximately 30 product categories. The
      wholesale licenses typically are limited to a single or small group of related
      product categories, but permit broader distribution in the designated territory
      to stores within an approved channel. For example, the Company licenses Rampage
      to 16 partners across product categories ranging from footwear and apparel
      to
      handbags and fragrances. Each of the Company’s licenses also has a stipulated
      territory or territories in which the licensed products may be sold. Currently,
      most of the licenses are U.S. based licenses, but the Company anticipates that
      the number of foreign based licenses to grow as the Company’s brands grow
      internationally.





Typically,
      the Company's licenses require the licensee to pay the Company royalties based
      upon net sales and guaranteed minimum royalties in the event that net sales
      do
      not reach certain specified targets. The Company's licenses also typically
      require the licensees to pay to the Company certain minimum amounts for the
      advertising and marketing of the respective licensed brands. As of December
      31,
      2006, the Company had over 115 royalty-producing licenses with respect to its
      nine brands.




The
      Company believes that the coordination of the brand presentation across
      product categories is critical to maintaining the strength and integrity of
      its
      brands. Accordingly, the Company maintains the right in its licenses to
      preview and approve all product, packaging and presentation of the licensed
      brand. Moreover, in most licenses, prior to each season, representatives of
      the
      Company supply licensees with trend guidance as to the “look and feel” of the
      current trends for the season, including colors, fabrics, silhouettes and an
      overall style sensibility, and then work with licensees to coordinate the
      licensed products across the categories to maintain the cohesiveness of the
      brand's overall presentation in the market place. Thereafter, the Company
      obtains and approves (or objects and requires modification to) product and
      packaging provided by each licensee on an on-going basis. In addition, the
      Company communicates with its licensees throughout the year to obtain and review
      reporting of sales and the calculation and payment of royalties.




In
      the
      fiscal year ended December 31, 2006, the Company’s largest licenses were the
      single retailer licenses with Kohl’s and Kmart, which together represented 38%
      of total revenue for the period. Assuming on a pro forma basis that the Mossimo
      merger had been completed on January 1, 2006, the largest licenses would include
      a third license with Target (which was acquired in connection with the Mossimo
      merger in October 2006), and the licenses with Kohl’s, Kmart and Target would
      have in the aggregate represented 50% of total pro forma revenue for the year.




**Key
      Licenses in Fiscal 2006**




***Kohl’s
      license*** **.** In
      December 2004, the Company entered into a license agreement with Kohl’s (the
“ ***Kohl’s
      License*** ”),
      which
      was subsequently amended in February 2005. Pursuant to the Kohl’s License, the
      Company granted Kohl’s the exclusive right to design, manufacture, sell and
      distribute a broad range of products under the Candie’s trademark, including
      women’s, juniors’ and children’s apparel, accessories (except prescription
      eyewear), beauty and personal care products, home accessories and electronics.
      Kohl’s was also granted the non-exclusive right to sell footwear and handbags
      bearing the Candie’s brand through December 31, 2006, which rights became
      exclusive to Kohl’s on January 1, 2007. The initial term of the Kohl’s License
      expires on January 29, 2011, subject to Kohl’s option to renew it for up to
      three additional terms of five years, each contingent on Kohl's meeting
      specified performance and minimum sale standards. The agreement also provides
      for minimum royalties that Kohl’s is obligated to pay the Company for each
      contract year (the first contract year was the year ended December 31, 2006).




The
      revenue generated from this contract totaled 14.3% and 14.6% of the Company’s
      overall revenue in the year ended December 31, 2006 and December 31, 2005,
      respectively. Kohl’s is also obligated to pay an advertising royalty equal to 1%
      of net sales each contract year. Kohl’s does not have the rights to sell
      Candie’s eyewear, which is sold predominantly in doctors’ offices, which has
      been licensed to Viva International Group, Inc. since 1998.




In
      connection with the Kohl’s License, the Company amended its existing Candie’s
      footwear license with Steve Madden, Ltd., and existing handbag license agreement
      with LaRue Distributors, Inc. ( “LaRue” ) to accelerate their termination dates
      so as to provide Kohl’s with the exclusive rights to footwear and handbags which
      commenced on January 1, 2007. In connection with these amendments, the Company
      has agreed to make certain payments to Steve Madden and LaRue in the event
      that
      Kohl’s has failed to purchase certain amounts of products from each by January
      2011.




9




***Kmart
      license.*** As
      part
      of the Joe Boxer brand acquisition in July 2005, the Company acquired a license
      with Kmart Corp. (the ***“Kmart
      License” )*** ,
      which
      commenced in August 2001, pursuant to which Kmart (now a wholly-owned
      subsidiary of Sears Holdings Corp.) was granted the exclusive right to
      manufacture, market and sell through Kmart stores located in the United States
      and its territories a broad range of products under the Joe Boxer trademark,
      including men’s, women’s and children’s underwear, apparel, apparel-related
      accessories, footwear and home products, for an initial term expiring in
      December 2007. The license provided for guaranteed minimum royalty payments
      to
      the Company for each of the years ending December 31, 2006 and 2007. The revenue
      generated from this contract totaled 24% and 28% of the Company’s overall
      revenue in the years ended December 31, 2006 and December 31, 2005,
      respectively.




In
      September 2006, the Company entered into a new license with Kmart that extended
      the initial term through December 31, 2010, subject to Kmart’s option to renew
      it for up to four additional terms of five years, each contingent on its meeting
      specified performance and minimum sale standards. The new license also provides
      for guaranteed annual minimums and provides for Kmart’s expansion of Joe Boxer’s
      distribution into Sears stores by the end of 2007.




***Target
      license*** .
      As part
      of the Mossimo merger in October 2006, the Company acquired the license with
      Target Corporation (the ***“Target
      License*** ”),
      which
      originally commenced in 2000 and was subsequently amended and restated in
      March 2006. Pursuant to the Target License, Target has the exclusive right
      to produce and distribute substantially all Mossimo-branded products sold in
      the
      United States, its territories and possessions through Target retail stores
      or
      any other retail store or other merchandising activity operated by Target or
      its
      affiliates, until January 31, 2010. If Target is current with payments of
      its obligations under the Target License, Target has the right to renew the
      Target License on the same terms and conditions for successive additional terms
      of two years each.




Under
      the
      Target License, Target pays royalty fees based on certain percentages of its
      net
      sales of Mossimo-branded products, subject to its obligation to pay certain
      guaranteed minimum fees per each contract year. Under the Target License, the
      Company provides the creative director services of Mr. Mossimo Giannulli with
      respect to Mossimo-branded products sold through Target stores. The revenues
      generated from this contract for the year ended December 31, 2006, on a pro
      forma basis for 2006, would have, if added to our revenues for such period,
      represented 20.8% of the Company’s overall revenue for such period.




Additionally,
      the exclusive right to manufacture and distribute women’s swimwear and bodywear
      bearing Mossimo trademarks through Target stores in the United States has been
      licensed pursuant to a license agreement with The Lunada Bay Corporation. This
      license extends through September 30, 2007 and is renewable annually.
      Moreover, the exclusive right to manufacture and distribute ophthalmic eyewear,
      including optical quality sunglasses through Target stores, has been licensed
      to
      Colevision Corporation, a division of Luxottica. This license extends through
      April 2009 and may be renewed for an additional three year
      term.




**Marketing**




Marketing
      is a critical element of maximizing brand value to the licensees and to the
      Company. The Company’s in-house marketing team, tailors advertising for each of
      the Company’s brands and each spring and fall the Company develops new
      advertising campaigns that incorporate the design aesthetic of each brand.




The
      Company believes that its innovative national advertising campaigns featuring
      celebrities and performers result in increased sales and consumer awareness
      of
      its brands. Because of the Company’s established relationships with celebrities,
      performers, agents, magazine publishers and the media in general, the Company
      has been able to leverage advertising dollars into successful public relations
      campaigns that reach tens of millions of consumers.




10




The
      Company’s advertising expenditures for each of its brands are dedicated largely
      to creating and developing creative concepts, reaching appropriate arrangements
      with key celebrities, or other models and participants, advertisements in
      magazines and trade publications, securing product placements, developing
      sweepstakes and media contests, running Internet advertisements and promoting
      public relations events, often featuring personal appearances and concerts.
      The
      advertisements for the Company’s various brands have appeared in fashion
      magazines such as *InStyle* , *Seventeen* and *Vogue* ,
      in
      popular lifestyle and entertainment magazines such as *Us* ,
      and *In
      Touch* ,
      in
      newspapers and on outdoor billboards. The Company also uses television
      commercials to promote certain of its brands, partnering with licensees to
      create and air commercials that will generate excitement for its brands with
      consumers. The Company maintains a website ( www.iconixbrandgroup.com )
      to
      further market its brands by providing brand books and examples of current
      advertising campaigns. In addition, the Company has established an intranet
      with
      approved vendors and service providers who can access additional materials
      and
      download them through a secure network. The Company also maintains, in some
      cases through our licensees, separate, dedicated sites for our
      brands.




A
      majority of the Company’s license agreements require the Company to advertise
      its respective brands in exchange for the payment of an advertising royalty.
      In
      certain cases, the Company’s licensees supplement the marketing of the Company’s
      brands by performing additional advertising through trade, cooperative or other
      sources.




The
      Company has organized the marketing function to best foster the ability to
      develop innovative and creative marketing and brand support for each existing
      brand. This structure can be leveraged to support future acquisitions with
      minimal growth in expense. Typically, each brand is staffed with a brand manager
      who is supported by a fashion and product development team and who works closely
      with the creative and graphic groups in the advertising department. Although
      each brand’s creative direction and image is developed independently, the entire
      creative team meets together on a regular basis to share ideas that might work
      across multiple or all brands. Licensees are provided information both through
      group meetings and individual sessions, as well as through intranet sites,
      where
      creative ideas, brand marketing campaigns and graphics are accessible and easy
      to download and use in an authorized manner.




**Trend
      direction**




The
      Company’s in-house trend direction teams support the brands by providing
      licensees with unified trend direction and guidance and by coordinating the
      brand image across licensees and product categories. The Company’s trend
      direction personnel have extensive experience in finding and interpreting the
      most current trends, both domestically and internationally, and helping forecast
      the future design and product demands of the respective brands’ customers.
      Typically, the Company develops a trend guide, including colors, fabrics,
      silhouettes and an overall style sensibility for each product season, and then
      works with licensees to maintain consistency with the overall brand presentation
      across product categories. With respect to Badgley Mischka and Mossimo, the
      Company also employs the designers who founded the respective brands to control
      creative direction.




**The
      Company Website**




The
      Company maintains a website at www.iconixbrand.com ,
      which
      provides a wide variety of information on each of its brands, including brand
      books and examples of current advertising campaigns. The Company also makes
      available free of charge on its website periodic reports filed with the
      Securities and Exchange Commission under applicable law as soon as reasonably
      practicable after it files such material. In addition, the Company has
      established an intranet with approved vendors and service providers who can
      access additional materials and download them through a secure network. It
      also
      maintains, in some cases through its licensees, sites for each of the Company's
      brands, for examples, at www.candies.com , www.badgleymischka.com and
      www.joeboxer.com .
      The
      information regarding the Company's website address and/or those established
      for
      its brands is provided for convenience, and the Company is not including the
      information contained on the Company’s and subsidiaries’ websites as part of, or
      incorporating it by reference into, this Annual Report on Form
      10-K.




The
      Company's website also contains information about its history, investor
      relations, governance and links to access copies of its publicly filed
      documents.




11




**Competition**




The
      Company's brands are all subject to extensive competition by numerous domestic
      and foreign brands. Each of its brands has numerous competitors within each
      of
      its specific distribution channels that span the apparel industry. For example,
      while Candie's may compete with l.e.i in the mid-tier jeanswear business, Joe
      Boxer competes with Hanes, Calvin Klein and Jockey with respect to underwear
      in
      the mass tier, and Badgley Mischka competes with Vera Wang in the couture bridal
      category. These competitors have the ability to compete with the Company's
      licensees in terms of fashion, quality, price and/or
      advertising.


The
      Company also faces competition for retail licenses and brand acquisitions.
      Companies owning established brands may decide to enter into licensing
      arrangements with retailers similar to the ones the Company currently has in
      place, thus creating direct competition. Similarly, the retailers to which
      the
      Company currently, or may otherwise, license its brands, may decide to develop
      or purchase brands rather than enter into license agreements with the Company.
      The Company also competes with traditional apparel and consumer brand companies
      and with other brand management companies for acquisitions.





**Trademarks**





The
      Company’s trademarks
      are owned by five subsidiaries. IP Holdings owns the Candie’s, Bongo, Joe Boxer,
      Rampage, Mudd and London Fog related trademarks. Badgley
      Mischka Licensing owns the Badgley Mischka related trademarks, Mossimo
      Holdings owns the Mossimo related trademarks, OP Holdings owns the Ocean Pacific
      related trademarks and Studio IP Holdings owns the Danskin related
      trademarks, each in
      connection for numerous categories of goods. These trademarks and associated
      marks are registered or pending registration with the U.S. Patent and Trademark
      Office in block letter and/or logo formats, as well as in combination with
      a
      variety of ancillary marks for use with respect to, depending on the brand,
      a
      variety of product categories, including footwear, apparel, fragrance, handbags,
      watches and various other goods and services, including in some cases, home
      accessories and electronics. The Company intends to renew these registrations
      as
      appropriate prior to expiration. In addition, the Company’s subsidiaries
      register their trademarks in other countries and regions around the world,
      including Canada, Europe, South and Central America and Asia.




The
      Company monitors on an ongoing basis unauthorized use and filings of the
      Company’s trademarks, and the Company relies primarily upon a combination of
      federal, state, and local laws, as well as contractual restrictions to protect
      its intellectual property rights both domestically and
      internationally.




**Employees**




As
      of
      December 31, 2006, the Company had a total of 46 full-time employees, including
      35 in the licensing and corporate area, six at Bright Star and five in the
      Badgley Mischka division. Of these 46 employees, five are executives and five
      are designers. The remaining employees are middle management, marketing, and
      administrative personnel. None of the Company’s employees is represented by a
      labor union. The Company considers its relations with its employees to be
      satisfactory. ****




**Item
      1.A. Risk Factors**




We
      operate in a changing environment that involves numerous known and unknown
      risks
      and uncertainties that could impact our operations. The following highlights
      some of the factors that have affected, and in the future, could affect our
      operations:




12




*Our
      current business model is new and our operating history as a brand management
      company is limited, which makes it difficult to evaluate our current business
      and future prospects.*




We
      began
      our transition in 2003 from a procurer of manufacturing, seller and marketer
      of
      footwear and jeanswear products to a brand management company that owns,
      licenses and manages its own consumer brands. We only completed the elimination
      of our retail and manufacturing operations in mid-2004 and, therefore, have
      operated solely as a brand management company for only nine quarters, including
      only two full reporting fiscal years, making it difficult to evaluate our
      ability to successfully manage and grow our business long-term. Furthermore,
      our
      business model depends on a number of factors for its continued success,
      including the continued market acceptance of our brands, the production and
      sale
      of quality products by our licensees and the expansion of our brand portfolio
      through the acquisition of additional brands and the growth of our existing
      brands. While we believe our diversified brand portfolio protects us from the
      underperformance of any one brand and that we will be able to continue our
      growth through continued development of our existing brands as well as the
      acquisition of additional brands and by expanding internationally, we cannot
      guarantee the continued success of our business.




*The
      failure of our licensees to adequately produce, market and sell products bearing
      our brand names in their license categories could result in a decline in our
      results of operations.*




We
      are no
      longer directly engaged in the sale of branded products and, consequently,
      our
      revenues are now almost entirely dependent on royalty payments made to us under
      our licensing agreements. Although the licensing agreements for our brands
      usually require the advance payment to us of a portion of the licensing fees
      and
      provide for guaranteed minimum royalty payments to us, the failure of our
      licensees to satisfy their obligations under these agreements or their inability
      to operate successfully or at all, could result in their breach, and/or the
      early termination, of such agreements, their non-renewal of such agreements
      or
      our decision to reduce their guaranteed minimums, thereby eliminating some
      or
      all of that stream of revenue. Moreover, during the terms of the license
      agreements, we are substantially dependent upon the abilities of our licensees
      to maintain the quality and marketability of the products bearing our
      trademarks, as their failure to do so could materially tarnish our brands,
      thereby harming our future growth and prospects. In addition, the failure of
      our
      licensees to meet their production, manufacturing and distribution requirements
      could cause a decline in their sales and potentially decrease the amount of
      royalty payments (over and above the guaranteed minimums) due to us. This,
      in
      turn, could decrease our potential revenues. Moreover, the concurrent failure
      by
      several of our material licensees to meet their financial obligations to us
      could jeopardize our ability to meet the debt service coverage ratio required
      in
      connection with the asset-backed notes issued by our subsidiary, IP Holdings,
      which would give the note holders the right to foreclose on the Candie’s, Bongo,
      Joe Boxer, Rampage, Mudd and London Fog trademarks and other related
      intellectual property assets securing such debt.




*Our
      business is dependent on continued market acceptance of our trademarks and
      the
      products of our licensees bearing these trademarks.*




Although
      our licensees guarantee minimum net sales and minimum royalties to us, a failure
      of our trademarks or of products utilizing our trademarks to achieve or maintain
      market acceptance could cause a reduction of our licensing revenues. 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 of 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 of our licensees’ products and
      creating market acceptance of 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 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,
      including 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.




13




*Our
      existing and future debt obligations could impair our liquidity and financial
      condition, and in the event we are unable to meet our debt obligations we could
      lose title to our trademarks.*




As
      of
      December 31, 2006, we had consolidated net debt of approximately $163 million,
      primarily all of which was incurred in connection with our acquisition
      activities. We may also assume or incur additional debt, including secured
      debt,
      in the future in connection with, or to fund, future acquisitions. Our debt
      obligations:




·
            could
                impair our liquidity;




·
            could
                make it more difficult for us to satisfy our other
                obligations;




·
            require
                us to dedicate a substantial portion of our cash flow to payments
                on our
                debt obligations, which reduces the availability of our cash flow
                to fund
                working capital, capital expenditures and other corporate
                requirements;




·
            could
                impede us from obtaining additional financing in the future for working
                capital, capital expenditures, acquisitions and general corporate
                purposes;




·
            make
                us more vulnerable in the event of a downturn in our business prospects
                and could limit our flexibility to plan for, or react to, changes
                in our
                licensing markets; and




·
            place
                us at a competitive disadvantage when compared to our competitors
                who have
                less debt.




While
      we
      believe that by virtue of the guaranteed minimum royalty payments due to us
      under our licenses we will generate sufficient revenues from our licensing
      operations to satisfy our obligations for the foreseeable future, in the event
      that we were to fail in the future to make any required payment under agreements
      governing our indebtedness or fail to comply with the financial and operating
      covenants contained in those agreements, we would be in default regarding that
      indebtedness. A debt default could significantly diminish the market value
      and
      marketability of our common stock and could result in the acceleration of the
      payment obligations under all or a portion of our consolidated indebtedness.
      In
      the case of IP Holdings’ asset-backed notes, it would also enable the holders of
      such notes to foreclose on the assets securing such notes, including the
      Candie’s, Bongo, Joe Boxer, Rampage, Mudd and London Fog trademarks.




*We
      have a material amount of goodwill and other intangible assets, including our
      trademarks, recorded on our balance sheet. As a result of changes in market
      conditions and declines in the estimated fair value of these assets, we may,
      in
      the future, be required to write down a portion of this goodwill and other
      intangible assets and such write-down would, as applicable, either decrease
      our
      profitability or increase our net loss.*




As
      of
      December 31, 2006, goodwill represented approximately $93.6 million, or 13%
      of
      our total assets, and other intangible assets represented approximately $467.7
      million, or 67% of our total assets. Under Statement of Financial Accounting
      Standard No. 142, or SFAS No. 142, “Goodwill and Other Intangible Assets,”
goodwill and indefinite life intangible assets, including some of our
      trademarks, are no longer amortized, but instead are subject to impairment
      evaluation based on related estimated fair values, with such testing to be
      done
      at least annually. While, to date, no impairment write-downs have been
      necessary, any write-down of goodwill or intangible assets resulting from future
      periodic evaluations would, as applicable, either decrease our net income or
      increase our net loss and those decreases or increases could be
      material.




14




*A
      substantial portion of our licensing revenue is concentrated with a limited
      number of retailers such that the loss of any of such licensees could decrease
      our revenue and impair our cash flows.*




Our
      licenses with Kohl’s and Kmart Corporation, were our two largest licenses during
      the year ended December 31, 2006, representing approximately 14% and 24%,
      respectively, of our total revenue for such period. In addition, in connection
      with the Mossimo merger in October 2006, we acquired a license agreement with
      Target Corporation. Our license agreement with Kohl’s grants it the exclusive
      U.S. license with respect to the Candie’s trademark for a wide variety of
      product categories for an initial term expiring in January 2011; our license
      agreement with Kmart grants it the exclusive U.S. license with respect to the
      Joe Boxer trademark for a wide variety of product categories for a term expiring
      in December 2010; and our license agreement with Target grants it the exclusive
      U.S. license with respect to the Mossimo trademark for substantially all
      Mossimo-branded products for an initial term expiring in January 2010. Because
      we are dependent on these licensees for a significant portion of our licensing
      revenue, if any of them were to have financial difficulties affecting its
      ability to make guaranteed payments, or if any of these licensees decides not
      to
      renew or extend its existing agreement with us, our revenue and cash flows
      could
      be reduced substantially. In addition, as of September 2006, Kmart had not
      approached the sales levels of Joe Boxer products needed to trigger royalty
      payments in excess of its guaranteed minimums since 2004, and, as a result,
      when
      we entered into the current license agreement with Kmart in September 2006
      expanding its scope to include Sears stores and extending its term from December
      2007 to December 2010, we agreed to reduce its guaranteed annual royalty
      minimums by approximately half, as a result of which our revenues from this
      license, at least for the short term, will likely be substantially
      reduced.




*Our
      license agreement with Target could be terminated by Target in the event we
      were
      to lose the services of Mossimo Giannulli as our creative director with respect
      to Mossimo-branded products, thereby significantly devaluing the assets acquired
      by us in the Mossimo merger and decreasing our expected revenues and cash
      flows.*




While
      we
      believe that there has been significant consumer acceptance of products sold
      under our recently-acquired Mossimo brand as a stand-alone brand, the image
      and
      reputation of Mossimo Giannulli, the creator of the brand, remain important
      factors to Target, the brand’s primary licensee. Target has the right under its
      license agreement with us to terminate the agreement if Mr. Giannulli’s services
      as our creative director for Mossimo-branded products are no longer available
      to
      Target, upon his death or permanent disability or in the event a morals clause
      in the agreement relating to his future actions and behavior is breached.
      Although we have entered into an agreement with Mr. Giannulli in which he has
      agreed to continue to provide us with his creative director services, including
      those required under the Target license, for an initial term expiring on January
      31, 2010, there can be no assurance that he will continue to do so or that
      in
      the event we were to lose such services, Target would continue its license
      agreement with us. The loss of the Target license would significantly devalue
      the assets acquired by us in the Mossimo merger and decrease our expected
      revenues and cash flows until we were able to enter into one or more replacement
      licenses.




*If
      we
      are unable to identify and successfully acquire additional trademarks, our
      growth may be limited, and, even if additional trademarks are acquired, we
      may
      not realize anticipated benefits due to integration or licensing
      difficulties.*




A
      key
      component of our growth strategy is the acquisition of additional trademarks.
      If
      competitors pursue our brand management model, acquisitions could become more
      expensive and suitable acquisition candidates more difficult to find. In
      addition, even if we successfully acquire additional trademarks, we may not
      be
      able to achieve or maintain profitability levels that justify our investment
      in,
      or realize planned benefits with respect to, those additional brands. Although
      we seek to temper our acquisition risks by following acquisition guidelines
      relating to the existing strength of the brand, its diversification benefits
      to
      us, its potential licensing scale and the projected rate of return on our
      investment, acquisitions, whether they be of additional intellectual property
      assets or of the companies that own them, entail numerous risks, any of which
      could detrimentally affect our results of operations and/or the value of our
      equity. These risks include, among others:




·
            unanticipated
                costs;




·
            negative
                effects on reported results of operations from acquisition related
                charges
                and amortization of acquired
                intangibles;




·
            diversion
                of management’s attention from other business
                concerns;




·
            the
                challenges of maintaining focus on, and continuing to execute, core
                strategies and business plans as our brand and license portfolio
                grows and
                becomes more diversified;




·
            adverse
                effects on existing licensing relationships;
                and




15




·
            risks
                of entering new domestic and international licensing markets (whether
                it
                be with respect to new licensed product categories or new licensed
                product
                distribution channels) or markets in which we have limited prior
                experience.




Acquiring
      additional trademarks could also have a significant effect on our financial
      position and could cause substantial fluctuations in our quarterly and yearly
      operating results. Acquisitions could result in the recording of significant
      goodwill and intangible assets on our financial statements, the amortization
      or
      impairment of which would reduce our reported earnings in subsequent years.
      Moreover, as discussed below, our ability to grow through the acquisition of
      additional trademarks will also depend on the availability of capital to
      complete the necessary acquisition arrangements. Any issuance by us of shares
      of
      our common stock as equity consideration in future acquisitions could dilute
      our
      common stock because it could reduce our earnings per share, and 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. As a result, there is
      no
      guarantee that our stockholders will achieve greater returns as a result of
      any
      future acquisitions we complete.




*We
      will require additional capital to finance the acquisition of additional brands,
      including the proposed acquisition of Rocawear, 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 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.




*Our
      licensees are subject to risks and uncertainties of foreign manufacturing that
      could interrupt their operations or increase their operating costs thereby
      affecting their ability to deliver goods to the market, reduce or delay their
      sales and decrease our potential royalty revenues.*




Substantially
      all of the products sold by our licensees are manufactured overseas. There
      are
      substantial risks associated with foreign manufacturing, including changes
      in
      laws relating to quotas, and the payment of tariffs and duties, fluctuations
      in
      foreign currency exchange rates, shipping delays and international political,
      regulatory and economic developments, any of which could increase our licensees’
operating costs. Our licensees also import finished products and assume all
      risk
      of loss and damage with respect to these goods once they are shipped by their
      suppliers. If these goods are destroyed or damaged during shipment, the revenues
      of our licensees, and thus our royalty revenues over and above the guaranteed
      minimums, could be reduced as a result of our licensees’ inability to deliver or
      their delay in delivering their products.




*Because
      of the intense competition within our licensees’ markets and the strength of
      some of their competitors, we and our licensees may not be able to continue
      to
      compete successfully.*




Currently,
      most of our trademark licenses are for products in the apparel, footwear and
      fashion industries, in which industries our licensees face intense and
      substantial competition, including from our other brands and licensees. In
      general, competitive factors include quality, price, style, name recognition
      and
      service. In addition, various fads and the limited availability of shelf space
      could affect competition for our licensees’ products. Many of our licensees’
competitors have greater financial, distribution, marketing and other resources
      than our licensees and have achieved significant name recognition for their
      brand names. Our licensees may be unable to successfully compete in the markets
      for their products, and we may not be able to continue to compete successfully
      with respect to our licensing arrangements.




16




*If
      our competition for retail licenses and brand acquisitions increases, our growth
      plans could be slowed.*




We
      may
      face increasing competition in the future for retail licenses as other companies
      owning established brands may decide to enter into licensing arrangements with
      retailers similar to the ones we currently have in place. Furthermore, our
      current or potential retailer licensees may decide to develop or purchase brands
      rather than maintain or enter into license agreements with us. We also compete
      with traditional apparel and consumer brand companies and with other brand
      management companies for brand acquisitions. If our competition for retail
      licenses and brand acquisitions increases, it may take us longer to procure
      additional retail licenses and/or acquire additional brands, which could slow
      down our growth rate.




*Our
      failure to protect our proprietary rights could compromise our competitive
      position and decrease the value of our brands.*




We
      own,
      through our wholly-owned subsidiaries, U.S. federal trademark registrations
      and
      foreign trademark registrations for our brands that are vital to the success
      and
      further growth of our business and which we believe have significant value.
      We
      monitor on an ongoing basis unauthorized filings of our trademarks and
      imitations thereof, and rely primarily upon a combination of trademarks,
      copyrights and contractual restrictions to protect and enforce our intellectual
      property rights domestically and internationally. We believe that such measures
      afford only limited protection and, accordingly, there can be no assurance
      that
      the actions taken by us to establish, protect and enforce our trademarks and
      other proprietary rights will prevent infringement of our intellectual property
      rights by others, or prevent the loss of licensing revenue or other damages
      caused therefrom.




For
      instance, despite our efforts to protect and enforce our intellectual property
      rights, unauthorized parties may attempt to copy aspects of our intellectual
      property, which could harm the reputation of our brands, decrease their value
      and/or cause a decline in our licensees’ sales and thus our revenues. Further,
      we and our licensees may not be able to detect infringement of our intellectual
      property rights quickly or at all, and at times we or our licensees may not
      be
      successful combating counterfeit, infringing or knockoff products, thereby
      damaging our competitive position. In addition, we depend upon the laws of
      the
      countries where our licensees’ products are sold to protect our intellectual
      property. Intellectual property rights may be unavailable or limited in some
      countries because standards of registerability vary internationally.
      Consequently, in certain foreign jurisdictions, we have elected or may elect
      not
      to apply for trademark registrations. Further, trademark protection may not
      be
      available in every country where our licensees’ products are sold. While we
      generally apply for trademarks in most countries where we license or intend
      to
      license our trademarks, we may not accurately predict all of the countries
      where
      trademark protection will ultimately be desirable. If we fail to timely file
      a
      trademark application in any such country, we will likely be precluded from
      doing so at a later date. Failure to adequately pursue and enforce our trademark
      rights could damage our brands, enable others to compete with our brands and
      impair our ability to compete effectively.




In
      addition, in the future, we may be required to assert infringement claims
      against third parties, and there can be no assurance that one or more parties
      will not assert infringement claims against us. Any resulting litigation or
      proceeding could result in significant expense to us and divert the efforts
      of
      our management personnel, whether or not such litigation or proceeding is
      determined in our favor. In addition, to the extent that any of our trademarks
      were ever deemed to violate the proprietary rights of others in any litigation
      or proceeding or as a result of any claim, we may be prevented from using them,
      which could cause a termination of our licensing arrangements, and thus our
      revenue stream, with respect to those trademarks. Litigation could also result
      in a judgment or monetary damages being levied against us.




*We
      are dependent upon our president and other key executives. If we lose the
      services of these individuals we may not be able to fully implement our business
      plan and future growth strategy, which would harm our business and prospects.*




Our
      successful transition from a manufacturer and marketer of footwear and jeanswear
      to a licensor of intellectual property is largely due to the efforts of Neil
      Cole, our president, chief executive officer and chairman. Our continued success
      is largely dependent upon his continued efforts and those of the other key
      executives he has assembled. Although we have entered into an employment
      agreement with Mr. Cole, expiring on December 31, 2007, as well as employment
      agreements with other of our key executives, there is no guarantee that we
      will
      not lose their services. To the extent that any of their services become
      unavailable to us, we will be required to hire other qualified executives,
      and
      we may not be successful in finding or hiring adequate replacements. This could
      impede our ability to fully implement our business plan and future growth
      strategy, which would harm our business and prospects.




17




*We
      are currently in litigation that could negatively impact our financial results.*




We
      are
      currently a plaintiff and cross-defendant in a litigation pending in California
      state court involving our wholly-owned subsidiary, Unzipped, and a defendant
      in
      a litigation pending in New York state court involving one of our licensees.
      Even if we prevail on all counts in these actions, the costs of these litigation
      matters have been and are expected to continue to be high, not only in absolute
      terms but also because they divert cash and personnel resources from our
      business affairs. Moreover, if we are ultimately required to pay the monetary
      damages sought from us in these actions, or if it is adjudicated that our
      contractual rights concerning Unzipped are invalid, our operating results and
      profitability would be reduced.




*Until
      recently we incurred losses on a consistent basis and we may not be able to
      sustain our profitability in the future.*




Although
      we have consistently recorded net income in connection with our new business
      model, prior to our transition to a brand management company in 2004, we
      consistently sustained net losses, including net losses of $11.3 million, $3.9
      million and $2.3 million in the fiscal years ended January 31, 2004, 2003 and
      2002, respectively. We cannot guarantee you that we will continue to be
      profitable in the future.




**Item
      1B. Unresolved Staff Comments**




None.




**Item
      2. Properties**




The
      Company currently occupies approximately 14,359 square feet of office space
      in
      New York, New York, pursuant to a lease that expires on September 2, 2007.
      The
      Company also acquired 5,994 square feet of office space in Santa Monica,
      California in connection with the Mossimo merger, pursuant to a lease that
      expires July 31, 2009. The Company sublets half of this space pursuant to a
      sublease that will expire concurrent with the lease.




Bright
      Star currently occupies approximately 2,269 square feet of office space in
      Mt.
      Arlington, New Jersey, pursuant to a lease that expires on March 14, 2009.




**Item
      3.** **Legal
      proceedings**





**Sweet
      Sportswear/Unzipped litigation**




On
      August
      5, 2004, the Company, along with its subsidiaries, Unzipped, Michael Caruso
      & Co., referred to as Caruso, and IP Holdings, 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, Azteca Production International, Inc., referred
      to as Azteca, and Apparel Distribution Services, LLC, referred to as ADS, and
      a
      principal of these entities and former member of our board of directors, Hubert
      Guez, collectively referred to as defendants. The Company is pursuing numerous
      causes of action against defendants, including breach of contract, breach of
      fiduciary duty, trademark infringement and others and is seeking damages in
      excess of $30 million. On March 10, 2005, Sweet Sportswear, Azteca and ADS,
      collectively referred to as cross-complainants, filed a cross-complaint against
      the Company claiming damages resulting from a variety of contractual breaches,
      among other things.




On
      January 22, 2007, the case commenced trial in the California Superior Court
      and
      the trial is still being conducted.




18




***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 tortiously
      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, which was dismissed
      in its entirety on June 9, 2006, except with respect to one remaining claim
      asserted against it, a claim that it failed to pay Bader and Sportswear
      Mercenaries $72,000 in commissions and bonuses. The Company intends to
      vigorously defend against such claim.




***Redwood
      Shoe litigation***




This
      litigation, which was commenced in January 2002, by Redwood Shoe Corporation,
      or
      Redwood, one of the Company’s former buying agents of footwear, was dismissed
      with prejudice by the United States District Court for the Southern District
      of
      New York on February 15, 2007, pursuant to an agreement in principle by the
      Company, Redwood, its affiliate, Mark Tucker, Inc., or MTI, and MTI’s principal,
      Mark Tucker, to settle the matter. The proposed settlement agreement provides
      for the Company to pay a total of $1.9 million to Redwood and MTI. The
      stipulation and order dismissing the action may be reopened should the
      settlement agreement not be finalized and consummated by all of the parties.
      The
      Company currently anticipates that the settlement agreement will be executed
      in
      the first half of 2007.




***Bongo
      Apparel, Inc. litigation***




On
      or
      about June 12, 2006, Bongo Apparel, Inc., or BAI, filed suit in the Supreme
      Court of the State of New York, County of New York, against the Company alleging
      certain breach of contract and other claims and seeks, among other things,
      damages of at least $25 million. The Company believes that, in addition to
      other
      defenses and counterclaims that it intends 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 has moved to dismiss all claims. The motion
      is
      pending before the Court. Additionally, on or about October 6, 2006, the Company
      and IP Holdings filed suit in the United States District Court for the Southern
      District of New York against BAI and its guarantor, TKO Apparel, Inc. In that
      complaint, the Company asserts various contract, tort and trademark claims
      that
      arose as a result of the failures of BAI with regard to the Bongo men’s
      jeanswear business and its wrongful conduct with regard to the Bongo women’s
      jeanswear business.  The
      Company and IP Holdings are seeking monetary damages in an amount to be
      determined at trial and a permanent injunction with respect to the use of the
      Bongo trademark.




***Mossimo
      litigation***




In
      April
      2005, Mr. Mossimo Giannulli offered to acquire all of the outstanding publicly
      held common stock of Mossimo at a price of $4.00 per share. Following the
      announcement of such offer, six purported class action lawsuits were filed
      in
      the Court of Chancery of the State of Delaware seeking an injunction preventing
      the acquisition of Mossimo by the Company and asserting that the Mossimo
      directors breached their fiduciary duties to the Mossimo stockholders. These
      six
      cases were consolidated. Although Mr. Giannulli subsequently withdrew his
      acquisition proposal, plaintiffs filed a first consolidated amended complaint
      in
      March 2006, in which they allege, among other things, that Mossimo and its
      board
      of directors breached their fiduciary duties and engaged in self-dealing in
      approving the merger agreement with the Company.




In
      addition, on April 12, 2006, a purported shareholder class action lawsuit
      was filed in the Superior Court of the State of California for the County of
      Los
      Angeles asserting similar claims against Mossimo and its directors with respect
      to the merger and seeking, among other relief, to enjoin the merger and rescind
      any agreements entered into in connection with the merger, and to recover costs,
      including attorney’s fees.




19




On
      September 27, 2006, Mr. Giannulli and other defendants entered into a
      memorandum of understanding with the Delaware plaintiffs to settle the Delaware
      action. The settlement was subject to the closing of the merger, the negotiation
      of a definitive stipulation of settlement and final approval by the Delaware
      Chancery Court. The terms of the memorandum of understanding provide that if
      the
      Company sells Mossimo or the Mossimo business prior to October 31, 2007 to
      an unaffiliated third party and if the consideration for such sale is greater
      than 120% of the amount paid to the Mossimo stockholders in the merger, 30%
      of
      that excess amount will be paid into a settlement fund to be administered and
      distributed by the plaintiffs’ lawyers under the supervision of the Delaware
      court. This additional amount, if it becomes due and distributable, will be
      paid
      to all persons who owned Mossimo stock, directly or indirectly, between
      April 12, 2005 and October 31, 2006, and will not constitute
      additional merger consideration. Mossimo also negotiated in good faith with
      the
      plaintiffs’ lead counsel concerning the amount of attorney fees and expenses to
      be paid by Mossimo or the Company, as its successor, and not to oppose such
      counsel’s application to the court of up to $800,000 in payment of such fees and
      expenses. In consideration of these terms, the parties agreed that they would
      fully and finally release and discharge all claims against each other. On
      December 4, 2006, the parties finalized the terms of the definitive settlement
      agreement and filed the same with the Delaware court. The Delaware court has
      entered an order directing the parties to issue a written notice to all Mossimo
      stockholders informing them, among other things, of the terms of the settlement
      and of their right to appear at a February 22, 2007 court hearing at which
      the
      Delaware court would consider whether the settlement is reasonable, adequate
      and
      in the best interest of the class. The Delaware court conducted the hearing
      on
      February 22, 2007 and on February 26, 2007, entered an order approving the
      settlement and dismissing the action with prejudice.




On
      October 27, 2006, Mr. Giannulli and other defendants also entered into
      a settlement letter with the California plaintiffs in the California action.
      Under the terms of this settlement, Mr. Giannulli and the other defendants
      have agreed to pay Plaintiffs’ counsel between $620,000 and $650,000. The
      California plaintiffs will be bound by the terms of the Delaware settlement
      once
      the settlement is approved by the Delaware Chancery Court and have agreed to
      file a request for dismissal with prejudice. As a result, if and when the
      settlement of the Delaware action is approved by the Delaware court and becomes
      effective, it will also bind the members of the purported class in the
      California litigation, rendering the California action moot. On March 1, 2007,
      the parties filed a stipulation with the California court dismissing the action
      with prejudice and requesting an order awarding Plaintiffs’ counsel between
      $620,000 and $650,000. The California court has scheduled a hearing on the
      stipulation for March 29, 2007.




**Normal
      Course litigation**




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 the Company’s financial position or future
      liquidity .




**Item
      4.**  **Submission of Matters to a Vote of Security Holders.**





None.





**PART
      II**




**Item
      5.**  **Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
      of Equity Securities**





The
      Company's common stock, $0.001 par value per share, its only class of common
      equity, is quoted on the NASDAQ Global Market tier of The Nasdaq Stock Market
      LLC (“NASDAQ”) under the symbol “ICON”. The following table sets forth the high
      and low sales prices per share of the Company's common stock for the periods
      indicated, as reported on NASDAQ:





**High**
            
            **Low**Year
                Ended December 31, 2006Fourth
                Quarter
            
            $
            20.39
            
            $
            14.49Third
                Quarter
            
            
            17.00
            
            
            12.64Second
                Quarter
            
            
            18.09
            
            
            13.70First
                Quarter
            
            
            14.89
            
            
            9.51Year
                Ended December 31, 2005Fourth
                Quarter
            
            $
            10.64
            
            $
            7.66Third
                Quarter
            
            
            10.21
            
            
            6.30Second
                Quarter
            
            
            6.98
            
            
            4.16First
                Quarter
            
            
            5.50
            
            
            4.25




20




As
      of
      March 1, 2007 there were 2,367 holders of record of the Company's common
      stock.





The
      Company has never declared or paid any cash dividends on its common stock and
      the Company does not anticipate paying any such cash dividends in the
      foreseeable future. Payment of cash dividends, if any, will be at the discretion
      of the Company's Board of Directors and will depend upon the Company's financial
      condition, operating results, capital requirements, contractual restrictions,
      restrictions imposed by applicable law and other factors its Board of Directors
      deems relevant. The Company's ability to pay dividends on its common stock
      may
      also be prohibited by its current and future indebtedness.




On
      September 15, 1998, the Company's Board of Directors authorized the repurchase
      of up to two million shares of the Company's common stock, which was replaced
      with a new agreement on December 21, 2000, authorizing the repurchase of up
      to
      three million shares of the Company's Common Stock. No shares were repurchased
      by the Company during the past three fiscal years.





See
“Item
      12” - “Securities Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters” for certain
      information concerning securities issued under the Company's equity compensation
      plans.





21




**Item
      6.**  **Selected
      Financial Data**





**Selected
      Historical Financial Data**


**(in
      thousands, except earnings per share amounts)**





On
      December 7, 2004, the Company announced that beginning January 1, 2005, it
      had
      changed its fiscal year ending on January 31, to a calendar year beginning
      on
      January 1 st and
      ending on December 31 st .
      The
      change was designed to align the Company's financial reporting with that of
      its
      licensees. As a result, the Company reported on an 11-month year for the period
      February 1, 2004 through December 31, 2004 (the “ ***11-Month
      Prior Period*** ”).
      The
      Company's current reporting period is for the 12-month period January 1, 2006
      through December 31, 2006 (the “ ***Current Year*** ”),
      as is
      the prior year reporting period from January 1, 2005 through December 31, 2005
      (the “ ***Prior
      Year*** ”).





The
      following table presents selected historical financial data of the Company
      for
      the periods indicated. The selected historical financial information is derived
      from the audited consolidated financial statements of the Company referred
      to
      under Item 8 of this Annual Report on Form 10-K, and previously published
      historical financial statements not included in this Annual Report on Form
      10-K.
      The following selected financial data should be read in conjunction with Item
      7
      - Management's Discussion and Analysis of Financial Condition and Results of
      Operations and the Company's consolidated financial statements, including the
      notes thereto, included elsewhere herein.




Fiscal
                YearEndedDecember
                31,
            
            
            Fiscal
                YearEnded
                December
                31,
            
            
            11-Months
              Ended
                December
                  31,
            
            
            Fiscal
                Year
              Ended
                January 31,2006(2)
            
            
            2005
            
            
            2004
            
            
            2004
            *
            
            2003Licensing
                and commission revenue
            
            $
            80,694
            
            $
            30,156
            
            $
            10,553
            
            $
            8,217
            
            $
            7,240Net
                Sales
            
            
            -
            
            
            -
            
            
            58,427
            
            
            123,160
            
            
            149,543Net
                Revenues
            
            
            80,694
            
            
            30,156
            
            
            68,980
            
            
            131,377
            
            
            156,783Operating
                income (loss)(1),
                (4)
            
            
            53,673
            
            
            15,361
            
            
            2,942
            
            
            (8,164
            )
            
            (961
            )Interest
                expense - net
            
            
            13,837
            
            
            4,453
            
            
            2,701
            
            
            3,118
            
            
            3,373Net
                income (loss)(3)
            
            
            32,501
            
            
            15,943
            
            
            241
            
            
            (11,340
            )
            
            (3,945
            )Earnings
                (loss) per share:Basic
            
            $
            0.81
            
            $
            0.51
            
            
            0.01
            
            $
            (0.45
            )
            $
            (0.17
            )Diluted
            
            $
            0.72
            
            $
            0.46
            
            
            0.01
            
            $
            (0.45
            )
            $
            (0.17
            )Weighted
                average number of common shares outstanding:Basic
            
            
            39,937
            
            
            31,284
            
            
            26,851
            
            
            25,181
            
            
            23,681Diluted
            
            
            45,274
            
            
            34,773
            
            
            28,706
            
            
            25,181
            
            
            23,681




At
                  December 31,
              
              
              At
                  January 31,Balance
                  Sheet
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2004
              
              
              2003Current
                  assets
              
              $
              99,829
              
              $
              22,345
              
              $
              9,627
              
              $
              25,655
              
              $
              51,816Working
                  capital (deficit)
              
              
              64,124
              
              
              (4,388
              )
              
              (5,984
              )
              
              (5,302
              )
              
              5,895Total
                  assets
              
              
              701,052
              
              
              217,244
              
              
              60,160
              
              
              74,845
              
              
              103,437Long-term
                  debt, long-term portion
              
              
              140,676
              
              
              85,414
              
              
              19,925
              
              
              25,020
              
              
              28,505Total
                  stockholders' equity
              
              
              465,457
              
              
              100,896
              
              
              24,258
              
              
              18,868
              
              
              29,011




22




*
                Beginning
                    in May 2003, the Company changed its business model to a licensing
                    model.
                    See “Item 1 - Business - Transition to brand management company".
                    As a
                    result, its Current Year, the Prior Year and the 11-Month Prior
                    Period
                    results are not comparable with prior
                    years.
 (1)
                  Includes
                      special charges of $2,494 in the Current Year, $1,466 in the
                      Prior Year,
                      $295 in the 11-Month Prior Period, $4,629 in the year ended
                      January 31,
                      2004(***“
                      Fiscal 2004 ”***),
                      and $3,566 in the year ended January 31, 2003 (***“
                      Fiscal 2003 ”***).
                      See Notes 11 and 15 of the Notes to Consolidated Financial
                      Statements.




(2)
                During
                    the Current Year, the Company made four acquisitions. See Notes
                    6, 7, 8,
                    and 9 of Notes to Consolidated Financial
                    Statements.




(3)
                In
                    the Current Year and Prior Year, the Company recognized a net
                    non-cash tax
                    benefit of $6.2 and $5.0 million, respectively, by reducing the
                    valuation
                    allowance on the deferred tax asset related to the Company's
                    Net Operating
                    Loss carryforwards (**“
                    NOL ”**).
  (4)
                    Including
                        in the operating income in the 11-Month Prior Period was
                        a $7.6 million
                        adjustment for the Shortfall Payment (as defined below) of
                        $6.9 million
                        with $685,000 recorded as a reserve pending the outcome of
                        its litigation
                        with the Company relating to Unzipped. See Notes 2 and 12
                        of Notes to
                        Consolidated Financial Statements. For Fiscal 2004 the adjustment
                        for the
                        Shortfall Payment was $1.6 million.
  23




**Item
      7.**  **Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations**




Safe
      Harbor Statement under the Private Securities Litigation Reform Act of 1995.
      This Annual Report on Form 10-K, including this Item 7, includes
“forward-looking statements” based on the Company's current expectations,
      assumptions, estimates and projections about its business and its industry.
      These statements include those relating to future events, performance and/or
      achievements, and include those relating to, among other things, the Company's
      future revenues, expenses and profitability, the future development and expected
      growth of the Company's business, its projected capital expenditures, future
      outcomes of litigation and/or regulatory proceedings, competition, expectations
      regarding the retail sales environment, continued market acceptance of the
      Company's current brands and its ability to market and license brands it
      acquires, the Company's ability to continue identifying, pursuing and making
      acquisitions, the ability of the Company's current licensees to continue
      executing their business plans with respect to their product lines, and the
      Company's ability to continue sourcing licensees that can design, distribute,
      manufacture and sell their own product lines.




These
      statements are only predictions and are not guarantees of future performance.
      They are subject to known and unknown risks, uncertainties and other factors,
      some of which are beyond the Company's control and difficult to predict and
      could cause its actual results to differ materially from those expressed or
      forecasted in, or implied by, the forward-looking statements. In evaluating
      these forward-looking statements, the risks and uncertainties described in
“Item
      1A. Risk Factors” above and elsewhere in this report and in the Company's other
      SEC filings should be carefully considered.




Words
      such as “may,” “should,” “will,” “could,” “estimate,” “predict,” “potential,”
“continue,” “anticipate,” “believe,” “plan,” “expect,” “future” and “intend” or
      the negative of these terms or other comparable expressions are intended to
      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.




**Overview**




The
      Company is a brand management company engaged in licensing, marketing and
      providing trend direction for a diversified and growing consumer brand
      portfolio. The Company’s brands are sold across every major segment of retail
      distribution, from luxury to mass. As of December 31, 2006, the Company
      owned nine iconic consumer brands: Candie’s, Bongo, Badgley Mischka, Joe Boxer,
      Rampage, Mudd, London Fog, Mossimo, and Ocean Pacific. The Company licenses
      its
      brands worldwide through over 115 retail and wholesale licenses for use in
      connection with a broad variety of product categories, including women’s, men’s
      and children’s apparel, footwear and accessories, home furnishings and beauty
      and fragrance. The Company’s business model allows it to focus on its core
      competencies of marketing and managing brands without some of the risks and
      investment requirements associated with a more traditional operating company.
      Its licensing agreements with leading retail and wholesale partners throughout
      the world provide the Company with a predictable stream of guaranteed minimum
      royalties.




The
      Company’s growth strategy is focused on increasing licensing revenue from its
      existing portfolio of brands through adding new product categories, expanding
      its brands’ retail penetration and optimizing the sales of its licensees. The
      Company will also seek to continue the international expansion of its brands
      by
      partnering with leading licensees throughout the world. Finally, the Company
      believes it will continue to acquire iconic consumer brands with an
      applicability to a wide range of merchandise categories and an ability to
      further diversify its brand portfolio.




**Background**




*Transition
      to current business model*




Commencing
      in May 2003, the Company began to implement a shift in its business model
      designed to transform it from a wholesaler and retailer of jeanswear and
      footwear products to a brand management company focused on licensing and
      marketing its portfolio of consumer brands. In May 2003, the Company licensed
      out both its Bongo footwear business and its Candie’s footwear business to third
      party licensees, and, by the end of 2003, the Company had eliminated all of
      its
      Candie’s retail concept stores. Thereafter, effective in August 2004, the
      Company also licensed out its Bongo jeanswear operations, which were previously
      conducted through its wholly-owned subsidiary, Unzipped, and, by the end of
      2004, the Company had reduced its workforce from over 200 employees to under
      40.
      Beginning January 2005, the Company also changed its business practices with
      respect to its Bright Star subsidiary, as a result of which Bright Star began
      acting solely as an agent for, as opposed to an indirect wholesaler to, its
      private label footwear clients. In July 2005, the Company entered into its
      first
      multi-category retail license, with Kohl’s, and between October 2004 and
      September 2005, the Company acquired three new brands: Badgley Mischka, Joe
      Boxer and Rampage. As a result of these changes to its operations, the Company
      is now a brand management company that focuses exclusively on licensing,
      marketing and providing trend direction with respect to a diverse portfolio
      of
      owned consumer brands and that no longer has any wholesale or retail operations
      or product inventory.




24




*Changes
      in our financial reporting*





On
      December 7, 2004, the Company announced that beginning January 1, 2005, it
      had
      changed its fiscal year ending on January 31, to a calendar year beginning
      on
      January 1 st and
      ending on December 31 st .
      The
      change was designed to align the Company's financial reporting with that of
      its
      licensees. As a result, the Company reported on an 11-month year for the period
      February 1, 2004 through December 31, 2004 (the “ ***11-Month
      Prior Period*** ”).
      The
      Company's current reporting period is for the 12-month period January 1, 2006
      through December 31, 2006 (the “ ***Current Year*** ”),
      as is
      the prior year reporting period from January 1, 2005 through December 31, 2005
      (the “ ***Prior
      Year*** ”).




Commencing
      with fiscal 2005, revenues from Bright Star are recognized solely from its
      net
      agent commissions and no longer from gross product sales as they were prior
      to
      the change in the Company’s business practices with respect to Bright Star
      described above. In addition, for the fiscal years ending prior to fiscal 2005,
      the Company’s operations were comprised of two reportable segments: its
      licensing/ commission/footwear segment, which included Candie’s footwear, Bongo
      footwear, private label footwear, Bright Star’s operations, retail store
      operations and licensing operations, and its apparel segment, which was
      comprised of Unzipped’s Bongo jeanswear operations. As a result of the Company’s
      shift in business model, including its licensing of the activities associated
      with its former Candie’s and Bongo footwear and apparel operations, the Company
      now has only one revenue reporting segment, its licensing and commission
      segment, which includes the licensing revenues for all of its brands and Bright
      Star’s net commission revenues.




As
      a
      result of the Company’s transition to a brand management business, and to a
      lesser extent, its change in fiscal year end, its operating results for the
      periods after the 11-Month Prior Period are not, and are not expected to be,
      comparable to prior years. Further, as a result of the Company’s Joe Boxer and
      Rampage acquisitions and to a lesser extent the change in Bright Star revenue
      recognition, the Company’s operating results for the Prior Year are not
      comparable to prior years, and as a result of the Company’s April 2006 Mudd
      acquisition, the August 2006 London Fog trademark purchase, the October 2006
      Mossimo acquisition and the November 2006 Ocean Pacific acquisition, the
      Company’s operating results for the Current Year are not comparable to prior
      periods.




**Summary
      of Operating Results:**





The
      Company had net income of $32.5 million for the Current Year as compared to
      net
      income of $15.9 million for the Prior Year. In the Current Year, there were
      $2.5
      million of special charges and $13.8 million of net interest expense, as
      compared to $1.5 million of special charges and $4.5 million of net interest
      expense in the Prior Year.





The
      Company's operating income was $53.7 million in the Current Year, compared
      to an
      operating income of $15.4 million in the Prior Year.





**Current
      Year compared to Prior Year**





*Revenues.* Revenue
      for the Current Year increased to $80.7 million, from $30.2 million in the
      Prior
      Year. This revenue growth was driven by three factors: growth from brands
      acquired prior to 2005, additional revenue from brands acquired during the
      Prior
      Year and brands acquired in the Current Year. The growth in revenue from brands
      that were acquired prior to 2005, notably the Company’s Candies brand, that is
      licensed to Kohl’s, amounted to $5.9 million. Additional revenue from brands
      that were acquired during the Prior Year, notably the Joe Boxer brand, that
      is
      licensed to Kmart, and the Rampage brand, amounted to approximately $20.2
      million. In addition, new revenues associated with the four brands acquired
      in
      2006, Mudd, London Fog, Mossimo, and Ocean Pacific, amounted to $22.3
      million.




25




*Gross
      Profit.* As
      the Company changed its business model, gross profit is no longer a pertinent
      indicator of operating results as there is no longer a cost of goods
      sold.




*Operating
      Expenses.* Consolidated selling, general and administrative ( ***“SG&A”*** )
      expenses totaled $24.5 million in the Current Year compared to $13.3 million
      in
      the Prior Year, an increase of $11.2 million. The increase in SG&A
      expenses was primarily related to an increase in advertising expense from
      $2.9 million in the Prior Year to $7.8 in the Current Year, and increases
      in operating expenses relating to the four acquisitions completed in 2006,
      both
      increases due to an increase in licensing revenue resulting from a full year’s
      impact of acquisitions made during 2005 as well as the impact of new
      acquisitions in 2006. Further, in the Current Year, the Company recorded a
      $1.4
      million reserve against its accounts receivables primarily relating to one
      licensee’s non-payment that is currently in dispute with the Company, compared
      to $180,000 in the Prior Year. For the Current Year and Prior Year, the
      Company’s special charges included $2.5 million and $1.5 million respectively,
      incurred by the Company relating to litigation involving Unzipped. See Note
      15
      of Notes to Consolidated Financial Statements.




*Operating
      Income* .
      As a
      result of the foregoing, the Company's net operating income was $53.7 million
      in
      the Current Year, or 67% of net revenue, as compared to $15.4 million in
      the Prior Year, or 51% of net revenue.




*Net
      Interest Expense* .
      Net
      Interest expense increased by approximately $9.3 million in the Current Year
      to
      $13.8 million, compared to $4.5 million in the Prior Year. This increase in
      interest expense was due primarily to an increase in the Company's debt through
      financing arrangements in connection with the acquisitions of Joe Boxer,
      Rampage, Mudd, London Fog, Mossimo, and Ocean Pacific. See Notes 4, 5,
      6, 7, 8,  and 9 of Consolidated Financial Statements. Included in the
      interest expense was approximately $659,000 amortization expense of deferred
      financing cost, compared to approximately $454,000 in the Prior Year. Partially
      offsetting the increase in interest expense was an increase in interest income.
      The interest income for the Current Year totaled $1.2 million, compared to
      $295,000 in the Prior Year, primarily driven by increased cash balances in
      the
      fourth quarter from the Company’s equity offering of shares of common
      stock in December 2006.


**


*Gain
      on Sales of Securities* .
      In the
      Current Year and Prior Year, the gross realized gain on sales of securities
      available for sale totaled $0 and $75,000, respectively.




*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 (“NOL's”) 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 that became available in the Current Year, it concluded that it
      is more likely than not that a portion of previously unrecognized deferred
      income tax benefits will be realized. The effective income tax rate for the
      Current Year is approximately 18.4% resulting in the $7.3 million income tax
      expense. This effective tax rate was mainly driven by the Company’s reduction in
      the valuation allowance of approximately $6.2 million. The Prior Year had a
      $5.0
      million income tax benefit due primarily from a reduction in the Company’s
      valuation allowance.See
      Note
      19 of Notes to Condensed Consolidated Financial Statements.




At
      December 31, 2006 the Company had available Federal NOL's of approximately
      $56.7
      million for income tax purposes, which expire in the years 2007 through 2025.
      Because of "ownership changes" (as defined in Section 382 of the Internal
      Revenue Code) occurring in previous fiscal years, the utilization of
      approximately $4.4 million of the NOL's is limited to $602,000 per year and
      expires in 2007. The $4.4 million in NOL’s are expected to be utilized in 2006.
      The remaining $52.3 million is not subject to such limitation and expires in
      the
      years 2009 through 2025. As of December 31, 2006 the Company had available
      state
      and city NOL's totaling between $48.3 million and $88.1 million, substantially
      all of which expire in the years 2020 through 2025. Included in the Company's
      NOL's is $7.0 million as of December 31, 2006 from the exercises of stock
      options.




26




*Net
      income* (loss).
      The Company recorded net income of $32.5 million in the Current Year, compared
      to net income of $15.9 million in the Prior Year, an increase of 104%, as a
      result of the factors discussed above.




**Prior
      Year compared to the 11-Month Prior Period**




*Revenues.* Consolidated net revenue decreased in the Prior Year by $38.8 million to $30.2
      million, from $69.0 million in the 11-Month Prior Period due to the Company's
      change in its business model from one based upon sales generated from its former
      footwear and jeanswear operations to one based upon royalties generated by
      licensing and brand management activity.





The
      licensing business drove an increase of $19.4 million in licensing revenue
      to
      $28.0 million for the Prior Year, up from $8.6 million in the 11-Month Prior
      Period. The increase in licensing income resulted from a combination of the
      acquisition of the Joe Boxer brand in 2005, which generated $9.0 million in
      revenue, the acquisition of Rampage in September 2005, which generated $2.7
      million in revenue, and the launch of the Company's Candie's brand in Kohl's,
      which generated $4.1 million in revenue.





Due
      to a
      change in revenue recognition resulting from its change of business practice
      beginning January 2005, Bright Star recorded only the net commission earned
      on
      sales in the Prior Year and will continue to do so in the future. As a result,
      there was $2.2 million in commission revenue and no sales recorded in the Prior
      Year for Bright Star, as compared to $2.0 million in commission revenue and
      $19.9 million in sales (excluding commission revenue) in the 11-Month Prior
      Period. Further, as a result of the Company licensing its jeanswear business
      in
      August 2004, there were no reportable jeanswear sales in the Prior Year as
      compared to $38.5 million in the 11-Month Prior Period.




*Gross
      Profit.* Consolidated gross profit was $30.2 million in the Prior Year as compared to
      $13.2 million in the 11-Month Prior Period, an increase of $17.0 million. In
      the
      Prior Year, there was no reportable gross profit from Unzipped's jeanswear
      operations, as compared to $2.6 million of gross profit in the 11-Month Prior
      Period which reflects the liquidation of the remaining Bongo inventory in
      connection with the transition of the jeanswear business to a licensing
      arrangement. The overall increase in gross profit was primarily driven by the
      increase in licensing revenue which has no related cost of good sold. Bright
      Star's gross profit increased to $2.2 million in the Prior Year from $2.0
      million in the 11-Month Prior Period.




*Operating
      Expenses.* SG&A
      expenses totaled $13.3 million in the Prior Year compared to $9.9 million in
      the
      11-Month Prior Period, an increase of $3.4 million.  The
      Company's SG&A expenses related to licensing increased by $4.0 million to
      $12.4 million in the Prior Year compared to $8.4 million in the 11-Month Prior
      Period. This increase resulted primarily from the Company's acquisitions of
      the
      Joe Boxer, Rampage and Badgley Mischka brands. SG&A expenses related to
      Bright Star were $965,000 in the Prior Year compared to $900,000 in the 11-Month
      Prior Period. Included in the Prior Year's SG&A expense
      was $37,500 for Unzipped's net loss compared to $1.7 million in SG&A expense
      in the 11-Months ended December 31, 2004, which were related to the Company's
      transition of the jeanswear business into a licensing business. Included in
      SG&A for Unzipped in the 11-Month Prior Period, 2004 was a $7.6
      million reduction related to a management agreement between Sweet
      Sportswear L.L.C. ( “ Sweet ” ) and Unzipped ( the “ Management Agreement ” ).
      As stipulated in the Management Agreement, Sweet guarantees that the net income
      of Unzipped would be no less than $1.7 million for each year during the term
      (
      the “ Guarantee ” ). In the event that the Guarantee is not met, Sweet is
      obligated to pay to the Company the difference between the actual net income
      of
      Unzipped, as defined, and the Guarantee (the “Shortfall Payment”). For the
      11-Month Prior Period, there was a Shortfall Payment of $6.9 million and
      $685,000 recorded as a reserve pending the outcome of the Company's litigation
      with the former manager, supplier and distributor of Unzipped. See Notes 2
      and
      15 of Notes to Consolidated Financial Statements.




For
      the
      Prior Year and the 11-Month Prior Period, the Company's special charges included
      $1.5 million and $295,000, respectively, incurred by the Company relating to
      litigation involving Unzipped. The special charges for the 11-Month Prior Period
      were reduced by special income resulting from the Company's termination of
      certain long term debt payments totaling $238,000.




27





*Operating
      Income (Loss)* .
      As a
      result of the foregoing, the Company's net operating income was $15.4 million
      in
      the Prior Year, or 51% of total revenue, as compared to $2.9 million in the
      11-Month Prior Period, or 4% of total revenue.





*Net
      Interest Expense* .
      Net
      Interest expense increased by approximately $1.8 million in the Prior Year
      to
      $4.5 million, compared to $2.7 million in the 11-Month Prior Period. 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. See Notes 4 and 5 of Consolidated Financial Statements. The interest
      expense related to the asset backed notes issued by IP Holdings, was $4.1
      million in the Prior Year compared to $1.4 million in the 11-Month Prior Period.
      In addition, $151,000 in interest expense was included in the Prior Year from
      the Sweet Note as compared to $644,000 in the 11-Month Prior Period. This
      decrease was due to a lower average outstanding balance on the Sweet Note,
      resulting from the offset of Shortfall Payments. See Notes 2 and 15 of Notes
      to
      the Consolidated Financial Statements. Also included in interest expense in
      the
      11-Month Prior Period was $434,000 from Unzipped's jeanswear operations, with
      no
      comparable amount in the Prior. A total of $295,000 in interest income for
      the
      Prior Year partially offset the increase in interest expense, compared to
      $24,000 in the 11-Month Prior Period.




*Gain
      on Sales of Securities* .
      In the
      Prior Year, the gross realized gain on sales of securities available for sale
      totaled $75,000. There was no such gain in the 11-Month Prior
      Period.





*Provision
      (Benefit) for Income Taxes.* In the
      Prior Year, a net non-cash tax benefit of $5.0 million was recognized by
      reducing the deferred tax assets valuation allowance based on the Company's
      projection of future taxable income and the expectation that realizing this
      portion of the related deferred tax assets is more likely than not offset by
      a
      reduction in the deferred tax asset established in the purchase accounting
      for
      the Joe Boxer acquisition. Management prepared projections that indicate that
      a
      portion of the Company's NOL’s would be utilized prior to their expiration.
      However, the Company does not believe that the future realization of all of
      these future tax benefits indicated by its projections is sufficiently assured
      to allow their full recognition in the consolidated financial statements. In
      particular, projections of operating results over an extended period are
      inherently imprecise. There was no tax expense on income reported for the
      11-Month Prior Period due to a reduction in the deferred tax valuation allowance
      that offset the income tax provision. At December 31, 2005, the Company had
      a
      net deferred tax asset of approximately $11.5 million compared to $3.6 million
      at December 31, 2004, which management believes will be recoverable from
      anticipated future profits. At December 31, 2005, the net deferred tax asset,
      totaling $11.5 million, represents the amount that more likely than not of
      recoverability based on information currently available. See Note 19 of Notes
      to
      Consolidated Financial Statements.





At
      December 31, 2005 the Company had available Federal NOL's of approximately
      $66.5
      million for income tax purposes, which expire in the years 2006 through 2025.
      Because of "ownership changes" (as defined in Section 382 of the Internal
      Revenue Code) occurring in previous fiscal years, the utilization of
      approximately $4.4 million of the NOL's is limited to $602,000 per year and
      expires in 2007. The remaining $62.1 million is not subject to such limitation
      and expires in the years 2009 through 2025. As of December 31, 2005 the Company
      had available state and city NOL's totaling between $59.4 million and $99.4
      million, substantially all of which expire in the years 2020 through 2025.
      Included in the Company's NOL's is $7.0 million as of December 31, 2005 from
      the
      exercises of stock options. The benefit of the utilization of this NOL will
      be
      recorded as a credit to additional paid in capital if and when the related
      deferred tax asset is recorded.




*Net
      income* (loss).
      The Company recorded net income of $15.9 million in the Prior Year, compared
      to
      net income of $241,000 in the 11-Month Prior Period, as a result of the factors
      discussed above.




**Liquidity
      and Capital Resources**




Our
      principal capital requirements have been to fund acquisitions, working capital
      needs, and to a lesser extent capital expenditures. We have historically relied
      on internally generated funds to finance our operations and our primary source
      of capital needs for acquisition have been the issuance of debt and equity
      securities. At December 31, 2006 and December 31, 2005, our cash totaled $77.8
      million and $11.7 million, respectively, including restricted cash of $4.3
      million and $4.1 million, respectively.




28







We
      believe that cash from future operations as well as currently available cash
      will be sufficient to satisfy our anticipated working capital requirements
      for
      the foreseeable future. We intend to continue financing our brand acquisitions
      through some combination of cash from operations, bank financing and the
      issuance of additional equity and/or debt securities. The Company
      funded the acquisition of Danskin from its cash reserves. The proposed
      Rocawear acquisition will be funded from the proceeds of a loan. We have limited
      ability, however, to secure additional indebtedness with our existing assets
      due
      to certain provisions of IP Holdings’ existing asset-backed notes.





*Working
      Capital* .
      There
      was working capital (current assets less current liabilities) of $64.1 million
      as of December 31, 2006, compared to a deficit of $4.4 million as of December
      31, 2005. The improvement resulted primarily from working capital generated
      from
      the Company's licensing business and excess cash generated from the Company’s
      equity offering. Cash (including restricted cash) increased to $77.8 million
      compared to $11.7 million in the Prior Year. In addition, accounts receivable
      increased to $14.5 million from $3.5 million, and accounts payable increased
      to
      $7.0 million from $3.4 million, both increases primarily due to acquisitions
      made in the Current Year, and the Company has $22.1 million in current
      maturities of long-term notes in 2007, compared to $13.7 million at December
      31,
      2005. Included in the current liabilities as of December 31, 2006 and 2005
      were
      $4.9 million in payables that are subject to litigation. See “Item 3 - Legal
      Proceedings”.




29




The
      Company continues to rely primarily upon cash generated from licensing revenues.
      Net cash provided from these operating activities totaled $31.7 million in
      the
      Current Year, compared to $16.0 million in the Prior Year and $4.8 million
      in
      the 11-Month Prior Period. Cash generated from licensing revenues are from
      licensees in connection with the Company’s nine brands. The Company believes
      that such cash from operations will be sufficient to satisfy its anticipated
      working capital requirements for the foreseeable future.





*Investing
      Activities* .
      The
      Company's cash used in investing activities in the Current Year totaled $176.8
      million compared to $68.5 million used for the Prior Year and $421,000
      used for the 11-Month Prior Period. Cash paid for the acquisitions of Mudd,
      London Fog, Mossimo, and Ocean Pacific, totaled approximately $173.7 million
      in
      2006. See Notes 6, 7, 8, and 9. Capital expenditures were $739,000 for the
      Current Year compared to $731,000 in the Prior Year and $30,000 used in the
      11-Month Prior Period. The Current Year's capital expenditures were primarily
      in
      connection with the acquisition of office equipment and leasehold improvements
      and other trademarks of $2.3 million.




*Financing
      Activities.* The
      Company's cash provided by financing activities in the Current Year totaled
      $211.0 million compared to $59.9 million during the Prior Year and $6.4 million
      used in financing activities in the 11-Month Prior Period. Of the $211.0 million
      in net cash provided by financing activities, approximately $189.5 million
      was
      provided from the net proceeds from the equity offering, approximately $168.0
      million was provided from the net proceeds of the issuance of long-term asset
      -backed notes, the loan related to the Mossimo acquisition and the loan related
      to the Ocean Pacific acquisition, and approximately $9.1 million in proceeds
      from the exercise of stock options contributed to cash provided by financing
      activities. This was offset by $148.5 million used for principal payments
      related to the asset-backed notes, and $6.7 million placed in a non-current
      reserve account.





*Long-Term
      Debt* .
      The
      Company's long-term debt, including current maturities, totaled $162.8 million
      as of December 31, 2006, as compared to $99.1 million as of December 31, 2005.
      The long-term debt is comprised of an asset-backed securitization (see
      Asset-backed notes below) which totaled $155.9 million as of December 31, 2006
      and $88.8 million as at December 31 2005, a loan due to a licensee (see the
      Kmart Note below) totaling $3.8 million as of December 31, 2006 and $7.4 as
      of
      December 31, 2005 and a note in the original amount of $11 million to the
      previous manager of Unzipped's jeanswear business (see Sweet Note below) which
      has been reduced to $3.1 million as of December 31, 2006 and $2.9 million as
      of
      December 31, 2005.




**Obligations
      and commitments**




*Asset-backed
      notes.* In
      August 2002, IP Holdings issued, in a private placement, $20.0 million principal
      amount of asset-backed notes secured by its intellectual property assets (all
      of
      the Candie’s and Bongo trade names, trademarks, license agreements and payments
      and proceeds with respect thereto). These notes had a fixed interest rate of
      7.93% per year and were self amortizing over their seven-year term, with
      quarterly principal and interest payments. After funding a liquidity reserve
      account in the amount of $2.9 million, the net proceeds of $16.2 million were
      used by the Company to reduce amounts owed by the Company under its
      then-existing revolving credit facilities. In April 2004, IP Holdings issued
      an
      additional $3.6 million in subordinated asset-backed notes secured by its
      intellectual property assets. The additional borrowing was self amortizing,
      had
      a maturity date of August 2009 and a floating interest rate of LIBOR plus 4.45%,
      with quarterly principal and interest payments and $500,000 of interest prepaid
      at closing. The net proceeds of $2.9 million were used by the Company for
      general working capital purposes. As of July 22, 2005, the total principal
      amount outstanding on these notes was approximately $17.5 million, which was
      refinanced with new asset-backed notes issued by IP Holdings in connection
      with
      our acquisition of the Joe Boxer brand as described below.





In
      July
      2005, the Company acquired the Joe Boxer brand from Joe Boxer Company, LLC
      and
      its affiliates, and in September 2005, the Company acquired the Rampage brand
      from Rampage Licensing, LLC. The financing for these acquisitions was
      accomplished through two private placements by IP Holdings of its asset-backed
      notes in the combined principal amount of $103.0 million, secured by IP
      Holdings’ intellectual property assets (including the acquired Joe Boxer and
      Rampage assets). Of these notes, $85.5 million principal amount represented
      new
      financing for IP Holdings (before giving effect to the payment of expenses
      related to their issuance and required deposits to reserve funds) and $17.5
      million principal amount was exchanged for all of the then outstanding
      asset-backed notes previously issued by IP Holdings. The $85.5 million in
      proceeds from the new financing portion of these private placements was used
      as
      follows: $40.0 million was used to fund the cash portion of the Joe Boxer
      purchase price, approximately $25.8 million was used to fund the cash portion
      of
      the Rampage purchase price, $1.7 million was deposited in a liquidity reserve
      account as required by the holder of the notes, approximately $1.8 million
      was
      used to pay costs associated with the issuance of the notes, 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 $12.0 million was deposited in an escrow account for the benefit
      of the holder of the notes and was to be used by IP Holdings solely for the
      purchase of certain intellectual property assets. IP Holdings subsequently
      used
      the escrowed funds to redeem $12.0 million principal amount of the asset-backed
      notes in November 2005, without penalty. Costs associated with the issuance
      of
      these notes, totaling approximately $1.8 million, have been deferred and are
      being amortized using the interest method over the seven-year life of the notes.




30




Of
      the
      $103.0 million principal amount of asset-backed notes outstanding immediately
      following the Joe Boxer and Rampage acquisitions, the $12 million portion that
      was subsequently redeemed in November 2005 had a floating interest rate of
      LIBOR
      plus 0.7%, $63.0 million principal amount had a fixed interest rate of 8.45%
      and
      $28.0 million principal amount had a fixed interest rate of 8.10%. All of the
      unredeemed notes were to mature in the third quarter of 2012, were self
      amortizing over their seven-year term and had quarterly principal and interest
      payments. As of April 11, 2006, the total principal amount outstanding on
      these notes was approximately $87.0 million, which was refinanced, on its
      existing terms, with new asset-backed notes issued by IP Holdings in connection
      with the Company’s acquisition of the Mudd brand as described below.




In
      April
      2006, the Company acquired certain assets of Mudd (USA) LLC relating to the
      Mudd
      brand. The financing for the acquisition was accomplished through the
      private placement by IP Holdings of approximately $136.0 million principal
      amount of its asset-backed notes, secured by IP Holdings’ intellectual property
      assets (including the acquired Mudd assets). Of these notes, $49.0 million
      principal amount represented new financing for IP Holdings (before giving effect
      to the payment of expenses related to their issuance and required deposits
      to
      reserve funds) and $87.0 million principal amount was exchanged for all of
      the
      then outstanding asset-backed notes previously issued by IP Holdings. The $49.0
      million in proceeds from the new financing portion of the private placement
      was
      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 issuance of
      the
      notes related to the new financing portion, approximately $2.45 million was
      deposited in a liquidity reserve account as required by the holder of the notes,
      approximately $785,000 was used to pay professional fees associated with the
      Mudd acquisition and approximately $275,000 was available to the Company for
      working capital purposes. The costs related to the $49.0 million in new
      financing, totaling $490,000, have been deferred and are being amortized over
      the seven-year life of the related notes.




Of
      the
      $136.0 million principal amount of asset-backed notes outstanding immediately
      following the Mudd acquisition, the $87.0 million principal amount of notes
      issued in April 2006 in exchange for all of the then existing notes had the
      same
      terms as the notes they refinanced (i.e., they were to mature in 2012, were
      self-amortizing and had fixed interest rates of 8.45% and 8.10%). The $49.0
      million principal portion of the asset-backed notes that represented new
      financing had a term of five years, a variable interest rate of LIBOR plus
      4%
      for the term’s first year and a fixed interest rate equal to the applicable
      treasury rate (the rate charged for a U.S. treasury security maturing on the
      date closest to the expected average life of such principal portion of the
      notes) plus 4.5% for the remaining four years of the term, and no principal
      payments until April 2007, after which it was to be self amortizing over the
      balance of its term, with principal payable quarterly. As of August 28,
      2006, the total principal amount outstanding on these notes was approximately
      $130.9 million, all of which was refinanced by the Company with new asset-backed
      notes issued by IP Holdings in connection with the London Fog trademark purchase
      as described below.




In
      August
      2006, the Company purchased the London Fog trademarks and certain related
      intellectual property assets from London Fog Group, Inc. The financing for
      the
      purchase was accomplished through the private placement by IP Holdings of
      approximately $159.9 million principal amount of its asset-backed notes, secured
      by IP Holdings’ intellectual property assets (including the acquired London Fog
      assets), together with approximately $3.1 million of our existing funds. Of
      these notes, $29.0 million principal amount represented new financing for IP
      Holdings (before giving effect to the payment of expenses related to their
      issuance and required deposits to reserve funds) and $130.9 million principal
      amount was exchanged for all of the then outstanding asset-backed notes
      previously issued by IP Holdings. The $29.0 million in proceeds from the new
      financing portion of the private placement were used as follows: $27.5 million
      was paid to the seller, $112,500 was used to pay costs associated with the
      issuance of the related notes and approximately $1.35 million was deposited
      in a
      liquidity reserve account as required by the holder of the notes. The costs
      relating to the $29.0 million in new financing of approximately $60,000 have
      been deferred and are being amortized over the six and a half year life of
      the
      financed debt.




31




Of
      the
      $159.9 million principal amount of asset-backed notes outstanding immediately
      following the London Fog trademark purchase, $56.7 million principal amount
      has
      a term of six years and an interest rate of 8.45% per annum, $25.2 million
      principal amount has a term of six years and an interest rate of 8.12% per
      annum and $78.0 million principal amount has a term of six and a half years
      and
      an interest rate of 8.99% per annum. There are no principal payments
      required in the first year with respect to $49.0 million principal amount of
      such notes.




Cash
      on
      hand in IP Holdings’ bank account is restricted at any point in time up to the
      amount of the next payment of principal and interest due by it under the
      asset-backed notes. Accordingly, as of December 31, 2006 and December 31,
      2005, $4.3 million and $4.1 million, respectively, have been disclosed as
      restricted cash within current assets. Further, a liquidity reserve account
      required by the holder of the asset-backed notes has been established and the
      funds on deposit in such account will be applied to the last principal payment
      due with respect to the asset-backed notes. Accordingly, the $11.7 million
      and
      $5.0 million in such reserve account as of December 31, 2006 and
      December 31, 2005, respectively, have been disclosed as restricted cash
      within our other assets.




Since
      IP
      Holdings had not entered into or renewed certain license agreement(s) with
      respect to the Joe Boxer brand that guaranteed certain royalty thresholds by
      April 1, 2006, IP Holdings was required by the terms of the asset-backed notes
      to deposit to a renewal reserve account, from revenues generated from the Joe
      Boxer brand, $3.75 million for each quarter beginning in April 2006. IP Holdings
      made a deposit of $3.75 million in each of April 2006 and July 2006; however,
      on
      September 28, 2006, IP Holdings entered into a new license agreement with
      Kmart that replaced its existing license and extended IP Holdings’ relationship
      with Kmart. The new license agreement satisfied the criteria specified in the
      terms of the asset-backed notes. As a result, IP Holdings is not required
      to make any additional deposits to the renewal reserve account and, on
      October 24, 2006, the $7.5 million in our renewal reserve account, which
      was included in our $16.1 million of current restricted cash at
      September 30, 2006, was returned to us and is no longer restricted.




All
      of
      the asset-backed notes issued by IP Holdings are secured by its intellectual
      property assets. The payment of the principal of and interest on these notes
      will be made from amounts received by IP Holdings under its license agreements
      with the various licensees of its intellectual property assets.




Neither
      we nor any of our subsidiaries other than IP Holdings is obligated to make
      any
      payment with respect to the asset-backed notes, and neither our assets nor
      those
      of any of our subsidiaries other than IP Holdings are available to IP Holdings’
creditors. In addition, the assets of IP Holdings are not available to our
      creditors or to the creditors of any of our subsidiaries other than IP Holdings.





*Kmart
      note* .    In
      connection with the acquisition of Joe Boxer in July 2005, we assumed a
      promissory note, dated August 13, 2001, in the principal amount of $10.8
      million that originated with the execution of the Kmart license by the former
      owners of Joe Boxer. The note provides for interest at 5.12% and is payable
      in three 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 note may be off-set against
      any royalties owed under the Kmart license. The note may be pre-paid at any
      time without penalty.


*Sweet
        note*. On April 23, 2002, the Company acquired the remaining 50% interest
        in
        Unzipped from Sweet for a purchase price comprised of 3,000,000 shares of
        its
        common stock and $ 11.0 million in debt, which was evidenced by the Company’s
        issuance of the Sweet note. Prior to August 5, 2004, Unzipped was managed
        by
        Sweet pursuant to the Management Agreement, which obligated Sweet to manage
        the
        operations of Unzipped in return for, commencing in fiscal 2003, an annual
        management fee based upon certain specified percentages of net income achieved
        by Unzipped during the three- year term of the agreement. In addition, Sweet
        guaranteed that the net income, as defined in the agreement, of Unzipped
        would
        be no less than $ 1.7 million for each year during the term, commencing with
        fiscal 2003. In the event that the guarantee was not met for a particular
        year,
        Sweet was obligated under the management agreement to pay the Company the
        difference between the actual net income of Unzipped, as defined, for such
        year
        and the guaranteed $ 1.7 million. That payment, referred to as the shortfall
        payment, could be offset against the amounts due under the Sweet note at
        the
        option of either the Company or Sweet. As a result of such offsets, the balance
        of the Sweet note was reduced by the Company to $ 3.1 million as of December
        31,
        2006 and $ 3.0 million as of December 31, 2005 and is reflected in "long-
        term debt." This note bears interest at the rate of 8% per year and matures
        in
        April 2012. See "— Matters pertaining to Unzipped" below.






32




*Other
      indebtedness*




*Mossimo
      Holdings note* .    On
      October 31, 2006, our wholly-owned subsidiary, Mossimo Holdings, issued a note
      in the principal amount of $90.0 million to Merrill Lynch Mortgage Capital
      Inc.,
      in connection with the closing of the Mossimo merger. This note bore interest
      at
      a variable rate equal to the three-month LIBOR plus 5.125% per annum and
      matures on December 18, 2008, with principal payable in quarterly payments
      totaling $10.5 million in the first year and $10.8 million in the second year,
      with the balance due upon the note’s maturity. The note was secured by the
      intellectual property owned by Mossimo Holdings (consisting of the Mossimo
      trademarks, licenses and other related intellectual property assets). On
      December 15, 2006, the entire balance due on this note was repaid to Merrill
      Lynch Mortgage Capital Inc.




*Ocean
      Pacific note* .    On
      November 6, 2006, we issued a note in the principal amount of $44.0 million
      to
      the sellers as part of the purchase price for the Ocean Pacific brand
      acquisition. This note bore interest at the rate of 7% per annum and
      matured, at our option, on either (a) December 31, 2006, in which case
      it is payable, in cash or through a combination of shares of our common stock
      and at least $17.0 million in cash, on or prior to December 31, 2006, or
      (b) January 31, 2007, provided we repay at least $25.0 million in cash
      on or prior to December 31, 2006 and the remaining balance, in cash or
      through a combination of shares of our common stock and at least $5.5 million
      in
      cash, on or prior to January 31, 2007. The note was secured by the
      intellectual property owned by our subsidiary, OP Holdings (consisting of the
      Ocean Pacific trademarks, licenses and other related intellectual property
      assets). On December 20, 2006, the entire balance due on this note was repaid
      to
      the sellers.





*Other.* The
      Company believes that it will be able to satisfy its ongoing cash requirements
      for the foreseeable future, primarily with cash flow from operations and
      borrowings to fund a previously announced proposed acquisition. However, if
      the
      Company's plans change or its assumptions prove to be incorrect, it could be
      required to obtain additional capital that may not be available to it on
      acceptable terms, if at all. In addition, as part of its business growth
      strategy, the Company intends, in addition to growing through the organic
      development of its brands and expanding internationally, to grow through
      acquisitions of additional brands. The Company anticipates that it may fund
      any
      such acquisitions through the issuance of equity or debt
      securities.





The
      following is a summary of contractual cash obligations, including
      interest for the periods indicated that existed as of December 31, 2006,
      and is based on information appearing in the Notes to Consolidated Financial
      Statements (amounts in thousands):





Contractual
                Obligations
            
            2007
            
            2008-2009
            
            2010
                -2011
            
            After
                2011
            
            TotalAsset-backed
                Note
            
            $
            31,282
            
            $
            63,347
            
            $
            63,347
            
            $
            47,268
            
            $
            205,244Kmart
                Note
            
            
            4,000
            
            
            -
            
            
            -
            
            
            -
            
            
            4,000Sweet
                Note
            
            
            -
            
            
            -
            
            
            3,361
            
            
            -
            
            
            3,361Operating
                leases
            
            
            532
            
            
            198
            
            
            -
            
            
            -
            
            
            730Employment
                contracts
            
            
            3,012
            
            
            1,375
            
            
            -
            
            
            -
            
            
            4,387Total
                Contractual Cash obligations
            
            $
            38,826
            
            $
            64,920
            
            $
            66,708
            
            $
            47,268
            
            $
            217,722




*Matters
      Pertaining to Unzipped* .
      - For
      the Current Year, 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. Consequently for the Current Year there was no
      Shortfall Payment, as compared to a Shortfall Payment of $438,000 in the Prior
      Year. The adjusted Shortfall Payments had been recorded in the consolidated
      income statements as a reduction of Unzipped's selling, general and
      administrative expenses and on the balance sheet as a reduction
      of the Sweet Note based upon the right to offset in the Sweet Management
      Agreement. After adjusting for the Shortfall Payments, Unzipped reported net
      income of $37,500 in the Prior Year.




33




**Fiscal
      2005 and 2006 acquisitions**




*Joe
      Boxer (July 2005)*




In
      July
      2005, we acquired the principal assets of Joe Boxer Company, LLC and three
      of
      its affiliated companies. The purchased assets included the Joe Boxer and
      associated trademarks, copyright registrations and the seller’s existing
      licenses with respect thereto, including a multi-category license with Kmart
      pursuant to which the brand is licensed to Kmart exclusively in the United
      States, and various international licenses to manufacturers in Canada, Mexico
      and Scandinavia. The aggregate purchase price paid by us included $40.0 million
      in cash paid to the sellers, which was funded by us from the proceeds of
      asset-backed notes issued by IP Holdings, 4,350,000 restricted shares of our
      common stock issued to the sellers, valued at $36.2 million, our assumption
      of a
      note payable to Kmart in the principal amount of approximately $10.8 million,
      accrued interest of $309,000 with respect to such note, the value of warrants
      issued by us to our financial advisor as a cost of the acquisition in the amount
      of $788,000, and other acquisition costs of approximately $755,000.




*Rampage
      (September 2005)*




In
      September 2005, we acquired the principal assets of Rampage Licensing, LLC,
      including the Rampage and associated trademarks and 12 existing licenses. The
      aggregate purchase price paid by us included $26.2 million in cash paid to
      the
      sellers, $25.8 million of which was funded by us from the proceeds of
      asset-backed notes issued by IP Holdings, 2,171,336 restricted shares of our
      common stock issued to the seller, valued at $20.2 million, the value of
      warrants issued by us to our financial advisor as a cost of the acquisition
      in
      the amount of $1.7 million and other acquisition costs of $150,000.




*Mudd
      (April 2006)*




In
      April
      2006, we acquired certain of the assets of Mudd (USA) LLC related to the Mudd
      brand, trademarks, intellectual property and related names worldwide, excluding
      China, Hong Kong, Macau and Taiwan. The aggregate purchase price paid by us
      included $45.0 million in cash paid to the seller, which was funded by us from
      the proceeds of asset-backed notes issued by IP Holdings, 3,269,231 restricted
      shares of our common stock issued to the seller, valued at $47.9 million, the
      value of warrants issued by us to our financial advisor as a cost of the
      acquisition in the amount of $4.6 million and other estimated acquisition costs
      of $1.9 million. In connection with this acquisition, we also entered into
      a
      license agreement with the seller giving it 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. Mudd
      (USA) LLC has guaranteed for two years certain minimum licensing revenues to
      us
      with respect to the royalties due under its license agreement and from all
      of
      the license agreements assumed by us in connection with the Mudd acquisition.
      This guarantee, as well as certain other of the seller’s obligations to us, is
      secured by its pledge of a portion of the cash and shares issued by us as
      consideration in the acquisition.




*London
      Fog (August 2006)*




In
      August
      2006, we purchased the London Fog trademarks and certain related intellectual
      property assets from London Fog Group Inc. The aggregate purchase price paid
      by
      us included $30.5 million in cash paid to the seller, which was funded by us
      from the proceeds of asset-backed notes issued by IP Holdings, together with
      $3.1 million of our existing funds, 482,423 restricted shares of our common
      stock, valued at $7.1 million, that were issued to designees of the seller’s
      assignee, and approximately $666,000 of estimated acquisition costs.




*Mossimo
      (October 2006)*




On
      October 31, 2006, we acquired all of the capital stock of Mossimo, Inc.,
      which was a public company engaged in the business of licensing the Mossimo
      brand, in consideration for which we paid the stockholders of Mossimo, Inc.
      a
      total of $67.5 million in cash and 3,608,810 shares of our common stock, valued
      at $66.8 million based on the average closing sale price value of our common
      stock for the three days prior to the closing of the merger in October 2006
      and
      the merger agreement was signed in March 2006. In addition, if our common stock
      does not close at or above $18.71 for at least 20 consecutive trading days
      during the 12 months following the merger, the recipients of the initial merger
      consideration will be entitled to receive up to a maximum of 40,965 additional
      shares of our common stock. In accordance with purchase price accounting, the
      purchase price will be reflected in our financials assuming the issuance of
      such
      additional shares. In connection  with
      the
      Mossimo merger, we also paid Cherokee Inc. a fee of $33.0 million in cash in
      return for its withdrawal of the proposal that it had previously submitted
      to
      acquire the capital stock of Mossimo, Inc. and the termination of its finder’s
      agreement with Mossimo, Inc. relating to its royalties from Target Stores,
      and
      we bought out Mossimo employee stock option agreements for approximately
      $915,000, issued warrants as a cost of the acquisition valued at approximately
      $2.2 million and had other estimated acquisition costs of approximately $7.1
      million.




34




*Ocean
      Pacific (November 2006)*




On
      November 6, 2006, we acquired certain of the assets of Ocean Pacific Apparel
      Corp., a subsidiary of Warnaco Group, Inc., related to the Ocean Pacific brand,
      associated trademarks, intellectual property and related names worldwide. In
      consideration for such assets we paid the seller $10.0 million in cash and
      issued the seller a 7% note in the principal amount of $44.0 million. In
      connection with this acquisition, we also entered into a license agreement
      with
      the seller giving it the exclusive right to use the Ocean Pacific trademark
      in
      connection with the design, manufacture and sale of women’s and juniors’
swimwear in the United States for a period of three years and the seller has
      guaranteed certain minimum annual royalties to us with respect thereto. In
      connection with the Ocean Pacific brand acquisition, we issued warrants to
      a
      financial advisor valued at $1.4 million and, based on preliminary estimates,
      had other acquisition costs of approximately $1.1 million, including
      approximately $800,000 to be paid in the future.




**Seasonality**





The
      majority of the products manufactured and sold under the Company's brands and
      licenses are for apparel, accessories and footwear, which sales vary as a result
      of holidays, weather, and the timing of product shipments. Accordingly, a
      portion of the Company’s revenue from its licensees, particularly from those
      mature licensees that are performing and actual sales royalties exceed minimum
      royalties, is subject to seasonal fluctuations. The results of operations in
      any
      quarter therefore will not necessarily be indicative of the results that may
      be
      achieved for a full fiscal year or any future quarter.




**Other
      Factors**




We
      continue to seek to expand and diversify the types of licensed products being
      produced under our 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
      our company, however, will still remain largely dependent on our ability to
      build and maintain brand awareness and contract with and retain key licensees
      and on our licensees’ ability to accurately predict upcoming fashion trends
      within their respective customer bases and fulfill the product requirements
      of
      their particular retail channels within the global marketplace. Unanticipated
      changes in consumer fashion preferences, slowdowns in the U.S. economy, changes
      in the prices of supplies, consolidation of retail establishments, and other
      factors noted in “Risk factors,” could adversely affect our licensees’ ability
      to meet and/or exceed their contractual commitments to us and thereby adversely
      affect our future operating results.




**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 revenues or
      profitability.




**New
      Accounting Standards**





In
      February 2006, the Financial Accounting Standards Board ( “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 is not expected
      to
      have an impact on the Company's results of operations or its financial
      position.




35





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
      is not expected to have an impact on the Company's results of operations or
      its
      financial position.





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. While the Company continues to evaluate
      its historical tax positions. the adoption of FIN 48 is not expected to have
      a
      material impact on the Company's results of operations or its financial
      position.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      SFAS No. 157 defines fair value as the price that would be received to sell
      an
      asset or paid to transfer a liability in an orderly transaction between market
      participants at the measurement date. SFAS No. 157 is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods within those fiscal years. The adoption of SFAS No. 157 is
      not
      expected to have a material impact on our results of operations or our financial
      position.





In
      February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
      Asset and Financial Liability: Including an amendment of FASB Statement No.
      115”
(“ SFAS 159”). The standard permits all entities to elect to measure certain
      financial instruments and other items at fair value with changes in fair value
      reported in earnings. SFAS 159 is effective as of the beginning of the first
      fiscal year that begins after November 15, 2007. We are evaluating the impact
      adopting SFAS 159 will have on our consolidated financial
      statements.





**Critical
      Accounting Policies:**





During
      the Current Year, the Company adopted certain new accounting standards issued
      by
      the FASB, as described above and summarized in Note 1 of the Notes to
      Consolidated Financial Statements. The adoption of these new accounting
      standards did not have a significant impact on the Company's financial position
      or results of operations in the Current Year.





Several
      of the Company's accounting policies involve management judgments and estimates
      that could be significant. The policies with the greatest potential effect
      on
      the Company's consolidated results of operations and financial position include
      the estimate of reserves to provide for the collectibility of accounts
      receivable. The Company estimates the net collectibility considering historical,
      current and anticipated trends related to deductions taken by customers and
      markdowns provided to retail customers to effectively flow goods through the
      retail channels, and the possibility of non-collection due to the financial
      position of its licensees' customers. With its new licensing model, the Company
      has eliminated its inventory risk and substantially reduced its operating risks,
      and can now reasonably forecast revenues and plan expenditures based upon
      guaranteed royalty minimums.





The
      preparation of the consolidated financial statements in conformity with
      accounting principles generally accepted in the U.S. 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.




36





In
      connection with its new licensing model, the Company has entered into various
      trademark 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.





Also
      in
      June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets,"
      which changed the accounting for goodwill from an amortization method to an
      impairment-only approach. Upon the Company's adoption of SFAS No. 142 on
      February 1, 2002, the Company ceased amortizing goodwill. As prescribed under
      SFAS No. 142, the Company had goodwill tested for impairment during the Current
      Year, the Prior Year, and the 11-Month Prior Period, and no impairments were
      necessary.





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 will no longer be amortized,
      but instead will be tested for impairment on an annual basis. In arriving at
      the
      conclusion to use an indefinite life management considered among other things,
      the Company's new licensing business model which has expanded the extent of
      potential use of these brand names in future years. In connection with the
      Candies license signed with Kohl's in late 2004 the Candie's name, which has
      been in the US market since the 1970's, has been expanded to over 18 product
      categories in almost 700 Kohl's retail locations. Similarly, the Bongo brand
      has
      expanded from a predominantly jeanswear brand to a broad variety of product
      groups and multiple licenses in the U.S. and internationally. Brand recognition
      for both of these brands is very high, has been generally stable for an extended
      period of time, and the Company expects this consumer recognition and acceptance
      to remain stable or grow in the future based on anticipated broader distribution
      and product line expansion. The impact of this change in estimate for the Prior
      Year was a reduction in amortization expense relating to the Candie's and Bongo
      trademarks totaling $595,000 or $0.02 per fully diluted earning per share.
      As of
      December 31, 2006, the net book value of the Candie's and Bongo trademarks
      totaled $14.4 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.




Effective
      January 1, 2006, we adopted SFAS No. 123(R), “Accounting for
      share-based payment,” 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, our board of directors approved the
      accelerated vesting of all employee service-based stock options previously
      granted under our 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), we accounted for our stock-based compensation plans
      under the recognition and measurement principles of accounting principles board,
      or 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 our
      common 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, our consolidated financial statements have not been restated to reflect
      the impact of SFAS 123(R). The impact on our financial condition and results
      of
      operations from the adoption of SFAS 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 we cannot currently
      estimate.




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 Year that it is more likely than
      not that the net deferred income tax asset recorded as of December 31, 2006
      will
      be realized.




37




Other
      significant accounting policies are summarized in Note 1 of the Notes to
      Consolidated Financial Statements.




**Item
      7A. Quantitative and Qualitative Disclosure about Market
      Risk**





The
      Company limits exposure to foreign currency fluctuations by requiring all
      revenue to be paid in United States dollars. As of December 31, 2006, the
      Company has no debts with variable rates.




38


**Item
      8.**  **Financial
      Statements and Supplementary Data**




The
      financial statements and supplementary data required to be submitted in response
      to this Item 8 are set forth after Part IV, Item 15 of this report.




**Item
      9.**  **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure**




Not
      applicable.





**Item
      9A. Controls and Procedures**





(a)
      Evaluation of disclosure controls and procedures.





The
      Company, under the supervision and with the participation of its management,
      including its principal executive officer and principal financial officer,
      evaluated the effectiveness of the design and operation of its disclosure
      controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the
      Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the
      period covered by this report. Based on this evaluation, the principal executive
      officer and principal financial officer concluded that the Company's
      disclosure controls and procedures (as defined in Exchange Act Rule 13a-15d
      and 15d-15(e)) were effective at the reasonable assurance level at December
      31,
      2006.





(b)
      Changes in internal control and financial reporting.





The
      principal executive officer and principal financial officer also conducted
      an
      evaluation of internal control over financial reporting, as defined in Exchange
      Act Rule 13a-15(f) and 15d-15(f) (“Internal Control”), to determine whether
      any changes in Internal Control occurred during the quarter ended December
      31,
      2006 that have materially affected or which are reasonably likely to materially
      affect Internal Control. Based on that evaluation, there has been no such change
      during the quarter ended December 31, 2006.





(c)
      Management's report on internal control over financial reporting.




39




**MANAGEMENT'S
      ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**




March
      14,
      2007




To
      the
      Stockholders of Iconix Brand Group, Inc.




The management of Iconix Brand Group, Inc. is responsible for establishing
      and
      maintaining adequate internal control over financial reporting, including the
      preparation, integrity, objectivity and fair presentation of the financial
      statements and other financial information presented in this report. The
      financial statements have been prepared in conformity with accounting principles
      generally accepted in the United States of America and reflect the effects
      of
      certain judgments and estimates made by management.




In order to ensure that our internal control over financial reporting is
      effective, management regularly assesses such controls and did so most recently
      for our financial reporting as of December 31, 2006. This assessment was based
      on criteria for effective internal control over financial reporting described
      in
      Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission, referred to as COSO. Our assessment
      included the documentation and understanding of our internal control over
      financial reporting. We have evaluated the design effectiveness and tested
      the
      operating effectiveness of internal controls to form our
      conclusion.




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




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




Based on this assessment, management has concluded that our internal controls
      and procedures over financial reporting are effective in timely alerting them
      to
      material information required to be included in our periodic SEC filings and
      that information required to be disclosed by us in these periodic filings is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC's rules and forms and that our internal controls are effective to
      provide reasonable assurance that our financial statements are fairly presented
      in conformity with generally accepted accounting principles.




The Audit Committee of our Board of Directors, which consists of independent,
      non-executive directors, meets regularly with management and the independent
      accountants to review accounting, reporting, auditing and internal control
      matters. The committee has direct and private access to both internal and
      external auditors.




BDO Seidman, LLP, independent accountants of our financial statements, has
      reported on management's assessment with respect to the effectiveness of our
      internal control over financial reporting as of December 31, 2006.




40




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board
      of
      Directors and Stockholders


Iconix
      Brand Group, Inc.


New
      York,
      New York





We
      have
      audited management's assessment, included in the accompanying Management's
      Report on Internal Control Over Financial Reporting, that Iconix Brand Group,
      Inc. maintained effective internal control over financial reporting as of
      December 31, 2006, based on the criteria established in Internal Control -
      Integrated Framework issued by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO). The Company's management is responsible for
      maintaining effective internal control over financial reporting and for its
      assessment of the effectiveness of internal control over financial reporting.
      Our responsibility is to express an opinion on management's assessment and
      an
      opinion on the effectiveness of the Company's internal control over financial
      reporting based on our audit.





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





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





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





In
      our
      opinion, management's assessment that Iconix Brand Group, Inc. maintained
      effective internal control over financial reporting as of December 31, 2006,
      is
      fairly stated, in all material respects, based on the criteria established
      in
      Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO). Also in our opinion, the
      Company maintained, in all material respects, effective internal control over
      financial reporting as of December 31, 2006, based on the criteria established
      in Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO).





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Iconix
      Brand
      Group, Inc. as of December 31, 2006 and 2005 and the related consolidated
      statements of income, stockholders' equity, and cash flows for the years ended
      December 31, 2006 and 2005, and the 11-month period ended December 31, 2004
      and
      our report dated March 14, 2007 expressed an unqualified opinion
      thereon.




/s/
      BDO
      Seidman, LLP




New
      York,
      New York


March
      14,
      2007




41




**Item
      9B. Other Information**




None




**PART
      III**




**Item
      10. Directors, Executive Officers and Corporate Governance**




Our
      executive officers and directors and their respective ages and positions are
      as
      follows:




Name
            
            Age
            
            Position(s)Neil
                Cole
            
            49
            
            Chairman
                of the Board, President and Chief Executive OfficerDavid
                Conn
            
            39
            
            Executive
                Vice PresidentWarren
                Clamen
            
            42
            
            Chief
                Financial OfficerAndrew
                Tarshis
            
            41
            
            Senior
                Vice President and General CounselDeborah
                Sorell Stehr
            
            44
            
            Senior
                Vice President - Business Affairs and LicensingBarry
                Emanuel1,3
            
            65
            
            DirectorSteven
                Mendelow1,
                2, .3
            
            64
            
            DirectorDrew
                Cohen1,
                2
            
            38
            
            DirectorF.
                Peter Cuneo2,
                3
            
            62
            
            DirectorMark
                Friedman1,3
            
            43
            
            Director







(1)Member
                of nominating/governance committee.
              (2)Member
                of audit committee.
              (3)Member
                of compensation committee.




***Neil
      Cole*** **** has
      served as Chairman of the Company's Board of Directors and as its Chief
      Executive Officer and President since the Company's public offering in February
      1993. In addition, from February through April 1992, Mr. Cole served as its
      Acting President and as a member of its Board of Directors. Mr. Cole also served
      as Chairman of the Board, President, Treasurer and a Director of New Retail
      Concepts, Inc., the company from which we acquired the Candie's trademark in
      1993, from its inception in April 1986 until it was merged with and into our
      Company in August 1998. In 2001, Mr. Cole founded The Candie's Foundation,
      for
      the purpose of educating teenagers as to the risks and consequences of teen
      pregnancy. In April 2003, Mr. Cole, without admitting or denying the SEC's
      allegations, consented to the entry by the SEC of an administrative order in
      which Mr. Cole agreed to cease and desist from violating or causing any
      violations or future violation of certain books and records and periodic
      reporting provisions and the anti-fraud provisions of the Securities Exchange
      Act of 1934. Mr. Cole also paid a $75,000 civil monetary fine. Mr. Cole received
      a Bachelor of Science degree in political science from the University of Florida
      in 1978 and his Juris Doctor from Hofstra law school in 1982.




***David
      Conn*** has
      served as the Company's Executive Vice President since rejoining the Company
      in
      May 2004. Prior thereto, from June 2000 until May 2004, Mr. Conn was employed
      at
      Columbia House, one of the world's largest licensees of content for music and
      film, where he oversaw its internet business and was responsible for online
      advertising, sales promotion and customer retention on the internet. During
      his
      tenure at Columbia House, it grew to become one of the ten largest e-commerce
      sites on the internet. Prior to that, Mr. Conn served as Vice President of
      Marketing for the Company from 1995 to 2000. Mr. Conn has also been active
      in
      the Direct Marketing Association, serving on its ethics policy committee and,
      prior to joining the Company in 1995, he held marketing positions with The
      Discovery Channel and CCM, a New York based marketing and promotion agency.
      Mr.
      Conn received his Bachelor of Arts degree from Boston University in
      1990.




***Warren
      Clamen*** has
      served as the Company's Chief Financial Officer since joining the Company in
      March 2005. From June 2001 until March 2005, Mr. Clamen served as Vice President
      of Finance for Columbia House, and from December 1998 to June 2001, he was
      Vice
      President of Finance of Marvel Entertainment, Inc., one of the world's largest
      public licensing companies. Prior to that time, Mr. Clamen served as the
      Director, International Management for Biochem Pharma Inc., a public company
      located in Montreal, Canada that has its shares traded on NASDAQ, and as a
      Senior Manager at Richter, Usher and Vineberg, an accounting firm also located
      in Montreal, Canada. Mr. Clamen is a certified public accountant and a chartered
      accountant. He received a Bachelor of Commerce degree in 1986 and a Graduate
      Diploma in public accounting in 1988, each from McGill University in
      Montreal.




42




***Andrew
      Tarshis*** has
      served as our Senior Vice President and General Counsel since September 2006.
      From July 2005, when he joined us in connection with our acquisition of the
      Joe
      Boxer brand, until September 2006, he served as our Senior Vice President,
      business affairs and associate counsel. Prior to joining us, from May 2001
      to
      July 2005, Mr. Tarshis served as Senior Vice President and General Counsel
      to Windsong Allegiance Group, LLC and, from December 1998 to May 2001, he served
      as a general attorney for Toys R Us, Inc. Mr. Tarshis received his Bachelor
      of Arts degree from the University of Michigan, Ann Arbor in 1988 and his Juris
      Doctor degree from the University of Connecticut School of Law in 1992.




***Deborah
      Sorell Stehr*** has
      served as our Senior Vice President—Business Affairs and Licensing since
      September 2006. Since joining the Company in December 1998, she served as Vice
      President and General Counsel from December 1998 until November 1999, and then
      served as Senior Vice President and General Counsel until September 2006. Ms.
      Sorell Stehr has also been the Secretary since 1999 and on the Board of
      Directors of numerous of our subsidiaries. From September 1996 to December
      1998,
      Ms. Sorell Stehr was Associate General Counsel with Nine West Group Inc., a
      women’s footwear corporation with sales of approximately $2.0 billion, where
      Ms. Sorell Stehr was primarily responsible for overseeing legal affairs
      relating to domestic and international contracts, intellectual property,
      licensing, general corporate matters, litigation and claims. Prior to joining
      Nine West Group, Ms. Sorell Stehr practiced law for nine years at private
      law firms in New York City and Chicago in the areas of corporate law and
      commercial litigation. Ms. Sorell Stehr received her A.B. in politics from
      Princeton University in 1984 and her Juris Doctor degree from the Northwestern
      University School of Law in 1987.




***Barry
      Emanuel*** has
      served on the Company's Board of Directors since May 1993. For more than the
      past five years, Mr. Emanuel has served as President of Copen Associates, Inc.,
      a textile manufacturer located in New York, New York. Mr. Emanuel was a director
      of New Retail Concepts, Inc. from 1992 until its merger with the Company in
      1998. He received his Bachelor of Science degree from the University of Rhode
      Island in 1962.




***Steven
      Mendelow*** has
      served on the Company's Board of Directors since December 1999. He has been
      a
      principal with the accounting firm of Konigsberg Wolf & Co. and its
      predecessor, which is located in New York, New York, since 1972. Mr. Mendelow
      was a director of New Retail Concepts, Inc. from 1992 until its merger with
      the
      Company in 1998. He also serves as a director of several privately held
      companies. He is a member of the board of directors of Soldiers For the Truth,
      a
      trustee of The Washington Institute for Near East Studies and actively involved
      with the Starlight Starbright Children's Foundation. He received a Bachelor
      of
      Science degree in business administration from Bucknell University in 1964
      where
      he was elected to Delta Mu Delta, the national Economics Honor
      Society.




***Drew
      Cohen*** has
      served on the Company's Board of Directors since April 2004. He is the General
      Manager of Music Theatre International, which represents the dramatic performing
      rights of classic properties such as “West Side Story,” and “Fiddler on the
      Roof,” and licenses over 50,000 performances a year around the world. Before
      joining Music Theatre International in September 2002, Mr. Cohen was from July
      2001 the Director of Investments for Big Wave NV, an investment management
      company, and prior to that, General Manager for GlassNote Records, an
      independent record company. Mr. Cohen received a Bachelor of Science degree
      from
      Tufts University in 1990, his Juris Doctor from Fordham Law School in 1993,
      and
      a Masters Degree in business administration from Harvard Business School in
      2001.






***F.
      Peter Cuneo*** has
      served as one of our directors since October 2006. He has served as the Vice
      Chairman of the Board of Directors of Marvel Entertainment, Inc., a publicly
      traded entertainment company active in motion pictures, television, publishing,
      licensing and toys, since June 2003, and prior thereto, he served as the
      President and Chief Executive Officer of Marvel Entertainment from July 1999
      to
      December 2002. Mr. Cuneo has also served as the Chairman of
      Cuneo & Co., L.L.C., a private investment firm, since July 1997 and
      previously served on the Board of Directors of WaterPik Technologies, Inc.,
      a
      New York Stock Exchange company engaged in designing, manufacturing and
      marketing health care products, swimming pool products and water-hearing
      systems, prior to its sale earlier in 2006. Mr. Cuneo currently serves as
      the Vice Chairman of the Alfred University Board of Trustees, and he received
      a
      Bachelor of Science degree from Alfred University in 1967 and a Masters degree
      in business administration from Harvard Business School in 1973.




43




***Mark
      Friedman*** has
      served as one of our directors since October 2006. He has been the Managing
      Partner of Trilea Partners LLC, an investment and consulting firm, since May
      2006. Previously, he was with Merrill Lynch since 1996, serving in various
      capacities including, most recently, as group head of its U.S. equity research
      retail team where he specialized in analyzing and evaluating specialty retailers
      in the apparel, accessory and home goods segments. Prior thereto, he specialized
      in similar services for Lehman Brothers Inc. and Goldman, Sachs & Co.
      Mr. Friedman has been ranked on the Institutional Investor All-American
      Research Team as one of the top-rated sector analysts and received a Bachelor
      of
      Business Administration degree from the University of Michigan in 1986 and
      a
      Masters degree in business administration from The Wharton School, University
      of
      Pennsylvania in 1990.




**Election
      of officers**


Our
      board
      elects our officers on an annual basis and our officers serve until their
      successors are duly elected and qualified. No family relationships exist among
      any of our officers or directors.





**Election
      of directors**





Our
      board
      of directors is currently comprised of six directors. At each annual meeting
      of
      stockholders, the successors to the directors then serving are elected to serve
      from the time of their election and qualification until the next annual meeting
      following their election or until their successors have been duly elected and
      qualified, or until their earlier death, resignation or removal. All of our
      current directors have been elected to serve until the annual meeting of
      stockholders to be held in 2007.





**Committees
      of the Board of Directors**




The
      Company's bylaws authorize its Board of Directors to appoint one or more
      committees, each consisting of one or more directors. The Company's Board of
      Directors currently has three standing committees: an audit committee,
      nominating/governance committee and a compensation committee, each of which
      has
      adopted written charters. The audit committee charter and the
      nominating/governance committee charter are both currently available on the
      Company’s website.




44




**Audit
      committee**





The
      Company's audit committee’s responsibilities include:





●
            appointing,
                replacing, overseeing and compensating the work of a firm to serve
                as the
                registered independent public accounting firm to audit the Company's
                financial statements;




●
            discussing
                the scope and results of the audit with the independent registered
                public
                accounting firm and reviewing with management and the independent
                registered public accounting firm the Company's interim and year-end
                operating results;




●
            considering
                the adequacy of the Company's internal accounting controls and audit
                procedures; and




●
            approving
                (or, as permitted, pre-approving) all audit and non-audit services
                to be
                performed by the independent registered public accounting
                firm.








The
      members of the Company's audit committee are Messrs. Mendelow, Cuneo and Cohen,
      and Mr. Mendelow currently serves as its chairperson. Each member of the audit
      committee is an “independent director” under the marketplace rules of NASDAQ
      applicable to companies whose securities are listed on the NASDAQ Global Market.
      The Company's Board of Directors has also determined that Mr. Mendelow is the
      “audit committee financial expert,” as that term is defined under applicable SEC
      rules and NASDAQ Marketplace Rules, serving on its audit committee.




**Nominating/governance
      committee**




The
      Company's nominating/governance committee's responsibilities include:




●
            identifying,
                evaluating and recommending nominees to serve on the Board and committees
                of the Board;


●
            conducting
                searches for appropriate directors and evaluating the performance
                of the
                Board and of individual directors; and


●
            reviewing
                developments in corporate governance practices, evaluating the adequacy
                of
                the Company's corporate governance practices and reporting and making
                recommendations to the Board concerning corporate governance
                matters.




The
      members of the Company's nominating/governance committee are Messrs. Mendelow,
      Cohen, Emanuel and Friedman, and Mr. Cohen currently serves as its
      chairperson.




**Compensation
      committee**




The
      Company's compensation committee's responsibilities include:




●
            setting
                the chief executive officer's compensation based on the achievement
                of
                corporate objectives;  ●
            reviewing
                and recommending approval of the compensation of the Company's other
                executive officers;





●
            administering
                our stock option and stock incentive
                plans;


●
            reviewing
                and making recommendations to the Board with respect to the Company’s
                overall
                compensation objectives, policies and practices, including with
                respect to incentive compensation and equity plans;
                and


●
            evaluating
                the chief executive officer's performance in light of corporate
                objectives.







45




The
      members of the Company's compensation committee are Messrs. Mendelow, Cohen,
      Cuneo and Friedman, and Mr. Friedman currently serves as its
      chairperson.




**Section
      16(a) Benefical Ownership Reporting Compliance**




Section
      16(a) of the Exchange Act requires the Company's officers and directors, and
      persons who beneficially own more than 10% of a registered class of the
      Company's equity securities, to file reports of ownership and changes in
      ownership with the SEC. Officers, directors and greater than 10% owners are
      required by certain SEC regulations to furnish the Company with copies of all
      Section 16(a) forms they file.




Based
      solely on the Company's review of the copies of such forms received by it,
      the
      Company believes that during the Current Year, there was compliance with the
      filing requirements applicable to its officers, directors and 10% common
      stockholders, except with respect to shares of common stock previously
      transferred out of a purported escrow account  and sold without Mr.
      Cole's knowledge or authorization.




**Corporate
      governance policies**




The
      Company has adopted a written code of business conduct that applies to its
      officers, directors and employees, responsive to Section 406 of the
      Sarbanes-Oxley Act of 2002 and the rules of the SEC. In addition, the Company
      has established an ethics web site at www.ethicspoint.com . To
      assist individuals in upholding the code of conduct and to facilitate reporting,
      the Company has also established an on-line anonymous and confidential reporting
      mechanism that is hosted at www.ethicspoint.com and an
      anonymous and confidential telephone hotline at 800-963-5864. Copies of the
      Company's code of business conduct are available, without charge, upon written
      request directed to the Company's corporate secretary at Iconix Brand Group,
      Inc., 1450 Broadway, New York, NY 10018.




46




**Item
      11. Executive Compensation**




**Compensation
      Discussion and Analysis**





This
      Compensation Discussion and Analysis section is intended to provide information
      about our compensation objectives, policies and practices for our principal
      executive officer, our principal financial officer and our three other most
      highly compensated executive officers and our former executive vice president
      (we refer to these officers as our “Named Executive Officers”) that will place
      in context the information contained in the tables that follow this
      discussion.




**Philosophy
      and Objectives**





We
      seek
      to deliver fair and competitive compensation for our employees and executives,
      including our Named Executive Officers, by structuring compensation around
      one fundamental goal: incentivizing our executives to build stockholder value
      over the long term. Our ability to attract, motivate and retain employees and
      executives with the requisite skills and experience to develop, expand and
      execute business opportunities for us is essential to our growth and success.
      We
      believe that we offer attractive career opportunities and challenges
      for our employees, but we are mindful that the best talent will always have
      a choice as to where they wish to pursue their careers, and fair and competitive
      compensation is an important element of job satisfaction.




While
      our
      compensation program includes short-term elements, such as annual base salary,
      and in some cases, an annual incentive cash bonus, a significant aspect of
      our
      employees’ compensation includes longer term elements such as equity-based
      awards through grants of restricted stock and stock options. We believe that our
      compensation program contributes to our employees’ and Named Executive Officers’
incentive to execute on our goals and perform their job functions with
      excellence and integrity.




We
      have
      entered into written employment agreements with our Named Executive Officers,
      Neil Cole, David Conn, Warren Clamen, Andrew Tarshis and Deborah Sorell Stehr.
      In addition, we entered into a written employment agreement with William
      Sweedler, former executive vice president and a former director, which agreement
      was terminated in June 2006, after which Mr. Sweedler was employed by us as
      a
      non-executive part-time employee for a transition period ending in September
      2006. See “- Narrative to Summary Compensation Table and Plan-Based Awards Table
      - Employment Agreements” for a description of these employment agreements and
      related information.




**Forms
      of Compensation Paid to Named Executive Officers During
      2006**





During
      the last fiscal year, we provided our Named Executive Officers with the
      following forms of compensation:




*Base
      salary.* Base
      salary represents amounts paid during the fiscal year to Named Executive
      Officers as direct guaranteed compensation under their employment agreements
      for
      their services to us.




*Equity-based
      awards.* Awards
      of shares of restricted stock and stock options are made under our 2006 Equity
      Incentive Plan, which was approved by our stockholders in August 2006, or
      under other our other option plans depending upon the amount of equity to be
      granted under the respective plans. Shares of restricted stock were issued
      subject to a vesting schedule and cannot be sold until and to the extent the
      shares have vested. In 2006, we awarded shares of restricted stock to three
      of
      the Named Executive Officers in connection with the renewal of their employment
      agreements vesting over the respective terms of those agreements.




*Cash
      bonuses.* Two of
      our Named Executive Officers in 2006 have a contractual right to receive a
      cash
      bonus, one based upon our performance, and the other a guaranteed amount. Mr.
      Cole has waived receipt of the bonus for 2006 to which he would have been
      entitled under his employment agreement.




47




*Perquisites
      and other personal benefits.* During
      2006, our Named Executive Officers received, to varying degrees, a limited
      amount of perquisites and other personal benefits that we paid on their behalf.
      These included, among other things:




·
            payments
                of life insurance premiums;





·
            car
                allowances; and





·
            a
                corporate car and driver.





**Objectives
      of Our Compensation Program**





The
      compensation paid to our Named Executive Officers is primarily structured into
      two broad categories:




·
            base
                salary; and





·
            incentive
                compensation, primarily in the form of equity-based awards under
                our
                various equity incentive and stock option plans; to a much lesser
                degree,
                certain of our Named Executive Officers also have received cash
                bonuses.





Our
      overall compensation program with respect to our Named Executive Officers is
      designed to achieve the following objectives:




·
            to
                attract, retain and motivate highly qualified executives through
                both
                short-term and long-term incentives that reward company and individual
                performance;





·
            to
                emphasize equity-based compensation to more closely align the interests
                of
                executives with those of our
                stockholders;





·
            to
                support and encourage our financial growth and
                development;





·
            to
                motivate our Named Executive Officers to continually provide excellent
                performance throughout the year;





·
            to
                ensure continuity of services of Named Executive Officers so that
                they
                will contribute to, and be a part of, our long-term success;
                and





·
            to
                manage fixed compensation costs through the use of performance and
                equity-based compensation.





**Determination
      of Compensation for Named Executive Officers**





*Compensation
      of chief executive officer.* During
      2006, the compensation of Mr. Cole, the chairman, president and chief executive
      officer was based on Mr. Cole’s employment agreement and the general principles
      of the Company’s executive compensation program. In determining the salary and
      other forms of compensation for Mr. Cole, the nominating/governance committee,
      (the predecessor of the compensation committee that was re-formed as a separate
      committee in December 2006) took into consideration Mr. Cole’s substantial
      experience and performance in the industry in general and with us in
      particular. The nominating/governance committee also considered the increased
      responsibilities of Mr. Cole as a result of our diversification and growth.
      The
      nominating/governance committee believes that Mr. Cole’s compensation as our
      principal executive officer reflects our performance during 2006 and his
      significant contributions to that performance.




*Overall
      compensation program.* Compensation
      of our executive officers, including the Named Executive Officers, has been
      determined by the Board of Directors pursuant to recommendations made by the
      chief executive officer and the nominating/governance committee until
      December 13, 2006, and thereafter the compensation committee, and in accordance
      with the terms of the respective employment agreements of certain executive
      officers in effect prior to the re-formation
      of the committee. The compensation committee is responsible for, among other
      things, reviewing and recommending approval of the compensation of our executive
      officers; administering our equity incentive and stock option plans; reviewing
      and making recommendations to the Board of Directors with respect to incentive
      compensation and equity incentive and stock option plans, and evaluating our
      chief executive officer’s performance in light of corporate objectives, and
      setting our chief executive officer’s compensation based on the achievement of
      corporate objectives.




48




With
      respect to the Named Executive Officers, their compensation is based upon what
      we believe is a competitive base salary in view of our recent change of business
      strategy and accelerated growth goals. In conjunction with our compensation
      committee, we have assessed our total compensation program, and its components,
      and believe that it operates well to serve both our goals and the current,
      short-term and long-term compensation needs of the executive officers. It is
      our
      intention to develop in the future a more structured bonus program for all
      our employees, including our Named Executive Officers based, in
      part, upon the achievement of performance goals.




Compensation
      amounts for Named Executive Officers are determined according to the level
      of
      seniority and position of the Named Executive Officer. Relatively greater
      emphasis is typically placed on the equity-based components of compensation
      so
      as to put a greater portion of total pay based on company and individual
      performance. We believe the combination of a competitive base compensation,
      coupled with an opportunity to significantly enhance overall individual
      compensation if individual and company performance warrant, yields an attractive
      compensation program that facilitates our recruitment and retention of talented
      executive personnel.




The
      total
      compensation amount for our Named Executive Officers is also established
      relative to officers at levels above and below them, which we believe rewards
      them for increased levels of knowledge, experience and responsibility. To create
      an atmosphere of fairness in our compensation setting, we endeavor to maintain
      as much parity in compensation as possible among Named Executive Officers and
      other officers although we do permit some deviation in individual total
      compensation amounts to reward particular executives for individual personal
      achievement and growth.




*Base
      salary.* The
      base
      salary of each of our Named Executive Officers is fixed pursuant to the terms
      of
      their respective employment agreements with us and, when a contract is up for,
      or otherwise considered for, renewal, upon a review of the executive’s
      abilities, experience and performance, as well as a review of salaries for
      executives in the marketplace for comparable positions at corporations which
      either compete with us in its business or of comparable size and scope of
      operations. The recommendations to the Board of Directors by the compensation
      committee (or, prior to its re-formation, the nominating/governance committee)
      with respect to base salary are based primarily on informal judgments reasonably
      believed to be in our best interests. In determining the base salaries of
      certain of our executives whose employment agreements were up for, or otherwise
      considered for, renewal, the nominating/governance considered our performance
      and growth plans. Base salaries are used to reward superior individual
      performance of each Named Executive Officer on a day-to-day basis during the
      year, and to encourage them to perform at their highest levels. We also use
      our
      base salary as an incentive to attract top quality executives and other
      management employees from other companies. Moreover, base salary (and increases
      to base salary) are intended to recognize the overall experience, position
      within the Company, and expected contributions of each Named Executive Officer
      to us.




In
      2006,
      the following were contractual increases in the base salaries of our Named
      Executive Officers as set forth on the table below:




**Named
                Executive Officer**
            
            **2005
                Base Salary**
            
            **2006
                Base Salary**
            
            **Change
                in Base Salary**
            
            **Percentage
                of 2005 Base Salary**Neil
                Cole
            
            $
            750,000(1)
            
            $
            550,000
            
            $
            (200,000
            )
            
            (27
            %)David
                Conn
            
            
            225,000
            
            
            275,000
            
            
            50,000
            
            
            22
            %Warren
                Clamen
            
            
            225,000
            
            
            275,000
            
            
            50,000
            
            
            22
            %Andrew
                Tarshis
            
            
            225,000
            
            
            275,000
            
            
            50,000
            
            
            22
            %Deborah
                Sorell Stehr
            
            
            215,000
            
            
            220,000
            
            
            5,000
            
            
            2
            %




(1)
      Includes additional salary of $250,000 paid to Mr. Cole during 2005 pursuant
      to
      his employment agreement.





*Equity-based
      awards.* We
      currently make equity awards to our Named Executive Officers pursuant to our
      2006 Equity Incentive Plan, which provides for awards in the form of stock
      options, stock appreciation rights, restricted stock, unrestricted stock, stock
      units including restricted stock units, and performance awards to eligible
      persons. The mix of cash and equity-based awards, as well as the types of
      equity-based awards, granted to our Named Executive Officers varies from year
      to
      year. Consideration has been given to various factors, such as the relative
      merits of cash and equity as a device for retaining and motivating the Named
      Executive Officers, the practices of other companies, individual performance,
      an
      individual’s pay relative to others, contractual commitments pursuant to
      employment or other agreements, and the value of already-outstanding grants
      of
      equity in determining the size and type of equity-based awards to each Named
      Executive Officer.




49




All
      equity-based compensation we issued to our Named Executive Officers in 2006
      took
      the form of restricted stock and stock option grants. In prior years, we
      typically placed particular emphasis on the grant of stock options. In 2006,
      we
      began to change the form of equity compensation to restricted stock primarily
      because of the increased stock-based compensation expense associated with stock
      options and similar instruments under SFAS No. 123(R), “ *Accounting
      for share-based payment* .”
This
      accounting standard, which we adopted as of January 1, 2006, requires us to
      record as compensation expense the grant date fair value of a stock option
      over
      the life of the option.




As
      described above, we provide a substantial portion of Named Executive Officer
      compensation in the form of equity awards because the compensation committee
      (and its predecessor, the nominating/governance committee) has determined that
      such awards serve to encourage our executives to create value for our Company
      over the long-term, which aligns the interests of Named Executive Officers
      with
      those of our stockholders.




Generally,
      we make three types of equity-based grants to our Named Executive
      Officers:




·
            initial
                grants when a Named Executive Officer is
                hired;





·
            annual
                performance based grants; and





·
            retention
                grants, which are typically made in connection with employment agreement
                renewals.





An
      initial grant when an executive officer is hired or otherwise becomes a Named
      Executive Officer serves to help us to recruit new executives and to reward
      existing officers upon promotion to higher levels of management. Because these
      initial grants are structured as an incentive for employment, the amount of
      these grants may vary from executive to executive depending on the particular
      circumstances of the Named Executive Officer and are usually recommended by
      the
      Chief Executive Officer and approved by the appropriate committee. While initial
      grants of equity awards have been made in prior years, no initial grants were
      awarded to any of our Named Executive Officers in 2006. Annual, time-vested
      grants of equity awards, as well as retention grants made in connection with
      renewals of employment agreements are designed so as to compensate our Named
      Executive Officers for their contributions to our long-term
      performance.




Generally,
      restricted stock and stock option awards granted to Named Executive Officers
      as
      either initial or annual performance grants or in connection with employment
      agreement renewals vest in equal installments over the term of the agreement,
      or a period determined by the nominating/governance committee or
      compensation committee, typically beginning on the first anniversary of the
      date
      of grant. Restricted stock grants for 2006 were as follows: Warren Clamen -
      10,971 shares vesting over a two year period; Andrew Tarshis - 18,461 shares
      vesting over a three year period; Deborah Sorell Stehr - 9,230 shares vesting
      over a two year period.




*Cash
      bonuses.* To the
      extent not covered by employment agreements with our executive officers,
      the compensation committee determines bonuses for our executive officers
      based on our overall performance, profitability, and other qualitative and
      quantitative measurements, including individual performance goals relating
      to
      our budget and financial objectives. In determining the amount of bonuses
      awarded, the compensation committee considers our revenues and profitability
      for
      the applicable period and each executive’s contribution to our success. Our
      chairman, president and chief executive officer has waived receipt of the bonus
      for 2006 he would have been entitled to under his employment agreement,
      one Named Executive Officer received a $50,000 cash bonus of which
      $25,000 was guaranteed and another Named Executive Officer received a $25,000
      discretionary bonus.




*Post-termination
      compensation.* We have
      entered into employment agreements with each of the Named Executive Officers.
      Each of these agreements provides for certain payments and other benefits if
      the
      executive’s employment terminates under certain circumstances, including, in the
      event of a “change in control”. See “Executive Compensation - Narrative to
      Summary Compensation Table and Plan-Based Awards Table - Employment Agreements"
      and “Executive Compensation - Potential Payments Upon Termination or Change
      in Control” for a description of the severance and change in control
      benefits.




*Perquisites.* The
      perquisites provided to our executive officers are described below. All such
      perquisites are provided in accordance with the executives’ employment
      agreements. Below is a list of material perquisites, personal benefits and
      other
      items of compensation we provided to our Named Executive Officers in 2006,
      the
      total amount of each such item paid to all named executive officers and an
      explanation as to why we chose to pay the item.




50




**Perquisite,
                Other Benefit or Other Item of Compensation (1)**
            
            **Aggregate
                Amount of This Perquisite Paid to All Named Executive Officers in
                2006**
            
            **Additional
                Explanation for Offering Certain Perquisites**Car
                allowances
            
            $
            66,612
            
            
            Serves
                to defray the cost of owning and operating an automobile often used
                for
                business purposes; prevents us from having to own and maintain a
                fleet of
                automobiles and is a taxable benefit for the Named Executive
                Officer.Corporate
                Car and Driver
            
            $
            44,325Life
                Insurance Premiums
            
            $
            21,420




(1)
            Perquisites
                are generally granted as part of our executive recruitment and retention
                efforts.




*Other
      matters* .
      The
      nominating/goverance committee and the compensation committee and Board of
      Directors did not engage outside compensation consultants for advice in 2006
      but
      did consider available comparable company data in making compensation related
      decisions in 2006. The Board of Directors has not established a policy for
      the
      adjustment of any compensation award or payment if the relevant performance
      measures on which they are based are restated or adjusted. The Board has not
      established any security ownership guidelines for executive
      officers.




**Compensation
      Committee Interlocks and Insider Participation**




During
      the year ended December 31, 2006, none of our Named Executive Officers served
      on
      the board of directors or the compensation committee of any other entity that
      has officers that serve on our Board of Directors or on its compensation
      committee or its nominating/governance committee, which is the committee of
      our
      board whose responsibilities previously included those relating to compensation.
      In addition, none of the members of our compensation committee and
      nominating/governance committee were formerly, or during the year ended December
      31, 2006, one of our officers or employed by us.




**Compensation
      Committee Report**




The
      compensation committee of the Board of Directors has reviewed and discussed
      with
      management the Compensation Discussion and Analysis for the year ended December
      31, 2006. Based on such reviews and discussions, the committee recommended
      to
      the Board that the Compensation Discussion and Analysis be included in this
      Annual Report as Form 10-K for filing with the SEC.




By
                  the committee.Mark
                  Friedman, ChairpersonSteven
                  MendelowBarry
                  EmanuelF.
                  Peter Cuneo




51




**SUMMARY
      COMPENSATION TABLE**




The
      following table includes information for 2006 with respect to our Named
      Executive Officers.





**Summary
      Compensation Table**




**Name
                and Principal Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock
                Awards**
              **($)**
            
            **Option
                Awards**
              **($)**
            
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
            
            **Change
                in Pension Value and Nonqualified Deferred Compensation
                Earnings**
              **($)**
            
            **All
                Other Compensation**
              **($)**
            
            **Total**
              **($)****(a)**
            
            **(b)**
            
            **(c)**
            
            **(d)**
            
            **(e)**
            
            **(f)**
            
            **(g)**
            
            **(h)**Neil
                Cole (1)
            
            
            Fiscal
                2006
            
            $
            550,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            65,745(2)
            
            $
            615,745Chief
                Executive OfficerDavid
                Conn
            
            
            Fiscal
                2006
            
            $
            265,486
            
            $
            50,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            18,000
            
            $
            333,486Executive
                Vice PresidentWarren
                Clamen
            
            
            Fiscal
                2006
            
            $
            243,250
            
            $
            25,000
            
            $
            16,667
            
            
            -
            
            
            -
            
            
            -
            
            $
            18,000
            
            $
            302,917Chief
                Financial OfficerAndrew
                Tarshis
            
            
            Fiscal
                2006
            
            $
            239,819
            
            
            -
            
            $
            24,999
            
            
            -
            
            
            -
            
            
            -
            
            $
            18,000
            
            $
            282,818Senior
                Vice PresidentDeborah
                Sorell Stehr
            
            
            Fiscal
                2006
            
            $
            220,000
            
            
            -
            
            $
            16,665
            
            
            -
            
            
            -
            
            
            -
            
            $
            12,612
            
            $
            249,277Senior
                Vice President-Business Affairs and LicensingWilliam
                Sweedler
            
            
            Fiscal
                2006
            
            $
            580,833
            (3)
            
            -
            
            
            -
            
            $
            1,445,341
            (4)
            
            -
            
            
            -
            
            
            -
            
            $
            2,026,174Former
                Executive Vice President





(a)
            Salary
                includes, as applicable, base salary, pro-rated salaries for changes
                made
                to base salary during the year, as defined in the employment
                agreements.




52




(b)
            Bonuses
                arediscretionary,
                fixed incentive, and/or percentage incentive, as provided for in
                the
                applicable employment agreements. For the year ended December 31,
                2006,
                Mr. Conn and Mr. Clamen each received bonuses, which were determined
                by the employment agreements and the nominating/governance committee
                of the Board of Directors.




(c)
            The
                amounts shown in this column represent the dollar amounts recognized
                as an
                expense by us for financial statement reporting purposes in the year
                ended
                December 31, 2006 with respect to shares of restricted stock as determined
                pursuant to Financial Accounting Standards Board Statement of Financial
                Accounting Standards No. 123 (revised 2004),*Share-Based
                Payment*(“SFAS 123(R)”). See Note 13 to the Consolidated Financial Statements
                included in this Form 10-K for a discussion of the relevant assumptions
                used in calculating grant date fair value pursuant to SFAS
                123(R).




(d)
            Option
                awards include, as applicable, Company options and equity-based
                compensation instruments that have option-like features. For the
                year
                ended December 31, 2006, Mr. Sweedler received options as part of
                the
                terms of his employment.




(e)
            Non-equity
                incentive plan compensation represents the dollar value of all amounts
                earned during the fiscal year pursuant to non-equity incentive plans.
                There was no such compensation for the year ended December 31,
                2006.




(f)
            Change
                in pension value and non-qualified deferred compensation earnings
                represents the aggregate increase in actuarial value to the named
                executive officer of all defined benefit and actuarial plans accrued
                during the year and earnings on non-qualified deferred compensation.
                There
                are no defined benefit plans, actuarial plans, or non-qualified deferred
                compensation for the year ended December 31,
                2006.




(g)
            All
                other compensation includes, as applicable, car allowances, corporate
                car
                and driver and life insurance premiums (see the list of perquisites
                above).





(h)
            Total
                compensation represents all compensation from us earned by the Named
                Executive Officer for the year.





(1)
            Mr.
                Cole has waived receipt of the bonus for 2006 he would have been
                entitled
                to under his employment agreement.





(2)
            Represents
                Company paid premiums on a life insurance policy for the benefit
                of the
                beneficiaries of Mr. Cole, as well as corporate car and
                driver.(3)
            Represents
                Mr. Sweedler’s salary of $247,500 for 2006 earned through the end of his
                employment on September 16, 2006, and $333,333 in consulting fees
                paid in
                connection with the acquisition of Ocean Pacific on November 6,
                2006.




(4)
            Represents
                the fair value of the warrants vested in connection with the acquisition
                of Ocean Pacific pursuant to his consulting
                agreement.





53




**GRANTS
      OF PLAN-BASED AWARDS**




The
      following table sets forth information for 2006 with respect to grants of awards
      to the Named Executive Officers under our equity incentive and stock option
      plans.




**Estimated
                Future Payouts Under Non-Equity Incentive Plan
                Awards**
            
            **Estimated
                Future Payouts Under Equity Incentive Plan Awards****Name**
            
            **Grant**
              **Date**
            
            **Threshold
                ($)**
            
            **Target**
              **($)**
            
            **Maximum**
              **($)**
            
            **Threshold**
              **(#)**
            
            **Target**
              **(#)**
            
            **Maximum**
              **(#)**
            
            **All
                Other Stock Awards: Number of Shares of Stock or Units**
              **(#)****(2)**
            
            **All
                Other Option**
              **Awards:
                Number of Securities**
              **Underlying**
              **Options**
              **(#)**
            
            **Exercise
                or Base Price of Option Awards ($/Sh)**
              **($)**
            
            **Closing
                Price of Common Stock Units on Date of Grant**
              **($)**
            
            **Grant
                Date Fair Value of Stock and Option Awards**Neil
                Cole
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -David
                Conn
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Warren
                Clamen
            
            
            10/26/06
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,971
            
            
            -
            
            
            -
            
            $
            18.23
            
            $
            200,000Andrew
                Tarshis
            
            
            09/22/06
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            18,461
            
            
            -
            
            
            -
            
            $
            16.25
            
            $
            300,000Deborah
                Sorell Stehr
            
            
            09/22/06
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            9,230
            
            
            -
            
            
            -
            
            $
            16.25
            
            $
            150,000William
                Sweedler
            
            
            09/18/06
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            400,000(1)
            
            $
            8.81
            
            
            -
            
            $
            3,500,000







(1)
            This
                amount represents the total warrants granted to Mr. Sweedler as part
                of
                his consulting agreement in connection with the acquisition of Ocean
                Pacific.




(2)
            Awards
                reflect restricted stock granted in connection with the renewal of
                employment agreements with Mr. Clamen, Mr. Tarshis, and Ms. Stehr.
                These
                grants are one-time retention
                grants.







**NARRATIVE
      TO SUMMARY COMPENSATION TABLE AND PLAN-BASED AWARDS TABLE**




**Employment
      Agreements**




On
      March
      29, 2005, we entered into an employment agreement with Neil Cole, which provides
      for him to serve as our President and Chief Executive Officer for a term
      expiring on December 31, 2007, at an annualized base salary of $500,000 in
      2005,
      $550,000 in 2006 and $600,000 in 2007. In addition, Mr. Cole's employment
      agreement provided for us to pay him additional salary of $250,000 in four equal
      installments during 2005, all of which has been paid. Under the employment
      agreement, for each year in which we meet at least 100% of targeted earnings
      before interest, taxes, depreciation and amortization of fixed assets and
      intangible assets, or EBITDA, as determined by its Board of Directors, Mr.
      Cole
      is also entitled to a bonus as follows: $100,000 for 2005, $150,000 for 2006
      and
      $200,000 for 2007. Mr. Cole received this bonus for 2005. In addition, Mr.
      Cole
      will receive a bonus equal to 5% of the amount, if any, by which our actual
      EBITDA for a fiscal year exceeds the greater of (a) the targeted EBITDA for
      that
      year, and (b) the highest amount of actual EBITDA previously achieved for a
      fiscal year during the term of his employment agreement, provided that prior
      negative EBITDA amounts will reduce the actual EBITDA in the year for which
      the
      determination is made in determining whether and by how much the amounts set
      forth in (a) and (b) were exceeded. Mr. Cole is also entitled to customary
      benefits, including participation in management incentive and benefit plans,
      reimbursement for automobile expenses, reasonable travel and entertainment
      expenses and a life insurance policy benefiting his designated beneficiaries
      in
      the amount of $5,000,000. The employment agreement provides that Mr. Cole will
      receive an amount equal to three times his annual compensation, less $100,
      plus
      accelerated vesting or payment of deferred compensation, options, stock
      appreciation rights and any other benefits payable to Mr. Cole, in the event
      that within twelve months of a “change in control” Mr. Cole is terminated by us
      without “cause” or if he terminates his agreement for “good reason,” as all such
      terms are defined in the employment agreement. Pursuant to the agreement, Mr.
      Cole was also granted immediately exercisable ten-year stock options to purchase
      800,000 shares of our common stock at $4.62 per share. We have also agreed
      with Mr. Cole that, if we are sold and immediately thereafter Mr. Cole is no
      longer employed by us or our successor in the capacity in which he was employed
      prior to the sale, he will be entitled to a payment equal to 5% of the sale
      price in the event that sale price is at least $5.00 per share or the equivalent
      thereof with respect to an asset sale, and Mr. Cole has agreed not to compete
      with us for a period of twelve months after any sale resulting in such payment
      to him.




54




On
      April
      17, 2004, we entered into an employment agreement, subsequently amended on
      December 29, 2005, with David Conn, which, as amended, provides for him to
      serve
      as our Executive Vice President of until May 18, 2008, subject to earlier
      termination as provided in the agreement. The amended agreement provides for
      Mr.
      Conn to receive an annualized base salary of: (i) $250,000 during the period
      December 29, 2005 until May 17, 2006; (ii) $275,000 during the period May 18,
      2006 through May 17, 2007 and (iii) $300,000 during the period May 18, 2007
      through May 17, 2008, as well as a guaranteed bonus of $25,000 per year, and
      a
      car allowance. He was also granted immediately exercisable ten-year stock
      options to purchase 100,000 shares of our common stock at $10.19 per share.
      In
      addition, his employment agreement with us provides that, if, within twelve
      months of a “change in control,” Mr. Conn's employment is terminated by us
      without “cause,” as such terms are defined in his employment agreement, we are
      obligated to make a lump-sum severance payment to him equal to $100 less than
      “three times his annualized includable compensation for the base period” (as
      defined in Section 280G of the Internal Revenue Code of 1986), subject to
      certain limitations for any “excess parachute payment.” His agreement with us
      also contains certain non-compete and non solicitation provisions.




Effective
      March 9, 2005, we entered into an employment agreement, subsequently amended
      on
      October 27, 2006, with Warren Clamen, which, as amended, provides for him to
      serve as our Chief Financial Officer until October 27, 2008, subject to earlier
      termination as specified in the agreement. The employment agreement provides
      for
      Mr. Clamen to receive a base salary of $275,000 per year for the year ending
      October 27, 2007 and no less than $300,000 for the year ending October 27,
      2008,
      plus certain fringe benefits. In addition, he is eligible to participate in
      any
      executive bonus program that we have in effect during the term of his employment
      agreement. Pursuant to his employment agreement, in March 2005, we granted
      Mr.
      Clamen ten-year stock options to purchase 200,000 shares of our common stock
      at
      $5.06 per share, subject to earlier termination under certain conditions if
      Mr. Clamen ceases to be employed by us, half of which options vested
      immediately and the other half vested as of June 1, 2005. Pursuant to the
      amendment in October 2006, we also issued to Mr. Clamen 10,971 shares of our
      restricted common stock, which vest in two equal annual installments commencing
      on October 27, 2007. The amended agreement provides that Mr. Clamen will receive
      an amount equal to three times his annual compensation; less $100, plus
      accelerated vesting or payment of deferred compensation, options, stock
      appreciation rights and any other benefits payable to Mr. Clamen, in the event
      that, within twelve months of a “change of control,” Mr. Clamen’s
      employment is terminated by us without “cause” as such terms are defined in the
      amended agreement. His employment agreement also provides for Mr. Clamen to
      receive certain severance payments if we terminate the agreement other than
      for
“cause” as defined in the agreement.




55




On
      September 22, 2006, we entered into a new employment agreement with Andrew
      Tarshis, which provides for him to serve as our Senior Vice President and
      General Counsel until September 22, 2009 and provides for him to receive an
      annual base salary of no less than $275,000 during the first year of the term
      and $300,000 during the second and third years of the term. Pursuant to his
      employment agreement, we also issued to Mr. Tarshis 18,461 shares of our
      restricted common stock, which vest in three equal annual installments
      commencing on the first year anniversary of the agreement. Under the agreement,
      Mr. Tarshis is also eligible for a bonus consistent with other executive
      officers, as well as customary benefits, including participation in management
      incentive and benefit plans, a monthly car allowance of $1,500 and reasonable
      business related travel and entertainment expenses. In addition, his employment
      agreement with us provides that, if, within twelve months of a “change in
      control,” Mr. Tarshis’s employment is terminated by us without “cause” or
      Mr. Tarshis terminates his employment with us for “good reason,” as all
      such terms are defined in his employment agreement, we are obligated to make
      a
      lump-sum severance payment to him equal to $100 less than three times his
“annualized includable compensation for the base period” (as defined in
      Section 280G of the Internal Revenue Code of 1986), subject to certain
      limitations for any “excess parachute payment” plus accelerated vesting of the
      18,461 shares of restricted stock issued to him. His agreement with us also
      contains certain non-compete and non-solicitation provisions.




On
      October 28, 2005, we entered into an employment agreement, subsequently
      amended on September 22, 2006, with Deborah Sorell Stehr, which, as
      amended, provides for her to serve as our Senior Vice President—Business Affairs
      until December 31, 2008 and provides for her to receive a base salary for
      performance based upon a four-day work week, as follows: (a) during the
      period from January 1, 2006 through December 31, 2006, at the annual
      rate of not less than $220,000, (b) during the period from January 1,
      2007 through December 31, 2007, at an annual rate of not less than
      $230,000, and (c) during the period from January 1, 2008 through
      December 31, 2008 at the annual rate of not less than $250,000. Pursuant to
      her employment agreement, in October 2005, we granted Ms. Stehr immediately
      exercisable ten-year stock options to purchase 60,000 shares of our common
      stock
      at $8.03 per share, and, pursuant to its amendment, in September 2006 we also
      issued to Ms. Stehr 9,230 shares of our restricted common stock, which vest
      in two equal annual installments commencing on December 31, 2007. Under the
      amended agreement, Ms. Stehr remains eligible for a bonus consistent with
      other executive officers, as well as customary benefits, including participation
      in management incentive and benefit plans, a monthly car allowance of $1,500
      and
      reasonable travel and entertainment expenses. The agreement provides that
      Ms. Stehr will receive an amount equal to three times her annual
      compensation, less $100, plus accelerated vesting or payment of deferred
      compensation, options, stock appreciation rights and any other benefits payable
      to Ms. Stehr, in the event that, within twelve months of a “change of
      control,” Ms. Stehr’s employment is terminated by us without “cause” or
      Ms. Stehr terminates her employment agreement with us for “good reason,” as
      all such terms are defined in the agreement.




We
      entered into an employment agreement, effective July 22, 2005, with William
      Sweedler pursuant
      to which he served as our Executive Vice President. His employment agreement
      also provided for him to serve as President of our Joe Boxer division until
      July
      22, 2009, subject to earlier termination as specified in the agreement. The
      employment agreement provided for Mr. Sweedler
      to receive an annual base salary of $400,000 and additional salary of $50,000
      for the first year of his employment term, an annual base salary of $450,000
      during the second year of his employment term, $500,000 for the third year
      and
      $550,000 for the fourth year of his employment term. In addition, the agreement
      provided for Mr. Sweedler
      to receive percentage of revenue based royalty bonuses if the annual revenues
      generated by our Joe Boxer division exceeded certain specified amounts for
      the
      periods indicated in his employment agreement. The employment agreement provided
      that Mr. Sweedler
      would receive an amount equal to $100 less than three times his annual
      compensation in the event that within twelve months of a “change of control,” as
      defined in the employment agreement, Mr. Sweedler
      was terminated by without “cause” or if Mr. Sweedler
      terminated his agreement for “good reason” (with one exception), as such terms
      were defined in the employment agreement. Pursuant to the employment agreement,
      Mr. Sweedler
      was also granted a ten-year option to purchase 1,425,000 shares of our common
      stock at $8.81 per share, of which 225,000 shares vested immediately and 1.2
      million shares were to vest only if the Joe Boxer division met certain revenue
      goals.On June
      8, 2006, we and Mr. Sweedlerentered
      into an agreement (the “ Sweedler Termination Agreement”), which provides for
      the termination of the employment agreement between us and Mr. Sweedler, the
      resignation of Mr. Sweedler as our Executive Vice President, President of its
      Joe Boxer Division and a member of our Board of Directors, and the termination
      of the approximately 1,200,000 unvested options previously issued to Mr.
      Sweedler in connection with the employment agreement. Under the Sweedler
      Termination Agreement, Mr. Sweedler was employed on a part-time basis to assist
      us during a transition period of ending in September 2006, after which we
      entered into a consulting agreement with Mr.
      Sweedler whereby he will perform services for us with respect to finding,
      negotiating or otherwise advising us regarding potential acquisition
      opportunities. Under the consulting agreement, we granted to Mr.
      Sweedler ten-year warrants, with certain registration rights, to purchase
      400,000 shares of our common stock at an exercise price of $8.81 per share,
      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.




56


**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**




The
      following table sets forth information with respect to outstanding equity-based
      awards at December 31, 2006 for our Named Executive Officers.





**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number
                of Securities Underlying Unexercised Options**
              **(#)**
              **Exercisable**
            
            **Number
                of Securities Underlying Unexercised Options**
              **(#)**
              **Unexercisable**
            
            **Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options**
              **(#)**
            
            **Option
                Exercise Price**
              **($)**
            
            **Option
                Expiration Date**
            
            **Number
                of Shares or Units of Stock That Have Not Vested**
              **(#)**
            
            **Market
                Value of Shares or Units of Stock That Have Not
                Vested**
              **($)**
            
            **Equity
                Incentive Plan Awards: Number of Unearned Shares, Units or Other
                Rights
                That Have Not Vested**
              **(#)**
            
            **Equity
                Incentive Plan Awards: Market or Payout Value of Unearned Shares,
                Units or
                Other Rights That Have Not Vested**
              **($)****(a)**Neil
                Cole
            
            
            10,000
              650,000
              84,583
              84,583
              84,583
              25,000
              321,625
              260,500
              76,500
              273,500
              600,000
              15,000
              800,000
              200,000
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
            
            $
              $
              $
              $
              $
              $
              $
              $
              $
              $
              $
              $
              $
              $
            3.50
              3.50
              3.50
              3.50
              3.50
              0.97
              1.13
              1.25
              2.30
              2.30
              2.75
              4.41
              4.62
              10.00
            
            
            12/11/08
              10/14/08
              03/09/08
              03/09/08
              03/09/08
              02/01/10
              07/18/10
              08/18/10
              10/26/11
              10/26/11
              04/23/12
              05/22/12
              03/29/15
              12/28/15
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -
              -David
                Conn
            
            
            25,000
              75,000
              50,000
              50,000
              25,000
              100,000
            
            
            -
              -
              -
              -
              -
              -
            
            
            -
              -
              -
              -
              -
              -
            
            $
              $
              $
              $
              $
              $
            2.54
              2.54
              4.82
              6.40
              10.00
              10.19
            
            
            05/27/14
              05/27/14
              05/24/15
              06/14//15
              12/28/15
              12/28/15
            
            
            -
              
              -
              -
              -
              -
            
            
            -
              
              -
              -
              -
              -
            
            
            -
              
              -
              -
              -
              -
            
            
            -
              
              -
              -
              -
              -Warren
                Clamen
            
            
            140,000
              50,000
            
            
            -
              -
            
            
            -
              -
            
            $
              $
            5.06
              10.00
            
            
            03/09/15
              12/28/15
            
            
            10,971
              -
            
            $
            212,728
              -
            
            
            -
              -
            
            
            -
              -Andrew
                Tarshis
            
            
            100,000
            
            
            -
            
            
            -
            
            $
            8.81
            
            
            07/22/15
            
            
            18,461
            
            $
            357,959
            
            
            -
            
            
            -Deborah
                Sorell Stehr
            
            
            10,000
              10,000
              10,000
              5,000
              15,000
              15,000
              50,000
              60,000
              50,000
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -
            
            $
              $
              $
              $
              $
              $
              $
              $
              $
            3.50
              3.50
              3.50
              2.66
              2.66
              2.66
              4.82
              8.03
              10.00
            
            
            12/07/08
              12/07/08
              12/07/08
              08/20/14
              08/20/14
              08/20/14
              05/24/15
              10/28/15
              12/28/15
            
            
            9,230
              -
              -
              -
              -
              -
              -
              -
              -
            
            $
            178,970
              -
              -
              -
              -
              -
              -
              -
              -
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              -William
                Sweedler
            
            
            133,333
            
            
            -
            
            
            -
            
            $
            8.81
            
            
            09/18/16
            
            
            -
            
            
            -
            
            
            -
            
            
            -




(a)
            Grant
                dates and vesting dates for all outstanding equity awards at December
                31,
                2006 are as follows:




57


**Name**
            
            **Number
                of Securities Underlying Unexercised Options**
              **(#)**
              **Exercisable**
            
            **Grant
                Date**
            
            **Vesting
                Date**Neil
                Cole
            
            
            10,000
              650,000
              84,583
              84,583
              84,583
              25,000
              321,625
              260,500
              76,500
              273,500
              600,000
              15,000
              800,000
              200,000
            
            
            12/11/98
              12/11/98
              12/11/98
              12/11/98
              12/11/98
              02/01/00
              07/18/00
              08/18/00
              10/26/01
              10/26/01
              04/23/02
              05/22/02
              03/29/05
              12/28/05
            
            
            12/11/98
              12/11/98
              12/11/98
              12/11/98
              12/11/98
              02/01/00
              07/18/00
              08/18/00
              10/26/01
              10/26/01
              04/23/02
              05/22/02
              03/29/05
              12/28/05David
                Conn
            
            
            25,000
              75,000
              50,000
              50,000
              25,000
              100,000
            
            
            05/28/04
              05/28/04
              05/24/05
              06/14/05
              12/28/05
              12/29/05
            
            
            05/28/04
              12/19/05
              05/24/05
              12/19/05
              12/28/05
              12/29/05Warren
                Clamen
            
            
            140,000
              50,000
            
            
            03/09/05
              12/28/05
            
            
            06/01/05
              12/28/05Andrew
                Tarshis
            
            
            100,000
            
            
            07/22/05
            
            
            07/22/05Deborah
                Sorell Stehr
            
            
            10,000
              10,000
              10,000
              5,000
              15,000
              15,000
              50,000
              60,000
              50,000
            
            
            12/11/98
              12/11/98
              12/11/98
              08/20/04
              08/20/04
              08/20/04
              05/24/05
              10/28/05
              12/28/05
            
            
            12/08/99
              12/08/00
              12/31/01
              08/20/04
              08/20/05
              12/19/05
              05/24/05
              10/28/05
              12/28/05William
                Sweedler
            
            
            133,333
            
            
            09/18/06
            
            
            12/31/06




58


**OPTION
      EXERCISES AND STOCK VESTED**




The
      following table sets forth certain information regarding exercise of options
      and
      vesting of restricted stock held by the Named Executive Officers during the
      year
      ended December 31, 2006.




**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number
                of Shares Acquired on Exercise**
              **(#)**
            
            **Value
                Realized on Exercise**
              **($)**
            
            **Number
                of**
              **Shares**
              **Acquired**
              **on
                Vesting**
              **(#)**
            
            **Value**
              **Realized**
              **on**
              **Vesting**
              **($)****(a)**Neil
                Cole
            
            
            400,000
            
            $
            5,668,750
            
            
            -
            
            
            -David
                Conn
            
            
            100,000
            
            $
            1,513,188
            
            
            -
            
            
            --Warren
                Clamen
            
            
            60,000
            
            $
            756,713
            
            
            -
            
            
            -Andrew
                Tarshis
            
            
            10,000
              30,000
            
            $
              $
            88,619
              230,156
            
            
            -
              -
            
            
            -
              -Deborah
                Sorell Stehr
            
            
            10,000
              60,000
              5,000
            
            $
              $
              $
            159,719
              949,313
              75,059
            
            
            -
              -
              -
            
            
            -
              -
              -William
                Sweedler
            
            
            8,058
              81,673
              135,269
            
            $
              $
              $
            41,821
              500,655
              865,727
            
            
            -
              -
              -
            
            
            -
              -
              -




(a)
            Included
                in this column is the aggregate dollar amount realized by the Named
                Executive Officer upon exercise of the options.




**POTENTIAL
      PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL**




As
      noted
      under “- Narrative to Summary Compensation Table and Plan-Based Awards Table -
      Employment Agreements”, we have entered into employment agreements with each of
      our Named Executive Officers. These agreements provide for certain payments
      and
      other benefits if a Named Executive Officer’s employment with us is terminated
      under circumstances specified in his or her respective agreement, including
      a
“change in control” of the Company. A Named Executive Officer’s rights upon the
      termination of his or her employment will depend upon the circumstances of
      the
      termination.




59




The
      receipt of the payments and benefits to the Named Executive Officers under
      their
      employment agreements are generally conditioned upon their complying with
      customary non-solicitation, non-competition, confidentiality, non-interference
      and non-disparagement provisions. By the terms of such agreements, the
      executives acknowledge that a breach of some or all of the covenants described
      herein will entitle us to injunctive relief restraining the commission or
      continuance of any such breach, in addition to any other available
      remedies.




The
      following table provides the term of such covenants following the termination
      of
      employment as it relates to each Named Executive Officer:




Covenant
            
            Neil
                Cole
            
            David
                Conn
            
            Warren
                Clamen
            
            Deborah
                Sorell Stehr
            
            Andrew
                TarshisConfidentiality
            
            Infinite
                duration for trade secrets and two years otherwise
            
            Infinite
                duration for trade secrets and two years otherwise
            
            Infinite
                duration
            
            None
            
            Infinite
                durationNon-solicitation
            
            Two
                Years
            
            Two
                Years
            
            None
            
            None
            
            One
                YearNon-competition
            
            Two
                Years
            
            Two
                Years
            
            None
            
            None
            
            One
                YearNon-interference
            
            Two
                Years
            
            Two
                Years
            
            None
            
            None
            
            One
                YearNon-disparagement
            
            Infinite
                duration
            
            None
            
            None
            
            None
            
            None




60




**Termination
      Payments (without a change in control)**




The
      table
      below includes a description and the amount of estimated payments and benefits
      that would be provided by us (or our successor) to each of the Named Executive
      Officers under each employment agreement, assuming that a termination
      circumstance occurred as of December 31, 2006 and a “change in control” had not
      occurred:


**Estimated
                  Amount of Termination Payment to:****Type
                  of Payment**
              
              **Termination
                  Event**
              
              **Neil
                  Cole**(1)
              
              **David
                  Conn**
              
              **Warren
                  Clamen**
              
              **Deborah
                  Sorell Stehr**
              
              **Andrew
                  Tarshis**Payment
                  of accrued but unused vacation time(2)
              
              Termination
                  for Cause, death or disability
              
              None
              
              None
              
              None
              
              None
              
              NoneLump
                  Sum Severance Payment
              
              Termination
                  without Cause or by executive for Good Reason
              
              $550,000(3)
              
              $379,653
              
              $501,111(4)
              
              None
              
              $749,375Pro
                  rata portion of Bonuses
              
              Varies
              
              None
              
              None
              
              None
              
              None
              
              NoneContinued
                  coverage under medical, dental, hospitalization and life insurance
                  plans
              
              Death,
                  termination without Cause, or termination by executive for Good
                  Reason
              
              None
              
              None
              
              None
              
              3
                  months(5)
              
              None
 1Upon Mr. Cole's termination without cause by the Company or for good
          reason by Mr. Cole, the Company is obligated to pay Mr. Cole's indemnity
          payments and legal fees incurred by him as a result of his termination.
          The
          Company's possible range of payments is not determinable at this
          time.
 2  Vacation
          time accrued but not taken for each executive was assumed to have been
          fully
          used up at year-end 2006
 3Payable in monthly installments, not in a lump sum.
 4Only payable upon termination by Company without cause.
 5   Three
            months of continued health and medical benefits upon termination for
            Cause or
            upon death or disability.




**Change
      in Control Payments**




The
      employment agreements with Mr. Cole, Ms. Stehr and Mr. Tarshis also provide
      that, if, within twelve months of a “change in control,” their employment is
      terminated by us without “cause” or they terminate their employment with us for
“good reason,” as all such terms are defined in each employment agreement, we
      are obligated to make a lump-sum severance payment to each such Named Executive
      Officer equal to $100 less than three times the Named Executive Officer’s
“annualized includable compensation for the base period” (as defined in
      Section 280G of the Internal Revenue Code of 1986).




The
      employment agreements (as amended) with Mr. Clamen and Mr. Conn also provide
      that, if, within twelve months of a “change in control,” their employment is
      terminated by us without “cause” as all such terms are defined in each
      employment agreement, we are obligated to make a lump-sum severance payment
      to
      each such Named Executive Officer equal to $100 less than three times the Named
      Executive Officer’s “annualized includable compensation for the base period” (as
      defined in Section 280G of the Internal Revenue Code of 1986).




Under
      the
      circumstances described above, all of the Named Executive Officers are entitled
      to an accelerated vesting and payment of stock options and restricted stock
      awards granted to that Named Executive Officer. However, the sum of any lump
      sum
      payments, the value of any accelerated vesting of stock options and restricted
      stock awards, and the value of any other benefits payable to the Named Executive
      Officer may not equal or exceed an amount that would constitute an “excess
      parachute payment” (as defined in Section 280G of the Internal Revenue Code
      of 1986).




61




The
      following table quantifies the estimated maximum amount of payments and benefits
      under our employment agreements and agreements relating to awards granted under
      our equity incentive and stock option plans to which the Named Executive
      Officers would be entitled upon termination of employment if we terminated
      their
      employment without cause within twelve (12) months following a “change in
      control” of the Company that (by assumption) occurred on December 31,
      2006.




**Name**
              
              **Cash
                  Severance Payment**
                **($)**
              
              **Continuation
                  of Medical/Welfare Benefits**
                **(Present
                  Value)**
                **($)**
              
              **Value
                  of Accelerated Vesting of Equity Awards**
                **($)********(1)**
              
              **Total
                  Termination Benefits**
                **($)**Neil
                  Cole
              
              
              1,647,670
              
              
              0
              
              
              -
              
              
              1,647,670David
                  Conn
              
              
              640,551
              
              
              0
              
              
              -
              
              
              640,551Warren
                  Clamen
              
              
              678,427
              
              
              0
              
              
              47,065
              
              
              725,492Andrew
                  Tarshis
              
              
              615,971
              
              
              0
              
              
              103,834
              
              
              719,805Deborah
                  Sorell Stehr
              
              
              956,037
              
              
              0
              
              
              46,533
              
              
              1,002,570




(1)
              This
                  amount represents the unrealized value of the unvested portion
                  of the
                  respective
                Named
                  Executive Officer’s restricted stock based upon the closing price of
                our
                  common stock on December 29,
                  2006.


62




**DIRECTOR
      COMPENSATION**




The
      following table sets forth compensation information for 2006 for each member
      of
      our Board of Directors who is not also an executive officer. Our executive
      officers do not receive additional compensation for serving on the board. See
      Summary Compensation Table and Grants of Plan-Based Awards Table for disclosures
      related to our chairman of the board, president and chief executive officer,
      Neil Cole.






**Name**
            
            **Fees
                Earned or Paid in Cash**
              **($)**
            
            **Stock
                Awards**
              **($)**
            
            **Option
                Awards**
              **($)**
            
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
            
            **Change
                in Pension Value and Nonqualified Deferred Compensation
                Earnings**
            
            **All
                Other Compensation**
              **($)**
            
            **Total**
              **($)**Barry
                Emanuel
            
            $
            35,500
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            35,500Steven
                Mendelow
            
            $
            45,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            45,000Drew
                Cohen
            
            $
            45,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            45,000F.
                Peter Cuneo
            
            $
            6,250
            
            $
            83,336
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            89,586Mark
                Friedman
            
            $
            6,250
            
            $
            83,336
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            89,586Michael
                Caruso
            
            $
            12,500
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            12,500Michael
                Groveman
            
            $
            40,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            40,000




**Item
      12.****Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





The
      following table presents information regarding beneficial ownership of our
      common stock as of March 12, 2007 by each of our directors, each of our “Named
      Executive Officers,” all of our executive officers and directors, as a group,
      and each person known by us to beneficially hold five percent or more of our
      common stock, based on information obtained from such persons.





Unless
      indicated below, to our knowledge, the persons and entities named in the table
      have sole voting and sole investment power with respect to all securities
      beneficially owned, subject to community property laws where applicable. The
      shares “beneficially owned” by a person are determined in accordance with the
      definition of “beneficial ownership” set forth in the regulations of the SEC
      and, accordingly, shares of our common stock subject to options, warrants or
      convertible securities that are exercisable or convertible within 60 days as
      of
      March 12, 2007 are deemed to be beneficially owned by the person holding such
      securities and to be outstanding for purposes of determining such holder's
      percentage ownership. The same securities may be beneficially owned by more
      than
      one person.





Percentage
      ownership of our common stock is based on the 56,353,258 shares of common stock
      outstanding as of March 1, 2007. The address for each beneficial owner, unless
      otherwise noted, is c/o Iconix Brand Group, Inc. at 1450 Broadway, New York,
      New
      York 10018.




63




**BENEFICIAL
      OWNERSHIP TABLE**




**Name
                  of Beneficial Owner**
              
              **Amount
                  and Nature of**
                **Beneficial
                  Ownership**
              
              **Percent
                  of Class**Neil
                  Cole
              
              
              3,521,075
              (1)
              
              6.3
              %David
                  Conn
              
              
              325,000
              (2)
              
              *Warren
                  Clamen
              
              
              190,000
              (3)
              
              *Andrew
                  Tarshis
              
              
              120,000
              (4)
              
              *Deborah
                  Sorell Stehr
              
              
              225,000
              (5)
              
              *William
                  Sweedler
              
              
              545,333
              (6)
              
              *Barry
                  Emanuel
              
              
              321,673
              (2)
              
              *Steven
                  Mendelow
              
              
              285,988
              (7)
              
              *Drew
                  Cohen
              
              
              101,702
              (8)
              
              *F.
                  Peter Cuneo
              
              
              40,000
              
              
              *Mark
                  Friedman
              
              
              15,684
              
              
              *Fred
                  Alger Management, Inc.
                Fred
                  M. Alger III
                Fred
                  Alger & Company, Incorporated
                Alger
                  Associates, Incorporated
                111
                  Fifth Avenue
                New
                  York, New York 10003
              
              
              3,204,000
              (9)
              
              5.7
              %All
                  directors and executive officers as a group (10 persons)
              
              
              5,146,122
              (10)
              
              8.4
              %





*
            
            Less
                than 1%1)
            
            Includes
                3,485,875 shares of common stock issuable upon exercise of options
                and
                20,000 shares of common stock owned by Mr. Cole’s children. Does not
                include shares held in Mr. Cole’s account under our 401(k) savings plan
                over which he has no current voting or investment
                power.(2)
            
            Represents
                shares of common stock issuable upon exercise of options.(3)
            
            Represents
                shares of common stock issuable upon exercise of options. Does not
                include
                10,971 restricted shares of common stock which vest in two equal
                annual
                installments commencing on October 27, 2007.(4)
            
            Includes
                100,000 shares of common stock issuable upon exercise of options.
                Does not
                include 18,461 restricted shares of common stock which vest in three
                equal
                annual installments commencing on September 22, 2007.(5)
            
            Represents
                shares of common stock issuable upon exercise of options. Does not
                include
                9,230 restricted shares of common stock which vest in two equal annual
                installments commencing on December 31, 2007 or shares held in Ms.
                Sorell
                Stehr’s account under our 401(k) savings plan over which she has no
                current voting or investment power.(6)
            
            Includes
                133,333 shares of common stock issuable upon exercise of warrants.(7)
            
            Includes
                200,250 shares of common stock issuable upon exercise of options
                and
                60,750 shares of common stock owned by C&P Associates, with which Mr.
                Mendelow and his wife are affiliated and over whose securities they
                exercise shared voting and investment control.(8)
            
            Includes
                95,000 shares of common stock issuable upon exercise of options.(9)
            
            Based
                on a Schedule 13-D filed by Fred Alger Management, Inc., Fred M.
                Alger
                III, Fred Alger & Company Incorporated and Alger Associates,
                Incorporated on January 10, 2007.(10)
            
            Includes
                4,942,798 shares of common stock issuable upon exercise of
                options.





64




**Equity
      Compensation Plans**





The
      following table provides certain information with respect to all of our equity
      compensation plans in effect as of December 31, 2006.


Number
                  of securities remainingNumber
                  of securities to be
              
              Weighted-average
              
              available
                  for issuance underissued
                  upon exercise of
              
              exercise
                  price of
              
              equity
                  compensation plansoutstanding
                  options,
              
              outstanding
                  options,
              
              (excluding
                  securities reflectedwarrants
                  and rights
              
              warrants
                  and rights
              
              in
                  column (a))Plan
                  Category
              
              (a)
              
              (b)
              
              (c)Equity
                  compensation plans Approved by security holders:
              
              4,289,132
              
              $
                  3.75
              
              2,073,943Equity
                  compensation plans not Approved by security holders(1):
              
              2,279,675
              
              $
                  7.82
              
              25,000(2)Total
              
              6,568,807
              
              $
                  5.16
              
              2,098,943




(1)
            Represents
                the aggregate number of shares of common stock issuable upon exercise
                of
                individual arrangements with option and warrant holders, including
                880,000
                options issued under the terms of our 2001 Stock Option Plan. These
                options and warrants are up to three years in duration, expire at
                various
                dates between January 14, 2005 and December 22, 2013, contain
                anti-dilution provisions providing for adjustments of the exercise
                price
                under certain circumstances and have termination provisions similar
                to
                options granted under stockholder approved plans. See Notes 1 and 13
                of Notes to Consolidated Financial Statements for a description of
                our
                Stock Option Plans.(2)
            Represents
                shares eligible for issuance upon the exercise of options that may
                be
                granted under our 2001 Stock Option
                Plan.





**Item
      13.**  **Certain
      Relationships and Related Transactions, and Director
      Independence**




On
      May 1,
      2003, the Company granted Kenneth Cole Productions, Inc. the exclusive worldwide
      license to design, manufacture, sell, distribute and market footwear under
      its
      Bongo brand. The chief executive officer and chairman of Kenneth Cole
      Productions is Kenneth Cole, who is the brother of Neil Cole, the Company's
      Chief Executive Officer and President. During the Current Year and Prior Year,
      the Company received $1.4 million and $1.3 million in royalties from Kenneth
      Cole Productions, respectively




The
      Candie's Foundation, a charitable foundation founded by Neil Cole for the
      purpose of raising national awareness about the consequences of teenage
      pregnancy, owed the Company $297,000 at December 31, 2006. The Candie's
      Foundation paid-off the entire borrowing from the Company in February 2007
      although additional advances will be made as and when necessary. Mr. Cole's
      wife, Elizabeth Cole, was employed by the The Candie's Foundation at an
      annualized salary of $80,000 until May 2005. She continues to perform services
      for the foundation but without compensation.




Director
      Independence


*Board
      of Directors*


Our
      Board of Directors has determined that Barry Emanuel, Steven Mendelow, Drew
      Cohen, F. Peter Cuneo, and Mark Friedman meet the definition of "independent
      directors" as defined under the standards of independence set forth in the
      Marketplace Rules of the NASDAQ Stock Market. Furthermore, Mr. Michael Groveman,
      who served on our of Board of Directors during a portion of 2006, during the
      time of his service on the board was also an independent director under this
      standard.




65





**Item
      14. Principal Accountant Fees and Services**




**Audit
      Fees** .
      The
      aggregate fees billed by BDO Seidman, LLP ("BDO") for professional services
      rendered for the audit of the Company's annual financial statements for the
      Current Year and the Prior Year,  internal controls over financial
      reporting and the reviews of the financial statements included in the Company's
      Forms 10-Q, comfort letter and consents related to SEC registration statements
      and other capital raising activities for the Current Year and the
      Prior Year totaled approximately $990,000, and $394,000
      respectively.




**Audit-Related
      Fees** . 
      There were approximately $105,000 and $168,700 aggregate fees billed by BDO
      Seidman, LLP for assurance and related services that are reasonably related
      to
      the performance of the audit or review of the Company's financial statements
      for
      the Current Year and the Prior Year, respectively, and that are not disclosed
      in
      the paragraph captions "Audit Fees" above. The majority of the audit-related
      fees were related to the audit of the financial statements of IP Holdings and
      Candie's Foundation.




**Tax
      Fees** .
      The
      aggregate fees billed by BDO Seidman, LLP for professional services rendered
      for
      tax compliance, for the Current Year and the Prior Year , were approximately
      $35,000, and $62,000, respectively. The aggregate fees billed by BDO Seidman,
      LLP for professional services rendered for tax advice and tax planning, for
      the
      Current Year and the Prior Year, were $0 and $3,000, respectively.




**All
      Other Fees** .
      There
      were no fees billed by BDO Seidman, LLP for products and services, other than
      the services described in the paragraphs captions "Audit Fees", "Audit-Related
      Fees", and "Tax Fees" above for the Current Year and the Prior
      Year.




The
      Audit
      Committee has established its pre-approval policies and procedures, pursuant
      to
      which the Audit Committee approved the foregoing audit services provided by
      BDO
      Seidman, LLP in Current Year. Consistent with the Audit Committee's
      responsibility for engaging the Company's independent auditors, all audit and
      permitted non-audit services require pre-approval by the Audit Committee. The
      full Audit Committee approves proposed services and fee estimates for these
      services. The Audit Committee chairperson or their designee has been designated
      by the Audit Committee to approve any services arising during the year that
      were
      not pre-approved by the Audit Committee. Services approved by the Audit
      Committee chairperson are communicated to the full Audit Committee at its next
      regular meeting and the Audit Committee reviews services and fees for the fiscal
      year at each such meeting. Pursuant to these procedures, the Audit Committee
      approved all the foregoing audit services and permissible non-audit services
      provided by BDO Seidman, LLP.




66





**PART
      IV**





**Item
      15. Exhibits, Financial Statement Schedules**





(a) Documents
      included as part of this Annual Report




1.
      The
      following consolidated financial statements are included in this Annual
      Report:




-
      Report
      of Independent Registered Public Accounting Firm




-
      Consolidated Balance sheets - December 31, 2006 and 2005




-
      Consolidated Income Statements for the years ended December 31, 2006, and 2005,
      and the 11-months ended December 31, 2004




-
      Consolidated Statements of Stockholders' Equity for the ended December 31,
      2006
      and 2005, and the 11-months ended December 31, 2004




-
      Consolidated Statements of Cash Flows for the year ended December 31, 2006
      and
      2005, and, the 11-months ended December 31, 2004




-
      Notes
      to consolidated Financial Statements




2.
      The
      following financial statement schedules are included in this Annual
      Report:




-
      Report
      of Independent Registered Public Accounting Firm on Financial Statement
      Schedule




-
      Schedule for the year ended December 31, 2006 and 2005, and the 11-Months ended
      December 31, 2004




-
      Schedule II Valuation and qualifying accounts




All
      other
      schedules for which provision is made in the applicable accounting regulation
      of
      the Securities and Exchange Commission are not required under the related
      instructions or are inapplicable and therefore have been omitted.




3.
      See
      the Index to Exhibits for a list of exhibits filed as part of this Annual
      Report.




(b) See
      Item (a) 3 above.




(c) See
      Item (a) 2 above.




67




**SIGNATURES**




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




ICONIX
                BRAND GROUP, INC.Date: March
                14, 2007
            By:
            /s/ Neil
                Cole**Neil
                Cole,**
              **President
                and Chief Executive Officer**
              **(Principal
                Executive
                Officer)**





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




**Name**
            
            **Title**
            
            **Date**/s/
              **Neil Cole****Neil
                Cole**
            
            Chairman
                of the Board, President and
              Chief
                Executive Officer
              (Principal
                Executive Officer)
            
            March 14, 2007/s/
**Warren
              Clamen****Warren
                Clamen**
            
            Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)
            
            March 14, 2007/s/
**Barry
              Emanuel****Barry
                Emanuel**
            
            Director
            
            March 14,
              2007/s/
**Drew
              Cohen****Drew
                Cohen**
            
            Director
            
            March 14, 2007/s/
**F.
              Peter Cuneo****F.
                Peter Cuneo**
            
            Director
            
            March 14, 2007/s/
**Mark
              Friedman****Mark
                Friedman**
            
            Director
            
            March 14, 2007/s/
**Steven
              Mendelow****Steven
                Mendelow**
            
            Director
            
            March 14,
              2007





68




Index
      to
      Exhibits





Exhibit
              Numbers
            
            Description1.1
            
            Purchase
                Amendment dated December 7, 2006 by and among Iconix Brand Group,
                Inc.,
                Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
                Incorporated, Lehman Brothers Inc. and the other parties on the signature
                page thereto (1)2.1
            
            Asset
                Purchase Agreement dated October 29, 2004 by and among B.E.M. Enterprise,
                Ltd., Escada (USA) Inc., the Company and Badgley Mischka Licensing
                LLC
                (2)2.2
            
            Asset
                Purchase Agreement dated July 22, 2005 by and among the Company,
                Joe Boxer
                Company, LLC, Joe Boxer Licensing, LLC, JBC Canada Holdings, LLC,
                Joe
                Boxer Canada, LP, and William Sweedler, David Sweedler, Alan Rummelsburg,
                Joseph Sweedler and Arnold Suresky (3)2.3
            
            Asset
                Purchase Agreement dated September 16, 2005 by and among the Company,
                Rampage Licensing LLC, Rampage.com, LLC, Rampage Clothing Company,
                Larry
                Hansel, Bridgette Hansel Andrews, Michelle Hansel, Paul Buxbaum and
                David
                Ellis (4)2.4
            
            Merger
                Agreement dated as of March 31, 2006 by and among the Company Moss
                Acquisition Corp., Mossimo, Inc., and Mossimo Giannulli
                (5)+2.5
            
            Asset
                Purchase Agreement dated as of March 31, 2006, between the Company
                and
                Mudd (USA) LLC (6)2.6
            
            Amendment
                dated April 11, 2006 to Asset Purchase Agreement dated as of March
                31,
                2006 between the Company and Mudd (USA), LLC. (7)2.7
            
            Asset
                Purchase Agreement, dated as of August 21, 2006, between the Company
                and
                London Fog Group, Inc, (8)2.8
            
            Asset
                Purchase Agreement, dated as of October 31, 2006, between Iconix
                Brand
                Group, Inc., The Warnaco Group, Inc. and Ocean Pacific Apparel Corp.
                (including the forms of the Note and the Registration Rights Agreement)
                (34) +3.1
            
            Certificate
                of Incorporation (9)3.2
            
            Restated
                and Amended By-Laws (10)4.1
            
            Rights
                Agreement dated January 26, 2000 between the Company and Continental
                Stock
                Transfer and Trust Company (11)+4.2
            
            Fifth
                Amended and Restated Indenture dated of August 28, 2006 by and between
                IP
                Holdings LLC, as issuer, and Wilmington Trust Company as Trustee.
                (8)10.1
            
            1997
                Stock Option Plan of the Company (13)*10.2
            
            2000
                Stock Option Plan of the Company (14)*10.3
            
            2001
                Stock Option Plan of the Company (15)*10.4
            
            2002
                Stock Option Plan of the Company (16)*10.5
            
            Non-Employee
                Director Stock Incentive Plan (17)*10.6
            
            Candie's,
                Inc. 401(K) Savings Plan (18)10.7
            
            Employment
                Agreement between Neil Cole and the Company dated March 29, 2005
                (19)*10.8
            
            Employment
                Agreement between the Company and William Sweedler
                (20)*10.9
            
            Employment
                Agreement between Deborah Sorell Stehr and the Company dated October
                28,
                2005 (26)*10.10
            
            Amendment
                dated September 22, 2006 to the Employment Agreement dated October
                28,
                2005 between the Company and Deborah Sorell Stehr (31)*10.11
            
            Employment
                Agreement between Warren Clamen and the Company (21)*10.12
            
            Amendment
                dated October 27, 2006 to the Employment Agreement between the Company
                and
                Warren Clamen. (27)*




69




Exhibit
              Numbers
            
            Description10.13
            
            Employment
                Agreement between the Company and David Conn (22)*10.14
            
            Employment
                Agreement between the Company and Andrew Tarshis (31)*10.15
            
            Option
                Agreement of Neil Cole dated November 29, 1999 (18)*10.16
            
            Stock
                Issuance and Registration Rights Agreement dated as of August 28,
                2006, by
                and among the Registrant and DDJ Capital Management, LLC
                (8)10.17
            
            Iconix
                Brand Group, Inc. 2006 Equity Incentive Plan (30)10.18
            
            Restricted
                Stock Agreement dated September 22, 2006 between the Company and
                Andrew
                Tarshis (31)*10.19
            
            Restricted
                Stock Agreement dated September 22, 2006 between the Company and
                Deborah
                Sorell Stehr. (31)*10.20
            
            Form
                of Restricted Stock Agreement for officers under the Iconix Brand
                Group,
                Inc. 2006 Equity Incentive Plan (32)*10.21
            
            Form
                of Restricted Stock Agreement for Directors under the Iconix Brand
                Group,
                Inc. 2006 Equity Incentive Plan (32)*10.22
            
            Common
                Stock Purchase Warrant issued to UCC Consulting Corporation
                (9)10.23
            
            Limited
                Liability Company Operating Agreement of Unzipped Apparel LLC
                (23)10.24
            
            Equity
                Acquisition Agreement between Michael Caruso & Co., Inc., the Company
                and Sweet Sportswear, LLC dated as of April 23, 2002.
                (24)10.25
            
            8%
                Senior Subordinated Note due 2012 of the Company payable to Sweet
                Sportswear, LLC. (24)10.26
            
            Collateral
                Pledge Agreement dated October 18, 2002 between the Company., Michael
                Caruso & Co., and Sweet Sportswear LLC. (24)10.27
            
            Agreement
                for Sale of Unzipped Interest to TKO Apparel, Inc. (22)10.28
            
            Stock
                Purchase Agreement between the Company and certain designees of TKO
                Apparel, Inc. (22)10.29
            
            Letter
                Agreement dated October 29, 2004 among UCC Funding Corporation, Content
                Holdings, Inc., the Company and Badgley Mischa Licensing LLC.
                (2)10.30
            
            Form
                of Option Agreement under the Company's 1997 Stock Option Plan
                (19)*10.31
            
            Form
                of Option Agreement under the Company's 2000 Stock Option Plan (19)
                *10.32
            
            Form
                of Option Agreement under the Company's 2001 Stock Option Plan
                (19)*10.33
            
            Form
                of Option Agreement under the Company's 2002 Stock Option Plan.
                (19)*10.34
            
            Option
                Agreement dated July 22, 2005 between the Company and William Sweedler
                (20)*10.35
            
            Lease
                with respect to the Company's executive offices (26)10.36
            
            Promissory
                Note issued by Joe Boxer Licensing, LLC in favor of Kmart Corporation
                (26)10.37
            
            Termination
                and Settlement Agreement dated as of April 27, 2006 among the Company,
                Moss Acquisition Corp. and Cherokee Inc. (28)10.38
            
            Agreement
                dated June 2, 2006 among the Company, UCC Consulting, Content Holdings,
                James Haran and Robert D’Loren (29)10.39
            
            Purchase
                and Sale Agreement dated June 2, 2006 by and among the Company, content
                Holdings, Robert D’Loren, Seth Burroughs and Catherine Twist
                (29)10.40
            
            Stock
                Purchase Warrant dated June 2, 2006 issued to Content Holdings
                (29)10.41
            
            Stock
                Purchase Warrant dated June 2, 2006 issued to James Haran
                (29)10.42
            
            Non-Competition
                and Non-Solicitation Agreement between the Company and Neil Cole*
                (7)10.43
            
            Agreement
                dated June 8, 2006 between the Company and William Sweedler
                (29)10.44
            
            Registration
                Rights Agreement dated October 31, 2006 among the Registrant, Mossimo
                Giannulli and Edwin Lewis (12)






















Exhibit
              Numbers
            
            Description10.45
            
            Loan
                and Security Agreement dated as of October 31, 2006 among Mossimo
                Holdings
                LLC, Mossimo Management LLC, and Merrill Lynch Mortgage Capital Inc.,
                as
                agent and lender (12)+10.46
            
            Guaranty
                dated as of October 31, 2006 by the Registrant in favor of Merrill
                Lynch
                Mortgage Capital Inc., as agent (12)10.47
            
            Amendment
              to Employment Agreement between the Company and David Conn
              (35)21
            
            Subsidiaries
                of the Company. (36)23
            
            Consent
                of BDO Seidman, LLP. (36)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. (36)31.2
            
            Certification
                of Principal 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. (36)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
                (36)32.2
            
            Certification
                of Principal Financial Officer Pursuant To 18 U.S.C. Section 1350,
                As
                Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
                (36)99.1
            
            Note
                Purchase Agreement by and among IP Holdings LLC, Iconix Brand Group,
                Inc.
                and Mica Funding, LLC, dated April 11, 2006 (33)+99.2
            
            Note
                Purchase Agreement by and among IP Holdings LLC, Iconix Brand Group,
                Inc.
                and Mica Funding, LLC, dated August 28, 2006 (8)+99.3
            
            Lock-up
                Agreement dated October 31, 2006 by and among the Registrant, Moss
                Acquisition Corp.., Mossimo Giannulli and Edwin Lewis
                (12)99.4
            
            Agreement
                for Creative Director Services dated as of October 31, 2006 by and
                among
                the Registrant, Mossimo, Inc. and Mossimo Giannulli
                (12)








(1)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated December 7, 2006 and incorporated by reference
                herein.




(2)
            Filed
                as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
                quarter ended October 31, 2004 and incorporated herein by
                reference.




(3)
            Filedas
                an exhibit to the Company's Current Report on Form 8-K for the event
                dated
                July 22, 2005 and incorporated by reference
                herein.




(4)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated September 16, 2005 and incorporated by reference
                herein.




(5)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated March 31, 2006(SEC
                accession No. 0000950117-06-001668))and
                incorporated by reference herein.




(6)
              Filed
                  as an exhibit to the Company's Current Report on Form 8-K for the
                  event
                  dated March 31, 2006 (SEC Accession No. 0000950117-06-001669**)**and
                  incorporated by reference
                  herein.




(7)
            Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended June 30,2006
                and incorporated by reference
                herein.




(8)
            Filed
                as an exhibit filed to the Company's Current Report on Form 8-K
                for the event dated August 28, 2006 and incorporated by reference
                herein.




(9)
                Filed
                    as an exhibit to the Company's Quarterly Report on Form 10-Q
                    for the
                    quarter ended June 30, 2005 and incorporated by reference
                    herein.




70




(10)
            Filed
                as an exhibit to the Company’s Annual Report on Form 10-K for the year
                ended January 31, 2000, and incorporated by reference
                herein.




(11)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated January 26, 2000 and incorporated by reference
                herein.




(12)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated October 31, 2006 ( SEC accession no. 0001144204-06-045497)
                and
                incorporated by reference herein.




(13)
            Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended October 31, 1997, and incorporated by reference
                herein.




(14)
            Filed
                as Exhibit A to the Company's definitive Proxy Statement dated July
                18,
                2000 as filed on Schedule 14A and incorporated by reference
                herein.




(15)
            Filed
                as an exhibit to the Company's Annual Report on Form 10-K for the
                year
                ended January 31, 2002 and incorporated by reference
                herein.




(16)
            Filed
                as Exhibit B to the Company's definitive proxy statement dated May
                28,
                2002 as filed on Schedule 14A and incorporated by reference
                herein.




(17)
            Filed
                as Appendix B to the Company's definitive Proxy Statement dated July
                2,
                2001 as filed on Schedule 14A and incorporated by reference
                herein.




(18)
            Filed
                as an exhibit to the Company's Annual Report on Form 10-K for the
                year
                ended January 31, 2003 and incorporated by reference
                herein.




(19)
            Filed
                as an exhibit to the Company's Annual Report on Form 10-K for the
                period
                ended December 31, 2004 and incorporated by reference
                herein.




(20)
            Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended September 30, 2005 and incorporated by reference
                herein.




(21)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated March 9, 2005 and incorporated by reference
                herein.




(22)
            Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended July 31, 2004 and incorporated by reference
                herein.




(23)
            Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended October 31, 1998 and incorporated by reference
                herein.




(24)
            Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended October 31, 2002 and incorporated by reference
                herein.




(25)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated December 29, 2005 and incorporated by reference
                herein.




(26)
            Filed
                as an exhibit to the Company's Annual Report on Form 10-K for the
                period
                ended December 31, 2005 and incorporated by reference
                herein.




(27)
            Incorporated
                by reference to the applicable exhibit filed with the Company’s Current
                Report on Form 8-K for the event dated October 27,
                2006.




(28)
            Filed
                as an exhibit to the Company’s Current Report on Form 8-K for the
                event dated April 27, 2006 and incorporated by reference
                herein.




(29)
            Filed
                as an exhibit to theCompany’s
                Current Report on Form 8-K for the event dated June 2, 2006 and
                incorporated by reference herein.




(30)
            Filed
                as Annex B to the Company’s definitive proxy statement on Schedule 14A
                filed with the SEC on July 19, 2006 and incorporated by reference
                herein.




(31)
            Filed
                as an exhibit filed to the Company’s Current Report on Form 8-K for the
                event dated September 22, 2006 and incorporated by reference
                herein.




71




(32)
            Filed
                as anexhibit to the Company’s Quarterly Report on Form 10-Q for the quarter
                ended September 30, 2006 and incorporated by reference
                herein.




(33)
            Filed
                as an exhibit to the Company’s Current Report on Form 8-K for the event
                dated April 11, 2006 and incorporated by reference
                herein.




(34)
                Filed
                    as an exhibit to the Company's Current Report on Form 8-K for
                    the event
                    dated October 31, 2006 ( SEC accession no. 0001144204-06-0455507)
                    and
                    incorporated by reference
                    herein.




(35)
            Filed
              as an exhibit to the Company's current report on Form 8-K for the event
              dated December 29, 2005 and incorporated by reference
              herein.  (36)
            Filed
                herewith.




*
      Denotes
      management compensation plan or arrangement.





+ Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of
      Regulation S-K. Iconix Brand Group, Inc. hereby undertakes to furnish
      supplementally to the Securities and Exchange Commission copies of any of the
      omitted schedules and exhibits upon request by the Securities and Exchange
      Commission.




72




**Annual
      Report on Form 10-K**





**Item
      8, 15(a)(1) and (2), (c) and (d)**





**List
      of Financial Statements and Financial Statement Schedule**





**Year
      ended December 31, 2006**





**Iconix
      Brand Group, Inc. and Subsidiaries**









**Iconix
      Brand Group, Inc. and Subsidiaries**




**Form
      10-K**





**Index
      to Consolidated Financial Statements and Financial Statement
      Schedule**




The
      following consolidated financial statements of Iconix Brand Group Inc. and
      subsidiaries are included in Item 15:




Report
                of Independent Registered Public Accounting Firm
            
            F-3Consolidated
                Balance Sheets - December 31, 2006 and 2005
            
            F-4Consolidated
                Income Statements for the years ended December 31, 2006 and 2005,
                and the
                11-months ended December 31, 2004
            
            F-5Consolidated
                Statements of Stockholders' Equity for the years ended December 31,
                2006
                and 2005, and the 11-months ended December 31, 2004
            
            F-6Consolidated
                Statements of Cash Flows for the years ended December 31, 2006 and
                2005,
                and the 11-months ended December 31, 2004
            
            F-7Notes
                to Consolidated Financial Statements
            
            F-9





The
      following consolidated financial statement schedule of Iconix Brand Group,
      Inc.
      and subsidiaries is included in Item 15(d):




Report
                of Independent Registered Public Accounting Firm on Financial Statement
                Schedule for the year ended December 31, 2006 and 2005, and the 11-months
                ended December 31, 2004
            S-1Schedule
                II Valuation and qualifying accounts
            S-2




All
      other
      schedules for which provision is made in the applicable accounting regulation
      of
      the Securities and Exchange Commission are not required under the related
      instructions or are inapplicable and therefore have been omitted.




F-2




**Report
      of Independent Registered Public Accounting Firm**




Board
      of
      Directors and Stockholders


Iconix
      Brand Group, Inc.


New
      York,
      New York




We
      have
      audited the accompanying consolidated balance sheets of Iconix Brand Group,
      Inc.
      as of December 31, 2006 and 2005 and the related consolidated statements of
      income, stockholders' equity, and cash flows for the years ended December 31,
      2006 and 2005, and the 11-Months ended December 31, 2004 These financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





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





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Iconix Brand Group, Inc.
      at
      December 31, 2006 and 2005, and the results of its operations and its cash
      flows
      for the years ended December 31, 2006 and 2005, and the 11-Months ended December
      31, 2004, in conformity with accounting principles generally accepted in the
      United States of America.





As
      described in Note 1, in 2006 the Company adopted the provisions of Statement
      of
      Financial Accounting Standards No. 123 (R), “Share-Based Payments,” utilizing
      the modified prospective transition method effective January 1,
      2006.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of Iconix Brand Group, Inc.'s
      internal control over financial reporting as of December 31, 2006, based on
      criteria established in Internal Control - Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO) and
      our
      report dated March 14, 2007 expressed an unqualified opinion
      thereon.




/s/BDO
      Seidman, LLP




March
      14,
      2007


New
      York,
      New York




F-3





**Iconix
      Brand Group, Inc. and Subsidiaries**


**Consolidated
      Balance Sheets**


**(in
      thousands, except par value)**





**December
                31,****2006**
            
            **2005****Assets**Current
                Assets:Cash
                (including restricted cash of $4,268 in 2006 and $4,094 in
                2005)
            
            $
            77,840
            
            $
            11,687Marketable
                securities
            
            
            -
            
            
            553Accounts
                receivable, net of reserve of $1,633 in 2006 and $260 in
                2005
            
            
            14,548
            
            
            3,532Due
                from affiliate
            
            
            297
            
            
            193Promissory
                note receivable
            
            
            1,000
            
            
            -Deferred
                income tax assets
            
            
            3,440
            
            
            3,716Prepaid
                advertising and other
            
            
            2,704
            
            
            2,664Total
                Current Assets
            
            
            99,829
            
            
            22,345Property
                and equipment:Furniture,
                fixtures and equipment
            
            
            2,769
            
            
            2,027Less:
                Accumulated depreciation and amortization
            
            
            (1,385
            )
            
            (1,175
            )1,384
            
            
            852Other
                Assets:Restricted
                cash
            
            
            11,659
            
            
            4,982Goodwill
            
            
            93,593
            
            
            32,835Trademarks
                and other intangibles, net
            
            
            467,688
            
            
            139,281Deferred
                financing costs, net
            
            
            3,355
            
            
            3,597Non-current
                deferred income tax assets
            
            
            17,970
            
            
            11,978Other
            
            
            5,574
            
            
            1,374599,839
            
            
            194,047Total
                Assets
            
            $
            701,052
            
            $
            217,244**Liabilities
                and Stockholders' Equity**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            7,043
            
            $
            3,360Accounts
                payable, subject to litigation
            
            
            4,886
            
            
            4,886Deferred
                revenue
            
            
            1,644
            
            
            4,782Current portion of long-term debt
            
            
            22,132
            
            
            13,705Total
                current liabilities
            
            
            35,705
            
            
            26,733Deferred
                income taxes
            
            
            59,054
            
            
            4,201Long-term
                debt, less current maturities
            
            
            140,676
            
            
            85,414Long
                term deferred revenue
            
            
            160
            
            
            -Total
                Liabilities
            
            
            235,595
            
            
            116,348Contingencies
                and commitmentsStockholders'
                EquityCommon
                stock, $.001 par value-shares authorized 75,000; shares issued 56,227 and 35,540
                respectively
            
            
            57
            
            
            36Additional
                paid-in capital
            
            
            468,881
            
            
            136,842Retained
                deficit
            
            
            (2,814
            )
            
            (35,315
            )Less:
                Treasury stock - 198 shares at cost
            
            
            (667
            )
            
            (667
            )Total
                stockholders' equity
            
            
            465,457
            
            
            100,896Total
                Liabilities and Stockholders' Equity
            
            $
            701,052
            
            $
            217,244





*See
      accompanying notes to consolidated financial statements.*




F-4




**Iconix
      Brand Group, Inc. and Subsidiaries**


**Consolidated
      Income Statements**


**(in
      thousands, except earnings per share data)**





Year
            
            Year
            
            11-MonthsEnded
            
            Ended
            
            Ended12/31/2006
            
            12/31/2005
            
            12/31/2004Licensing
                and commission revenue
            
            $
            80,694
            
            $
            30,156
            
            $
            10,553Net
                sales
            
            
            -
            
            
            -
            
            
            58,427Net
                revenue
            
            
            80,694
            
            
            30,156
            
            
            68,980Cost
                of goods sold
            
            
            -
            
            
            -
            
            
            55,795Gross
                profit
            
            
            80,694
            
            
            30,156
            
            
            13,185Selling,
                general and administrative expenses (net of recovery pursuant to an
                agreement of $438 and $7,566 in the year ended 12/31/2005 and for
                the
                11-Months ended 12/31/2004, respectively)
            
            
            24,527
            
            
            13,329
            
            
            9,948Special
                charges
            
            
            2,494
            
            
            1,466
            
            
            295Operating
                income
            
            
            53,673
            
            
            15,361
            
            
            2,942Other
                expenses:Interest
                income
            
            
            (1,243
            )
            
            (295
            )
            
            (24
            )Interest
                expense
            
            
            15,080
            
            
            4,823
            
            
            2,725Net
                interest expense
            
            
            13,837
            
            
            4,528
            
            
            2,701Gain
                on sales of marketable securities
            
            
            -
            
            
            (75
            )
            
            -13,837
            
            
            4,453
            
            
            2,701Income
                before income taxes
            
            
            39,836
            
            
            10,908
            
            
            241Provision
                (benefit) for income taxes
            
            
            7,335
            
            
            (5,035
            )
            
            -Net
                income
            
            $
            32,501
            
            $
            15,943
            
            $
            241Earnings
                per share:Basic
            
            $
            0.81
            
            $
            0.51
            
            $
            0.01Diluted
            
            $
            0.72
            
            $
            0.46
            
            $
            0.01Weighted
                average number of common shares outstanding:Basic
            
            
            39,937
            
            
            31,284
            
            
            26,851Diluted
            
            
            45,274
            
            
            34,773
            
            
            28,706





*See
      accompanying notes to consolidated financial statements.*




F-5




**Iconix
      Brand Group, Inc. and Subsidiaries**


**Consolidated
      Statements of Stockholders' Equity**


**(in
      thousands)**




Common
                      Stock
                
                Additional
                    Paid
                      - in
                
                Retained
                
                TreasuryShares
                
                Amount
                
                Capital
                
                Deficit
                
                Stock
                
                TotalBalance
                    at January 31, 2004
                
                
                25,915
                
                $
                26
                
                $
                71,008
                
                $
                (51,499)
                
                $
                (667)
                
                $
                18,868Issuance
                    of common stock to designees of TKOApparel,
                    Inc.
                
                
                1,000
                
                
                1
                
                
                2,184
                
                
                -
                
                
                -
                
                
                2,185Issuance
                    of common stock to B.E.M. Enterprises, Ltd.for
                    asset acquisition
                
                
                215
                
                
                1
                
                
                949
                
                
                -
                
                
                -
                
                
                950Issuance
                    of stock options to a non-employee related tothe
                    above asset acquisition
                
                
                -
                
                
                -
                
                
                133
                
                
                -
                
                
                -
                
                
                133Issuance
                    of common stock to a non-employee
                
                
                10
                
                
                -
                
                
                25
                
                
                -
                
                
                -
                
                
                25Exercise
                    of stock options
                
                
                1,109
                
                
                1
                
                
                1,745
                
                
                -
                
                
                -
                
                
                1,746Issuance
                    of common stock to directors
                
                
                44
                
                
                -
                
                
                110
                
                
                -
                
                
                -
                
                
                110Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                241
                
                
                -
                
                
                241Balance
                    at December 31, 2004
                
                
                28,293
                
                
                29
                
                
                76,154
                
                
                (51,258)
                
                
                (667)
                
                
                24,258Issuance
                    of common stock related toAcquisition
                    of Joe Boxer ®
                
                
                4,350
                
                
                4
                
                
                36,232
                
                
                -
                
                
                -
                
                
                36,236Issuance
                    of common stock related toAcquisition
                    of Rampage ®
                
                
                2,171
                
                
                2
                
                
                20,148
                
                
                -
                
                
                -
                
                
                20,150Warrants
                    issued to non-employeesrelated
                    to acquisitions
                
                
                -
                
                
                -
                
                
                2,441
                
                
                -
                
                
                -
                
                
                2,441Options
                    granted to a non-employee
                
                
                -
                
                
                -
                
                
                173
                
                
                -
                
                
                -
                
                
                173Exercise
                    of stock options
                
                
                709
                
                
                1
                
                
                1,584
                
                
                -
                
                
                -
                
                
                1,585Issuance
                    of common stock to directors
                
                
                17
                
                
                -
                
                
                110
                
                
                -
                
                
                -
                
                
                110Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                15,943
                
                
                -
                
                
                15,943Balance
                    at December 31, 2005
                
                
                35,540
                
                $
                36
                
                $
                136,842
                
                $
                (35,315)
                
                $
                (667)
                
                $
                100,896Issuance
                    of common stock related toAcquisition
                    of Mudd ®
                
                
                3,269
                
                
                3
                
                
                47,859
                
                
                -
                
                
                -
                
                
                47,862Issuance
                    of common stock related toAcquisition
                    of London Fog  Trademarks®
                
                
                482
                
                
                1
                
                
                7,106
                
                
                -
                
                
                -
                
                
                7,107Issuance
                    of common stock related toAcquisition
                    of Mossimo ®
                
                
                3,609
                
                
                4
                
                
                67,528
                
                
                -
                
                
                -
                
                
                67,532Issuance
                    of new stock
                
                
                10,785
                
                
                11
                
                
                189,512
                
                
                -
                
                
                -
                
                
                189,523Cancellation
                    of shares issued in business acquisition
                
                
                -
                
                
                -
                
                
                (150)
                
                
                
                
                
                
                
                
                (150)Exercise
                    of stock options and warrants
                
                
                2,446
                
                
                2
                
                
                9,099
                
                
                -
                
                
                -
                
                
                9,101Warrants
                    issued to non-employeesrelated
                    to the acquisition of Mudd ®
                
                
                -
                
                
                -
                
                
                4,596
                
                
                -
                
                
                -
                
                
                4,596Warrants
                    issued to non-employeesrelated
                    to the acquisition of Mossimo ®
                
                
                -
                
                
                -
                
                
                2,232
                
                
                -
                
                
                -
                
                
                2,232Warrants
                    issued to non-employees related to theacquisition
                    of OP ®
                
                
                -
                
                
                -
                
                
                1,445
                
                
                -
                
                
                -
                
                
                1,445Stock
                    option compensation expense
                
                
                -
                
                
                -
                
                
                182
                
                
                -
                
                
                -
                
                
                182Tax
                    benefit of stock option exercises
                
                
                -
                
                
                -
                
                
                2,380
                
                
                -
                
                
                -
                
                
                2,380Amortization
                      expense in connection with restricted stock
                
                
                96
                
                
                -
                
                
                250
                
                
                -
                
                
                -
                
                
                250Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                32,501
                
                
                -
                
                
                32,501Balance
                    at December 31, 2006
                
                
                56,227
                
                $
                57
                
                $
                468,881
                
                $
                (2,814
                )
                $
                (667
                )
                $
                465,457





*See
      accompanying notes to consolidated financial statements.*




F-6




**Iconix
      Brand Group, Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows (in thousands)**


Year
                  Ended
                  December
                    31,
                  2006
              
              
              Year
                  Ended
                December
                  31,
                2005
              
              
              11-Months
                Ended
                December
                  31,
                2004Cash
                  flows provided by operating activities:Net
                  income
              
              $
              32,501
              
              $
              15,943
              
              $
              241Depreciation
                  of property and equipment
              
              
              210
              
              
              130
              
              
              236Amortization
                  of intangibles
              
              
              2,153
              
              
              1,733
              
              
              1,901Amortization
                  of deferred financing costs
              
              
              792
              
              
              -
              
              
              -Non-cash
                  settlement of dispute
              
              
              (150
              )
              
              -
              
              
              -Gain
                  on sale of marketable securities
              
              
              -
              
              
              (75
              )
              
              -Bad
                  debt expense
              
              
              1,373
              
              
              260
              
              
              -Issuance
                  of common stock to non-employee directors
              
              
              -
              
              
              110
              
              
              110Stock
                  option compensation - employees
              
              
              262
              
              
              -
              
              
              -Stock
                  option compensation non - employees
              
              
              170
              
              
              173
              
              
              25Recovery
                  on receivable
              
              
              -
              
              
              -
              
              
              (53
              )Reduction
                  of settlement payment
              
              
              -
              
              
              -
              
              
              (238
              )Write-off
                  of impaired assets
              
              
              -
              
              
              95
              
              
              -Shortfall
                  Payment against Guarantee
              
              
              -
              
              
              (438
              )
              
              (7,566
              )Shortfall
                  Payment reserve
              
              
              -
              
              
              -
              
              
              685Accrued
                  interest on long-term debt
              
              
              831
              
              
              (134
              )
              
              500Deferred
                  income tax benefit
              
              
              4,969
              
              
              (5,132
              )
              
              -Changes
                in operating assets and liabilities, net of business
                acquisitions:Accounts
                  receivable
              
              
              (6,095
              )
              
              (1,553
              )
              
              1,046Due
                  from affiliate
              
              
              (104
              )
              
              34
              
              
              103Factored
                  accounts receivable and payable to factor, net
              
              
              -
              
              
              3,865
              
              
              5,088Inventories
              
              
              -
              
              
              279
              
              
              7,160Prepaid
                  advertising and other
              
              
              125
              
              
              (1,994
              )
              
              688Other
                  assets
              
              
              (3,700
              )
              
              (7
              )
              
              (1,168
              )Deferred
                  revenue
              
              
              (3,138
              )
              
              3,003
              
              
              (1,277
              )Due
                  to related parties
              
              
              -
              
              
              -
              
              
              (2,342
              )Accounts
                  payable and accrued expenses
              
              
              1,512
              
              
              (310
              )
              
              (330
              )Net
                  cash provided by operating activities
              
              
              31,711
              
              
              15,982
              
              
              4,809Cash
                  flows used in investing activities:Purchases
                  of property and equipment
              
              
              (739
              )
              
              (731
              )
              
              (30
              )Proceeds
                  from the sale of equity securities of other entities
              
              
              -
              
              
              110
              
              
              -Purchases
                  of equity securities of other entities
              
              
              -
              
              
              (663
              )
              
              -Acquisition
                  of Badgley Mischka
              
              
              -
              
              
              -
              
              
              (372
              )Acquisition
                  of Joe Boxer
              
              
              -
              
              
              (40,755
              )
              
              -Acquisition
                  of Rampage
              
              
              -
              
              
              (26,159
              )
              
              -Acquisition
                  of Mudd
              
              
              (46,728
              )
              
              -
              
              
              -Acquisition
                  of London Fog Trademarks
              
              
              (31,034
              )
              
              -
              
              
              -Acquisition
                  of Mossimo, net of cash acquired
              
              
              (85,438
              )
              
              -
              
              
              -Acquisition
                  of Ocean Pacific
              
              
              (10,491
              )
              
              -
              
              
              -Purchase
                  of other trademarks
              
              
              (2,328
              )
              
              (320
              )
              
              (19
              )Net
                  cash used in investing activities
              
              
              (176,758
              )
              
              (68,518
              )
              
              (421
              )Cash
                  flows (used in) provided by financing activities:Revolving
                  notes payable - bank
              
              
              -
              
              
              -
              
              
              (12,775
              )Proceeds
                  from long -term debt
              
              
              168,000
              
              
              85,489
              
              
              3,600Proceeds
                  of loans from related parties
              
              
              -
              
              
              (2,465
              )
              
              2,465Proceeds
                  from exercise of stock options and warrants
              
              
              9,101
              
              
              1,585
              
              
              1,746Payment
                  of long-term debt
              
              
              (148,545
              )
              
              (17,134
              )
              
              (2,630
              )Proceeds
                  from common stock issuance, net
              
              
              189,523
              
              
              -
              
              
              2,185Prepaid
                  interest expense - long-term
              
              
              -
              
              
              -
              
              
              (500
              )Restricted
                  cash - Current
              
              
              174
              
              
              (3,564
              )
              
              (7
              )Restricted
                  cash - Non Current
              
              
              (6,677
              )
              
              (2,082
              )
              
              -Deferred
                  financing costs
              
              
              (550
              )
              
              (1,968
              )
              
              (475
              )Net
                  cash (used in) provided by financing activities
              
              
              211,026
              
              
              59,861
              
              
              (6,391
              )Net
                  increase (decrease) in cash
              
              
              65,979
              
              
              7,325
              
              
              (2,003
              )Cash,
                  beginning of year
              
              
              7,593
              
              
              268
              
              
              2,271Cash,
                  end of year
              
              $
              73,572
              
              $
              7,593
              
              $
              268Balance
                  of restricted cash - Current
              
              
              4,268
              
              
              4,094
              
              
              530Total
                  cash including restricted cash, end of year
              
              $
              77,840
              
              $
              11,687
              
              $
              798




*See
      accompanying notes to consolidated financial statements.*




F-7




**Supplemental
      disclosure of cash flow information:**





Year
                Ended
            
            Year
                Ended
            
            11-Months
                Ended12/31/2006
            
            12/31/2005
            
            12/31/2004Cash
                paid during the year:Income
                taxes
            
            $
            -
            
            $
            -
            
            $
            -Interest
            
            $
            12,989
            
            $
            3,298
            
            $
            2,636




**Supplemental
      disclosures of non-cash investing and financing
      activities:**


Year
                  Ended12/31/2006
              
              Year
                  Ended
                  12/31/2005
              
              11-Months
                  Ended
                  12/31/2004Acquisitions:Common
                  stock issued
              
              $
              122,501
              
              $
              56,386
              
              $
              950Options
                  issued - acquisition cost
              
              $
              -
              
              $
              -
              
              $
              133Warrants
                  issued - acquisition cost
              
              $
              8,273
              
              $
              2,441
              
              $
              -Liabilities
                  assumed
              
              $
              51,871
              
              $
              14,193
              
              $
              -





*See
      accompanying notes to consolidated financial statements.*




F-8




**Iconix
      Brand Group, Inc and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**Information
      as of and for the Periods Ended December 31, 2006 and 2005**


**(dollars
      are in thousands (unless otherwise noted), except per share
      data)**





**The
      Company**





Iconix
      Brand Group, Inc (the “Company”) is in the business of licensing and marketing
      intellectual property. The Company currently owns nine brands, Candie's®,
      Bongo®, Badgley Mischka®, Joe Boxer®, Rampage®, Mudd®, London Fog®, Mossimo®,
      and Ocean Pacific®, which it licenses to third parties for use in connection
      with a variety of apparel, and fashion products. The Company also arranges
      through its wholly-owned subsidiary Bright Star Footwear, Inc. ("Bright Star")
      for the manufacture of footwear products for mass market and discount retailers
      under the private label brand of the retailer.





The
      Company's business strategy, as a licensing and marketing company, is to
      maximize the value of its intellectual property by entering into strategic
      licenses with partners who have been selected based upon the Company's belief
      that they will be able to produce and sell quality products in the categories
      of
      their specific expertise. This licensing strategy is designed to permit the
      Company to operate its licensing business with minimal working capital, no
      inventory, production or distribution costs or risks, and utilizing only a
      small
      group of core employees. Prior to May 2003, the Company was engaged in the
      wholesale business of footwear and jeanswear.





On
      July
      1, 2005, the Company changed its corporate name to Iconix Brand Group, Inc.
      and
      its NASDAQ symbol to ICON.





Beginning
      January 2005, the Company changed its business practices with respect to Bright
      Star, which resulted in a change in revenue recognition. Bright Star is now
      acting solely as an agent; accordingly, only net commission revenue is
      recognized.




**1.
      Summary of Significant Accounting Policies**





*Fiscal
      Year End*





On
      December 7, 2004, the Company announced that beginning January 1, 2005, it
      had
      changed its fiscal year ending on January 31, to a calendar year beginning
      on
      January 1st and ending on December 31st. The change was designed to align the
      Company's financial reporting with that of its existing licensees. As a result,
      the prior period was reported as the calendar year ended December 31, 2005
      (the
“Prior Year”). The prior year period ended on December 31, 2004 was reported as
      an 11- month period (the “11-month Prior Year”). For comparative purposes,
      unaudited condensed results of operations data for the period for the 11-Month
      period ended December 31, 2004 is presented in Note 22.





As
      a
      result of the Company's transition to a licensing business, and to a lesser
      extent, its change in fiscal year end and the change in its Bright Star revenue
      reporting, the Company's operating results for the most current year and prior
      year, are not comparable to the 11-month prior period, as
      applicable.





*Principles
      of consolidation*





The
      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.





*Business
      Combinations*





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. The results of
      operations from the acquired businesses are included in the accompanying
      consolidated statements of income since the acquisition date. Any excess of
      the
      purchase price over the estimated fair values of the net assets acquired is
      recorded as goodwill.




F-9




For
      the
      period February 1, 2004 through December 31, 2006, the Company completed seven
      acquisitions. Notes 3, 4, 5, 6, 7, 8, and 9 to the financial statements contain
      a full discussion of the Company's acquisitions. The acquisitions and the
      acquisition dates are as follows:




**Acquisitions**
            
            **Acquisition
                date**Badgley
                Mischka
            
            October
                29, 2004Joe
                Boxer
            
            July
                22, 2005Rampage
            
            September
                16, 2005Mudd
            
            April
                11, 2006London
                Fog Trademark
            
            August
                28, 2006Mossimo
            
            October
                31, 2006Ocean
                Pacific
            
            November
                6, 2006





*Use
      of Estimates*





The
      preparation of the 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.





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. See *Goodwill and Other Intangibles* below *.*





*Marketable
      Equity Securities*





In
      November and December 2005, the Company invested $663 in equity securities
      of
      certain public companies that are categorized as available for sale. In December
      2005, the Company sold certain of these shares and $75 was recorded as realized
      gain in the Prior Year. The aggregate fair value of these investments
      approximates their respective carrying value. In October 2006, the Company
      completed the acquisition of Mossimo, Inc., and the Company held shares in
      Mossimo, Inc. were included as part of the equity consideration. See Note
      8.





*Concentration
      of Credit Risk*





For
      the
      Current Year, two licensees accounted for 23.6% and 14.3% of the Company's
      net
      revenue, respectively, compared to two licensees which accounted for 27.9%
      and
      14.6% in the Prior Year. On a comparable basis, no licensee exceeded 10% of
      the
      Company’s total net revenues in the 11-Month Prior Period.




*Accounts
      Receivable*




** Accounts receivable are reported at amounts the Company expects to be collected,
      net of allowance for non-collection from customers.




*Restricted
      Stock*




Compensation
      cost for restricted stock is measured as the excess, if any, of the quoted
      market price of our stock at the date the common stock is issued over the amount
      the employee must pay to acquire the stock. The compensation cost, net of
      projected forfeitures, is recognized over the period between the issue date
      and
      the date any restrictions lapse.




*Deferred
      Financing Costs*





The
      Company incurred costs (primarily professional fees and placement agent fees)
      in
      connection with bond financings that occurred during the Current Year and the
      Prior Year. These costs have been deferred and are being amortized using the
      interest method over the life of the related debt (7 years).




*Property,
      Equipment and Depreciation*





Property
      and equipment are stated at cost less accumulated depreciation and amortization.
      Depreciation and amortization are determined by the straight line method over
      the estimated useful lives of the respective assets ranging from three to seven
      years. Leasehold improvements are amortized by the straight-line method over
      the
      initial term of the related lease or estimated useful life, whichever is
      less.




F-10





*Impairment
      of Long-Lived Assets*





When
      circumstances mandate, the Company evaluates the recoverability of its
      long-lived assets, other than goodwill and other indefinite life intangibles
      (discussed below), by comparing estimated future undiscounted cash flows with
      the assets' carrying value to determine whether a write-down to market value,
      based on discounted cash flow, is necessary. In the Prior Year, the Company
      wrote off leasehold improvements of $91 in connection with an office relocation.
      There have been no such write-offs in the Current Year. Other identifiable
      intangible assets are being amortized on a straight-line basis over the
      estimated useful life of the assets over periods ranging from 3-10
      years.




F-11




*Goodwill
      and Other Intangibles*





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 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 will no longer be amortized, but instead will be
      tested for impairment on an annual basis. In arriving at the conclusion to
      use
      an indefinite life management considered among other things, the Company's
      new
      licensing business model which has expanded the extent of potential use of
      these
      brand names in future years. This has been initially evidenced by the Candies
      licensing contract signed with Kohl's Department Stores (“Kohl's”) in late 2004,
      which has very rapidly expanded the Candies name to over 18 product categories
      in almost 700 Kohl's retail locations. Further the Candie's brand has been
      present in the US market since 1970s. Similarly, the Bongo brand has expanded
      from a predominantly jeanswear brand to a broad variety of product groups and
      multiple licenses in the U.S. and internationally. Brand recognition for both
      of
      these brands is very high, has been generally stable for an extended period
      of
      time, and the Company expects this consumer recognition and acceptance to remain
      stable or grow in the future based on anticipated broader distribution and
      product line expansion. As of December 31, 2006 the net book value of the
      Candie's and Bongo trademarks totaled $14.4 million.





Under
      SFAS No. 142, beginning on February 1, 2002, amortization of goodwill ceased
      and
      the Company annually tests goodwill for impairment.





The
      changes in the carrying amount of goodwill for the years ended December 31,
      2006
      and 2005, are as follows:




Year
              Ended
              12/31/2006
            
            
            Year
              Ended
              12/31/2005Beginning
                Balance
            
            $
            32,835
            
            $
            25,241Joe
                Boxer (Note 4)
            
            
            -
            
            
            1,932Rampage
                (Note 5)
            
            
            -
            
            
            5,662Mudd
                (Note 6)
            
            
            9,785
            
            
            -Mossimo
                (Note 8)
            
            
            49,015
            
            
            -Ocean
                Pacific (Note 9)
            
            
            1,958
            
            
            -Ending
                Balance
            
            $
            93,593
            
            $
            32,835





Goodwill
      was initially tested in the first quarter of Fiscal 2003 for impairment upon
      adoption of SFAS No. 142. There have been no impairments to the carrying amount
      of goodwill in any period. In the Prior Year, because of the change in the
      business model, the Company operates as a single integrated business, and as
      such has one operating segment which is also used as the reporting unit for
      purposes of evaluating goodwill impairment. The fair value of the reporting
      unit
      is determined using discounted cash flow analysis and estimates of sales
      proceeds. The annual evaluation of goodwill is performed on October 1, the
      beginning of the Company's fourth fiscal quarter.





*Revenue
      Recognition*





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, which resulted in a change in revenue recognition for the Prior Year.
      Bright Star now acts as an agent, therefore only net commission revenue is
      recognized commencing January 1, 2005. Revenue is recognized upon shipment
      with
      related risk and title passing to the customers.





Allowances
      for chargebacks, returns, and other charges are recorded at the sales date
      based
      on customer specific projections as well as historical rates of such
      allowances.





*Significant
      Contracts*





In
      December 2004, the Company entered into a license agreement with Kohl's, which
      was subsequently amended in February 2005 (the “Kohl's License”). Pursuant to
      the Kohl's License, the Company granted Kohl's the exclusive right to design,
      manufacture, sell and distribute a broad range of products under the Candie's
      trademark, including women's, juniors' and children's apparel, accessories
      (except prescription eyewear), beauty and personal care products, home
      accessories and electronics. Kohl's was also granted the non-exclusive right
      to
      sell footwear and handbags bearing the Candie's brand through December 31,
      2006,
      which rights become exclusive to Kohl's on January 1, 2007. The initial term
      of
      the Kohl's License expires on January 29, 2011, subject to Kohl's option to
      renew it for up to three additional terms of five years, each contingent on
      Kohl's meeting specified performance and minimum sale standards. The agreement
      also contains certain minimum royalties that Kohl's is obligated to pay the
      Company. Kohl's is also obligated to pay the Company an advertising royalty
      equal to of 1% of net sales under the Kohl's License each contract
      year.




F-12




In
      connection with the Kohl's License, the Company amended the license agreement
      with Steve Madden LLC (the “Candie's/Madden Footwear License”), which had an
      original termination date of December 31, 2009, and its existing handbag license
      agreement with LaRue Distributors, Inc. (“LaRue”), which had an original
      termination date of December 31, 2007, to accelerate their termination dates
      to
      December 31, 2006 in order to provide Kohl's with the exclusive rights to
      footwear and handbags commencing as of January 1, 2007. In connection with
      these
      amendments, the Company has agreed to make certain payments to Steve Madden
      and
      LaRue in the event that Kohl's fails to use Steve Madden as a supplier of its
      Candie's shoes and purchases less than designated amounts of Candie's footwear
      goods from Steve Madden through January 2011 or fails to use LaRue as a supplier
      of its Candie's handbags and purchases less than designated amounts of Candie's
      handbag goods from LaRue through December 2010. Kohl's continues to use Steve
      Madden and LaRue as their partners and therefore there are no liabilities under
      this provision as of December 31, 2005. The only product category with respect
      to which Kohl's will not have exclusive rights to the Candie's brand as of
      January 1, 2007, is prescription eyewear, which has been licensed to Viva
      International Group, Inc since 1998.




As
      part
      of the Joe Boxer brand acquisition, the Company acquired its license agreement
      with respect to Kmart (the “Kmart License”). Pursuant to this license, which
      commenced in August 2001, Kmart (now Sears Holding Corp.) was granted the
      exclusive right to manufacture, market and sell through Kmart stores located
      in
      the United States, its territories and Puerto Rico a broad range of products
      under the Joe Boxer trademark, including men's, women's and children's
      underwear, apparel, apparel-related accessories, footwear and home products.
      The
      initial term of the Kmart license expired on December 31, 2007. In September
      2006, the Company entered into a new license with Kmart which replaced the
      existing license and extended the term through December 31, 2010, subject
      to Kmart’s option to renew it for up to four additional terms of five years,
      each contingent on its meeting specified performance and minimum sale standards.
      The new license also provides for guaranteed annual minimums (for the year
      ending December 31, 2006, the amount owed for such year under the prior
      license, and for years 2007-2010, slightly more than half of such amount) and
      also provides for Kmart’s expansion of Joe Boxer’s distribution beyond Kmart and
      into Sears stores by the end of 2007.  The Kmart license provides for
      guaranteed minimum royalty payments of $19.0 million for the calendar year
      2006.




As
      part of the Mossimo merger in October 2006, the Company acquired Mossimo’s
      amended and restated license and design services agreement with Target, referred
      to as the “ Target License ”, which originally commenced in 2000 and was
      subsequently amended and restated in March 2006. Pursuant to the Target
      License, Target has the exclusive right to produce and distribute substantially
      all Mossimo-branded products sold in the United States, its territories and
      possessions through Target retail stores or any other retail store or other
      merchandising activity operated by Target or its affiliates, until
      January 31, 2010. If Target is current with payments of its obligations
      under the Target license, Target has the right to renew the Target license
      on
      the same terms and conditions for additional terms of two years each. Under
      the
      Target license, Target pays royalty fees based on certain percentages of its
      net
      sales of Mossimo-branded products, subject to its obligation to pay certain
      guaranteed minimum fees per each contract year (defined as each period from
      February 1 through January 31 during the term of the agreement). Under
      the Target License, the Company also provides the creative director services
      of
      Mossimo Giannulli (under a consulting agreement) with respect to Mossimo-branded
      products sold through Target stores.




*Taxes
      on Income*





The
      Company uses the asset and liability approach of accounting for income taxes
      and
      provides deferred income taxes for temporary differences that will result in
      taxable or deductible amounts in future years based on the reporting of certain
      costs in different periods for financial statement and income tax purposes.
      Valuation allowances are recorded when uncertainty regarding their realizability
      exists.





*Stock-Based
      Compensation*





Pursuant
      to a provision in SFAS No. 123(R), "Accounting for Stock-Based Compensation",
      the Company had elected to continue using the intrinsic-value method of
      accounting for stock options granted to employees in accordance with Accounting
      Principles Board Opinion 25, "Accounting for Stock Issued to Employees."
      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. Under
      this
      approach, the Company only recognized compensation expense for stock-based
      awards to employees for options granted at below-market prices, with the expense
      recognized over the vesting period of the options.





In
      December 2005, the Company's Board of Directors approved the accelerated vesting
      of all employee 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
      those
      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 of compensation expense being reflected in pro-forma net income
      for the Prior Year shown in the table below, an amount that would have otherwise
      been recorded as compensation expense in the years ending December 31, 2006
      and
      2007 had no impact on compensation recognition in 2005. The purpose of
      accelerating the vesting of these options was to enable to Company to avoid
      recognizing stock based compensation expense associated with these options
      in
      future periods after the Company adopted SAFS No 123 (R).




F-13





The
      stock-based employee compensation cost that would have been included in the
      determination of net income if the fair value based method had been applied
      to
      all awards, as well as the resulting pro forma net income and earnings per
      share
      using the fair value approach, are presented in the following table. The pro
      forma adjustments for compensation cost have not been offset by a related income
      tax benefit, consistent with the manner in which the Company currently records
      its provision for income taxes. These pro forma amounts may not be
      representative of future disclosures since the estimated fair value of stock
      options is amortized to expense over the vesting period, and additional options
      may be granted in future years. The fair value for these options was estimated
      at the date of grant using a Black-Scholes option-pricing model with the
      weighted-average assumptions presented in Note 13 of Notes to Consolidated
      Financial Statements.




F-14









Year
                ended December 31,
                2005
            
            
            11-Months
                ended December 31,
                2004Net
                income - as reported
            
            $
            15,943
            
            $
            241Add:
                Stock-based employee Compensation included in reported net
                income
            
            
            -
            
            
            -Deduct:
                Stock-based employee compensation determined under the fair value
                based
                method
            
            
            (9,601
            )
            
            (1,458
            )Pro
                forma net income (loss)
            
            $
            6,342
            
            $
            (1,217
            )Basic
                earnings (loss) per share:As
                reported
            
            $
            0.51
            
            $
            0.01Pro
                forma
            
            $
            0.20
            
            $
            (0.05
            )Diluted
                earnings (loss) per share:As
                reported
            
            $
            0.46
            
            $
            0.01Pro
                forma
            
            $
            0.18
            
            $
            (0.05
            )





*Fair
      Value of Financial Instruments*





The
      carrying amounts reported in the consolidated balance sheets for cash and cash
      equivalents, marketable securities, accounts receivable and accounts
      payable approximate fair value because of the immediate or short-term maturity
      of these financial instruments. The carrying amount reported for long-term
      debt
      approximates fair value because, in general, the interest on the underlying
      instruments fluctuates with market rates. In instances where long-term debt
      carries fixed interest rates, the obligation is recorded at the present value
      of
      the future payments, which approximates fair value.





*Earnings
      Per Share*





Basic
      earnings per share includes no dilution and is computed by dividing net income
      available to common shareholders by the weighted average number of common shares
      outstanding for the period. Diluted earnings per share reflect, in periods
      in
      which they have a dilutive effect, the effect of common shares issuable upon
      exercise of stock options, warrants and restricted stock. The difference between
      reported basic and diluted weighted-average common shares results from the
      assumption that all dilutive stock options, warrants, and restricted stock
      outstanding were exercised into common stock. Diluted loss per share reflects,
      in periods in which they have a dilutive effect, the effect of common shares
      issuable upon exercise of stock options.





*Advertising
      Campaign Costs*





The
      Company records national advertising campaign costs as an expense concurrent
      with the first showing of the related advertising and other advertising costs
      when incurred. Advertising expenses for Current Year, the Prior Year, and the
      11-Month Prior Year amounted to $7,849, $2,937, and $1,782,
      respectively.





*New
      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 is not expected to have an 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
      is not expected to have a material impact on the Company's results of operations
      or its financial position.




F-15





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.While the Company continues to evaluate
      its historical tax positions, the adoption of FIN 48 is not expected to have
      a
      material impact on the Company's results of operations or its financial
      position.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      SFAS No. 157 defines fair value as the price that would be received to sell
      an
      asset or paid to transfer a liability in an orderly transaction between market
      participants at the measurement date. SFAS No. 157 is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods within those fiscal years. The adoption of SFAS No. 157 is
      not
      expected to have a material impact on our results of operations or our financial
      position.




In
      February 2007, the FASB issued SFAS 159, “The Fair
      Value Option for Financial Asset and Financial Liability: Including an amendment
      to FASB Statement No. 115” (“SFAS 159”). The standard permits all entities to
      elect to measure certain financial instruments and other items at fair value
      with changes in fair value reported in earnings. SFAS 159 is effective as of
      the
      beginning of the first fiscal year that begins after November 15, 2007. We
      are
      evaluating the impact adopting SFAS 159 will have on our consoidated financial
      statements.





*Presentation
      of Prior Year Data*





Certain
      reclassifications have been made to conform prior year data to the current
      presentation.




**2.
      Unzipped Apparel, LLC (“Unzipped”)**





*Equity
      Investment:*





On
      October 7, 1998, the Company formed Unzipped with joint venture partner Sweet
      Sportswear, LLC (“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 8% Senior Subordinated Note due in 2012
      (“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.





*Revolving
      Credit Agreement:*





On
      February 25, 2003, Unzipped entered into a two-year $25 million credit facility
      (“the Unzipped Credit Facility”) with GE Capital Commercial Services ( “ GECCS ”
), Inc. Borrowings were limited by advance rates against eligible accounts
      receivable and inventory balances, as defined. Under the Unzipped Credit
      Facility, Unzipped could also arrange for letters of credit in an amount up
      to
      $5 million. The borrowings bore interest at a rate of 2.25% per annum in excess
      of the 30 day Commercial Paper rate or 3%, whichever is greater. Borrowings
      under the Unzipped Credit Facility were secured by substantially all of the
      assets of Unzipped. In addition, Unzipped had agreed to subordinate its accounts
      payable to Azteca Production International, Inc (“Azteca”), and Apparel
      Distribution Services, LLC (“ADS”), all of which were related to Sweet, to
      GECCS. Unzipped was required to meet a minimum tangible net worth covenant,
      as
      defined. At October 31, 2004, the loan had been repaid in full and the borrowing
      arrangement with GECCS was terminated.





*Related
      Party Transactions:*





Prior
      to
      August 5, 2004, Unzipped was managed by Sweet pursuant to a management agreement
      (the “Management Agreement”). Unzipped also had a supply agreement with Azteca
      and a distribution agreement with ADS. All of these entities are owned or
      controlled by Hubert Guez.





Pursuant
      to the Management Agreement, Sweet was obligated to manage the operations of
      Unzipped in return for, commencing in Fiscal 2004, a management fee based upon
      certain specified percentages of net income that Unzipped would achieved during
      the three-year term. In addition, Sweet guaranteed 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 (the “Guarantee”). In the event that the
      Guarantee is not met, under the Management Agreement, Sweet is obligated to
      pay
      to the Company the difference between the actual net income of Unzipped, as
      defined, and the Guarantee (the “Shortfall Payment”). The Shortfall Payment can
      be offset against the Sweet Note in the original amount of $ 11 million at
      the
      option of either Sweet or the Company.




F-16





In
      the
      Prior Year, Unzipped had a net loss (as defined, for the purpose of determining
      if the Guarantee had been met) of $296 and a net income (as defined, for the
      purpose of determining if the Guarantee had been met) of $6.4 million in the
      11-Month Prior Year. Consequently for the Prior Year there was an adjusted
      Shortfall Payment of $438, and $7.6 million, net of $685 reserve in the 11-Month
      Prior Year. The adjusted Shortfall Payments have been recorded in the
      consolidated income statements as a reduction of Unzipped's selling, general
      and
      administrative expenses 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, Unzipped reported a net loss of $38 in the Prior
      Year
      and a net loss of $461 in the 11-Month Prior Year.





Prior
      to
      August 5, 2004, there was a distribution agreement between Unzipped and ADS
      pursuant to which Unzipped paid ADS a per unit fee for warehousing and
      distribution functions and per unit fee for processing and invoicing orders.
      The
      agreement also provided for reimbursement for certain operating costs incurred
      by ADS and charges for special handling fees at hourly rates approved by
      management. Prior to August 5, 2004, there was also a supply agreement in effect
      between Unzipped and Azteca pursuant to which Unzipped paid Azteca cost plus
      6%
      for goods, and was entitled to up to 30 days in which to pay
      Azteca.





Prior
      to
      August 5, 2004, Azteca allocated expenses to Unzipped for Unzipped's use of
      a
      portion of Azteca's office space, design and production team and support
      personnel. Unzipped also occupied office space in a building rented by ADS
      and
      Commerce Clothing Company, LLC, a related party to Azteca.





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 Hubert Guez. See Note 15.





The
      related party transactions, most of which are being disputed in the litigation
      as further described in Note 15, are summarized as follows (there were no
      transactions with these related parties in the Current Year):









Year
                ended
                12/31/2005
            
            
            11-Months
                ended
                12/31/2004Products
                purchased from Azteca
            
            $
            -
            
            $
            22,886Allocated
                  office space, design and production team and support personnel
                  expense
                  from Azteca
            
            
            -
            
            
            118Management
                fee
            
            
            -
            
            
            -Shortfall
                Payment per Management Agreement
            
            
            438
            
            
            7,566Interest
                expense paid on Azteca subordinated debt
            
            
            -
            
            
            -Expenses
                of distribution services per distribution agreement with
                ADS
            
            
            -
            
            
            2,405




At
      December 31, 2006, the Company included in accounts payable subject to
      litigation amounts due to Azteca and ADS $847 and $2,261 , respectively.
      These amounts, however, are in dispute in the litigation. See Note
      15.





In
      a
      separate transaction concerning Unzipped, Bongo Apparel, Inc (“BAI”), licensee
      for jeanswear, and managed the transition of the operations of Unzipped to
      a
      licensing business beginning on August 5, 2004. In connection with Jeanswear
      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 agreed to lend Unzipped up
      to
      $2.5 million. As of December 31, 2004, the loan balance was $2.5 million, which
      the Company repaid in 2005.




**3.  **Badgley
        Mischka Licensing LLC****





On
      October 29, 2004 (the "Closing Date"), the Company acquired the principal assets
      (the "Purchased Assets") of B.E.M. Enterprise, Ltd. (“BEM”), the holding company
      for the Badgley Mischka designer business from parent company Escada U.S.A.
      The
      Purchased Assets included the Badgley Mischka® trademark, two existing licenses
      and the rights to operate the existing Badgley Mischka retail store located
      on
      Rodeo Drive in Beverly Hills, California. The purchase price for the transaction
      was $950, (excluding $372 of fees and expenses related to the acquisition)
      which
      was paid by the Company's issuance of 214,981 shares of the Company's common
      stock. The purchase price of the Purchased Assets was subject to an upward
      adjustment in the event that the closing sale price of the Company's common
      stock on the date which was 180 days after the Closing Date was less than the
      closing sale price on the Closing Date. No such adjustment to the purchase
      price
      was necessary as the closing sales price at April 27, 2005 was $4.95, greater
      than the closing price of $4.44 on the Closing Date.




F-17




The
      Company was advised in acquisition of the Purchased Assets by UCC Funding
      Corporation (“UCC”), of which Robert D'Loren, a then director of the Company, is
      President. In connection with the services provided in the acquisition, Mr.
      D'Loren, the sole shareholder of UCC, received 50,000 stock options, which
      were
      valued at $133 and included in the cost of the acquisition. In addition, UCC
      receives a fee of 5% of the gross revenues that the Company derives from the
      BADGLEY MISCHKA trademark and all derivative trademarks, which right was
      assigned to Content Holding, which is owned by Mr. D'Loren. In addition, should
      the Company sell all or substantially all of the acquired assets, UCC will
      receive a cash payment calculated under a formula based on the sales
      price.





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.




**4.  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, Panama, the United Kingdom,
      Eastern Europe, Scandinavia and Russia..





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 income statements. 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:




Cash
                paid for acquisition
            
            $
            40,755Fair
                  value of 4,350,000 restricted shares of common stock at $8.33 per
                  share
            
            
            36,236Assumption
                  of K-mart loan, including $3,509 due within 12
                  months
            
            
            10,798Accrued
                interest, K-mart loan
            
            
            309Value
                  of warrants issued as a cost of the acquisition
            
            
            788Total
                cost of acquisition
            
            $
            88,886





The
      purchase price was allocated to the estimated fair value of the assets acquired
      as follows:




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, expiring in
      November 2007. 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.





As
      part
      of this acquisition, the Company entered into an employment agreement with
      William 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 of which were subsequently forfeited on June 1, 2006, shortly before
      Mr. Sweedler’s employment with the Company was terminated.




F-18





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 IP Holdings of a $63 million
      asset-backed note. Approximately $17.5 million of the proceeds of the note
      was
      used to refinance previously existing notes with the same lender, $40.0 million
      was paid to the sellers, approximately $1.0 million was used to pay costs
      associated with the debt issuance, $310 was deposited in a reserve account
      as
      required by the lender, 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.





UCC
      acted
      as a financial advisor to IP Holdings in connection with the Joe Boxer and
      the
      Rampage brand acquisitions. On June 7, 2005, the Company entered into an
      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. Pursuant to the agreement, UCC will act, for a 36-month
      term, as the Company's exclusive advisor in connection with providing various
      advisory services relating to the Company's acquisitions. One third of the
      Warrant Shares vest 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, upon consummation of the acquisition of Joe
      Boxer




For
      unaudited pro-forma information presenting a summary of the Company's
      consolidated results of operations as if the acquisition and related financing
      had occurred on February 1, 2004, see Note 9.




**5.  **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 $48.3 million as detailed in the table
      below. Based on the Company's assessment of the fair value of the assets
      acquired, approximately $41.2 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 income statements. Instead, the related intangible asset
      will be tested for impairment at least annually, with any related impairment
      charge recorded to the income statements at the time of determining such
      impairment.





Total
      purchase price was determined as follows:




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
            
            
            1,653Other
                estimated costs of acquisition
            
            
            313Total
                cost of acquisition
            
            $
            48,275





F-19




The
      purchase price was allocated to the estimated fair value of the assets acquired
      as follows:




Rampage
                licensing contract
            
            $
            550Rampage
                domain name
            
            
            230Rampage
                non-compete agreement
            
            
            600Rampage
                trademark
            
            
            41,233Goodwill
            
            
            5,662Total
                allocated purchase price
            
            $
            48,275





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 income statements. 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. The goodwill of
      approximately $5.7 million is subject to a test for impairment on an annual
      basis.





The
      Company obtained $25.75 million in cash to pay a portion of the purchase price
      of the Rampage assets through the debt issuance by IP Holdings of a $103 million
      asset-backed note. Approximately $63 million of the proceeds of the note was
      used to refinance the note described in Note 4, $25.75 million was paid to
      the
      sellers, approximately $774 was used to pay costs associated with the debt
      issuance, $1.4 million was deposited in a reserve account as required by the
      lender, and $12 million was deposited in an escrow account for the benefit
      of
      the holders of the note, to be used by IP Holdings only for the purchase of
      additional intellectual property assets from the Company. The purchase did
      not
      occur prior to November 15, 2005 so the $12 million was redeemed 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 notes.





In
      accordance with the agreement with UCC (See Note 4), an additional 333,333
      of
      the Warrants Shares vested on September 16, 2005 with a fair value of $1.7
      million upon consummation of the Rampage acquisition, for which UCC acted as
      a
      financial advisor to IP Holdings.





For
      unaudited pro-forma information presenting a summary of the Company's
      consolidated results of operations as if the acquisition and related financing
      had occurred on February 1, 2004, see Note 9.


**6.  Acquisition
          Of Mudd**


In
      April
      2006, the Company 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, IP Holdings 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 IP Holdings a minimum amount of revenues with
      respect to the royalties due to IP Holdings under its license and royalties
      due
      to IP Holdings from all other license agreements assumed by IP Holdings with
      respect to the Mudd brand for a period of two years. Mudd (USA)'s obligations
      to
      IP Holdings 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
      restrictions 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 IP Holdings of approximately $136 million
      principal amount of Asset-Backed Notes. The issuance of the Asset-Backed Notes
      raised $49 million in new financing for IP Holdings (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 IP Holdings. The Asset-Backed Notes are secured by the intellectual
      property assets owned by IP Holdings, 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 7 year life of the financed
      debt.




F-20





Total
      purchase price was determined as follows (in thousands except per share
      amounts):




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
            
            
            1,867Total
                cost of acquisition
            
            $
            99,325





The
      purchase price was allocated to the estimated fair value of the assets acquired
      as follows:





Mudd
                Trademarks
            
            $
            87,100Mudd
                domain name
            
            
            340Mudd
                license agreements
            
            
            700Mudd
                non-compete agreement
            
            
            1,400Goodwill
            
            
            9,785Total
                allocated purchase price
            
            $
            99,325





The
      Mudd
      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 income statements. 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 $9.8 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 4), 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 IP Holdings.





For
      unaudited pro-forma information presenting a summary of the Company's
      consolidated results of operations as if the acquisition and related financing
      had occurred on January 1, 2005, see Note 9.




**7.  **Acquisition
        Of London Fog Trademarks****


On
      August
      28, 2006, the Company completed the purchase of the London Fog trademarks and
      certain related intellectual property assets from London Fog Group Inc. In
      consideration for the purchase of these assets, the Company paid the seller
      $30.5 million in cash and issued to the seller 482,423 shares of the Company
      common stock.





The
      financing for this acquisition was accomplished through the private placement
      on
      August 28, 2006 by IP Holdings of its Asset-Backed Notes, secured by the
      intellectual property assets owned by IP Holdings (including the London Fog
      trademarks), together with approximately $3.1 million of the Company’s cash. The
      issuance of the Asset-Backed Notes raised $29 million in new financing for
      IP
      Holdings (before giving effect to the payment of expenses related to their
      issuance and required deposits to reserve accounts), and approximately $130.9
      million principal amount of the Asset-Backed Notes were exchanged for all of
      the
      outstanding Asset-Backed Notes previously issued by IP Holdings. The $29 million
      principal amount of Asset-Backed Notes representing the new financing portion
      of
      the private placement were used as follows: $27.5 million was paid to the seller
      of the London Fog trademarks, approximately $52,500 was used to pay professional
      fees associated with the trademark purchased, and $1.35 million was deposited
      in
      a liquidity reserve account as required by the holder of the Asset-Backed Notes.
      The costs relating to the $29 million in new financing of approximately $60,000
      have been deferred and are being amortized over the 7 year life of the
      financed debt.




F-21




Total
      purchase price was determined as follows:




Cash
                paid for acquisition
            
            $
            30,500Fair
                value of 482,423 shares of $.001 par value common stock at $14.73
                fair
                market value per share
            
            
            7,107Other
                estimated costs of acquisition
            
            
            666Total
                cost of acquisition
            
            $
            38,273





The
      total
      cost of this asset purchase was accounted for as the London Fog trademarks. The
      London Fog trademarks have been determined to have an indefinite useful life
      and
      accordingly, consistent with FAS 142, no amortization will be recorded in the
      Company's consolidated income statements.




**8.  **Acquisition
        Of Mossimo****
  On
        October 31, 2006, the Company completed the purchase of Mossimo, Inc from
        Mossimo Gianulli and other shareholders. In consideration for the acquisition
        of
        Mossimo, the Company paid the sellers $67.5 million in cash and issued to
        the
        sellers 3,608,810 shares of the Company common stock. In
        connection with the transaction, all of Mossimo's assets related to the business
        of marketing, licensing and managing Mossimo's Mossimo® brands, trademarks,
        intellectual property and related names worldwide were conveyed to Mossimo
        Holdings, LLC, a Delaware limited liability company and indirect, wholly-owned
        subsidiary of the Company.





The
      aggregate purchase price for the acquisition was $178.1 million as detailed
      in
      the table below. Based on the Company’s assessment of the fair value of the
      assets acquired, $140 million has been assigned to the Mossimo 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 Mossimo 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 income
      statements. 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.





The
      financing for this acquisition was accomplished through the entering into of
      a
      Loan and Security Agreement between the Company and Merrill Lynch, pursuant
      to
      which Merrill Lynch loaned to the Company $90,000,000. The loan was repaid
      on
      December 15, 2006, from proceeds of an equity offering described in Note 13.
      for
      a period through the facility termination date of December 18, 2008.




Cash
                paid for acquisition
            
            $
            67,532Cash
                paid for acquisition
            
            $
            33,000Iconix
                Shares
            
            $
            745Fair
                value of 3,608,810 shares of $.001 par value common stock at $18.71
                fair
                market value per share
            
            
            67,532Value
                of 250,000 warrants ($15.93 exercise price) issued as a cost of the
                merger
            
            
            2,232Total
                equity consideration
            
            
            69,764Other
                estimated costs of acquisition
            
            
            7,147Total
                cost of acquisition
            
            $
            178,188





F-22




The
      purchase price was allocated to the estimated fair value of the assets acquired
      as follows:





Mossimo
                Trademarks
            
            $
            140,000Mossimo
                license agreements
            
            
            3,240Mossimo
                non-compete agreement
            
            
            2,800Assumed
                obligation under Cherokee contract buyout
            
            
            (8,100
            )Allocation
                of Cherokee contract buyout
            
            
            8,100Deferred
                tax asset
            
            
            4,832Note
                receivable, related to sale of Modern Amusement
            
            
            1,500Other
                assets
            
            
            6,458Accounts
                payable
            
            
            (2,870
            )Deferred
                tax liability
            
            
            (49,000
            )Cash
            
            
            22,213Goodwill
            
            
            49,015Total
                allocated purchase price
            
            $
            178,188





The
      licensing contracts are being amortized on a straight-line basis over the
      remaining contractual period of approximately 5 years, and the value of the
      non-compete agreement is being amortized on a straight-line basis over 5 years.
      The goodwill of approximately $49.0 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.





For
      unaudited pro-forma information presenting a summary of the Company's
      consolidated results of operations as if the acquisition and related financing
      had occurred on January 1, 2005, see Note 9.




**9.  **Acquisition
        Of Ocean Pacific and Unaudited Pro-formas****
  On
        November 6, 2006, the Company acquired certain of the assets of Ocean Pacific
        Apparel Corp., a subsidiary of Warnaco Group, Inc., related to the Ocean
        Pacific
        or Op brand, associated trademarks, intellectual property and related names
        worldwide. In consideration for these assets, the Company paid the seller
        $10.0
        million in cash and issued the seller a note in the principal amount of $44.0
        million. In connection with this acquisition, the Company assumed 30 licenses,
        including 15 international licenses. The Company also entered into a new
        license
        agreement with the seller. Pursuant to this license, the seller has the
        exclusive right to the use of the Ocean Pacific trademark in the United States
        in connection with the design, manufacture and sale of women's and juniors
        swimwear for a period of three years and has guaranteed us certain minimum
        annual royalties in connection with the use of the license. The note was
        repaid
        on December 20, 2006 from the proceeds of an equity offering described in
        Note
        13.





Cash
                paid for acquisition
            
            $
            10,000Note
                issued
            
            
            44,000Value
                of 133,334 warrants ($10.84 exercise price) issued as a cost of the
                acquisition
            
            
            1,445Other
                estimated costs of acquisition
            
            
            1,113Total
                cost of acquisition
            
            $
            56,558





The
      purchase price was allocated to the estimated fair value of the assets acquired
      as follows:





Op
                Trademarks
            
            $
            53,500Op
                license agreements
            
            
            1,100Goodwill
            
            
            1,958Total
                allocated purchase price
            
            $
            56,558




The
      Ocean
      Pacific 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 income statements. The
      licensing contracts are being amortized on a straight-line basis over the
      remaining contractual period of approximately 5 years. The goodwill of
      approximately $2.0 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. The note issued for
      $44.0 million was repaid on December 20, 2006.




The
      following unaudited pro-forma information presents a summary of the Company's
      consolidated results of operations as if the Mudd, Mossimo and Ocean Pacific
      acquisitions (See Note 6, 8 and 9) and their related financing had occurred
      on
      January 1, 2005, and as if the Joe Boxer and Rampage acquisitions and their
      related financing had occurred on February 1, 2004. 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
      acquisitions occurred on January 1, 2005, or which may result in the
      future.




F-23




Year
                ended 12/31/2006
            
            
            Year
                ended 12/31/2005
            
            
            11-months
                ended
                12/31/2004Total
                net revenues
            
            $
            112,652
            
            $
            97,596
            
            $
            98,345Operating
                income
            
            $
            58,669
            
            $
            42,708
            
            $
            28,229Net
                Income
            
            $
            28,934
            
            $
            21,364
            
            $
            16,700Basic
                earnings per common share
            
            $
            0.66
            
            $
            0.51
            
            $
            0.50Diluted
                earnings per common share
            
            $
            0.58
            
            $
            0.47
            
            $
            0.47


**10.  Trademarks
        and **Other
        Intangibles, net****


Other
      trademarks and intangibles, net consist of the following:




Estimated
                  Lives
                    in years
              
              
              December
                  31,2006
              
              
              December
                  31, 2005Gross
                  carrying amount
              
              
              Accumulated
                  amortization
              
              
              Gross
                  carrying amount
              
              
              Accumulated
                  amortizationTrademarks
              
              
              10
                  - indefinite(1)
              )
              $
              467,607
              
              $
              9,992
              
              $
              146,626
              
              $
              9,694Non-compete:Candies
              
              
              15
              
              
              2,275
              
              
              2,275
              
              
              2,275
              
              
              2,275Rampage
              
              
              2
              
              
              600
              
              
              378
              
              
              600
              
              
              81Mudd
              
              
              4
              
              
              1,400
              
              
              254
              
              
              -
              
              
              -Mossimo
              
              
              5
              
              
              2,800
              
              
              93
              
              
              -
              
              
              -Licensing
                  contract:Joe
                  Boxer
              
              
              2.5
              
              
              1,333
              
              
              753
              
              
              1,333
              
              
              218Rampage
              
              
              3
              
              
              550
              
              
              233
              
              
              550
              
              
              51Mudd
              
              
              3
              
              
              700
              
              
              256
              
              
              -
              
              
              -Mossimo
              
              
              5
              
              
              3,240
              
              
              108
              
              
              -
              
              
              -Ocean
                  Pacific
              
              
              5
              
              
              1,100
              
              
              37
              
              
              -
              
              
              -Rampage
                  domain name
              
              
              5
              
              
              230
              
              
              59
              
              
              230
              
              
              14Mudd
                  domain name
              
              
              5
              
              
              340
              
              
              49
              
              
              -
              
              
              -Other
                  intangibles
              
              
              3
              
              
              900
              
              
              900
              
              
              900
              
              
              900$
              483,075
              
              $
              15,387
              
              $
              152,514
              
              $
              13,233





Amortization
      expense for intangible assets was $2.2 million, $1.2 million, and $1.5 million
      for the Current Year, the Prior Year, and the 11-Months ending December 31,2004,
      respectively. The trademarks of Joe Boxer, Rampage, Mudd, London Fog, Mossimo,
      and Op, have been determined to have an indefinite useful life and accordingly,
      consistent with FAS 142, no amortization will be recorded in the Company's
      consolidated income statements. 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. Effective July 1, 2005, the Company had a change in estimate of
      the
      useful lives of the Candie's and Bongo trademarks to indefinite life. When
      acquired in 1981, the Candie's trademark was estimated to have a useful life
      of
      20 years. Bongo, acquired in 1998, was also estimated at that time to have
      a
      useful life of 20 years. Amortization expense for intangible assets subject
      to
      amortization for each of the years in the five-year period ending December
      31,
      2011 are estimated to be $3.5 million, $2.5 million, $2.3 million, $2.0 million,
      and $1.2 million, respectively.




F-24





(1)
            The
                amortization for Candies and Bongo trademarks are as of June 30,
                2005.
                Effective July 1, 2005, the Company changed their useful lives to
                indefinite.




**11.  **Special
        Charges****
  Special
        charges consist of the following:




Year
                ended
                December
                    31,
                  2006
            
            
            Year
              ended
              December
                31,
              2005
            
            
            Year
              ended
              December
                31,
              2004Professional
                fees related to Unzipped's litigation
            
            
            2,494
            
            
            1,466
            
            
            533Caruso
                shareholder lawsuit settlement
            
            
            -
            
            
            -
            
            
            (238
            )$
            2,494
            
            $
            1,466
            
            $
            295





F-25


**12.  **Debt
        Arrangements****




*Asset-Backed
      Notes*





In
      August
      2002, IP Holdings, 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 IP Holdings. 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, IP Holdings 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 IP Holdings,
      acquired the Joe Boxer brand from Joe Boxer Company, LLC and its affiliates,
      and
      the Rampage brand from Rampage Licensing, LLC. See Notes 4 and 5. The financing
      for the acquisitions was accomplished through two private placements by IP
      Holdings of Asset-Backed Notes, secured by the intellectual property assets
      owned by IP Holdings. 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 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 IP Holdings solely for the purchase of certain
      intellectual property assets. IP Holdings 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.




In
      April
      2006, the Company, through IP Holdings, 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. See Note 6. The financing for the acquisition was accomplished through
      the private placement on April 11, 2006 by IP Holdings of approximately $136
      million principal amount of Asset-Backed Notes. The issuance of the Asset-Backed
      Notes raised $49 million in new financing for IP Holdings (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 IP Holdings. The Asset-Backed Notes are secured by the
      acquired assets, as well as by other intellectual property assets owned by
      IP
      Holdings. The payment of the principal and interest on the Asset-Backed Notes
      has been made from amounts received by IP Holdings under license agreements
      with
      various licensees of the acquired assets and IP Holding'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 7 year life of the financed
      debt.





On
      August
      28, 2006, the Company completed the acquisition of the London Fog trademarks
      and
      certain related intellectual property assets from London Fog Group Inc. See
      Note
      7. The financing for this acquisition was accomplished through the private
      placement on August 28, 2006 by IP Holdings of its Asset-Backed Notes, secured
      by the intellectual property assets owned by IP Holdings (including the acquired
      assets), together with approximately $3.1 million of the Company's funds. The
      issuance of the Asset-Backed Notes raised $29 million in new financing for
      IP
      Holdings (before giving effect to the payment of expenses related to their
      issuance and required deposits to reserve accounts), and approximately $130.9
      million principal amount of the Asset-Backed Notes were exchanged for all of
      the
      outstanding Asset-Backed Notes previously issued by IP Holdings. The $29 million
      principal amount of Asset-Backed Notes representing the new financing portion
      of
      the private placement were used as follows: $27.5 million was paid to the seller
      of the London Fog assets, approximately $112,500 was used to pay costs
      associated with the issuance of such notes and $1.35 million was deposited
      in a
      liquidity reserve account as required by the holder of the Asset-Backed
      Notes.





Subject
      to terms of the Asset-Backed Notes, if by April 1, 2006, IP Holdings had not
      entered into or renewed certain licensing agreement(s) with respect to the
      Joe
      Boxer brand that guaranteed certain royalty thresholds, IP Holdings was 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. IP
      Holdings made two deposits of $3.75 million in April 2006, and July 2006. On
      September 28, 2006, IP Holdings entered into a new agreement with Kmart, which
      among other things, extended the term of Kmart's license with the Company.
      This
      agreement satisfied the criteria specified in the terms of the Asset-Backed
      Notes, and as such, the Company is not required to make any additional deposits
      to the renewal reserve. On October 24, 2006, the $7.5 million, which was
      included in current restricted cash as of September 30, 2006, was returned
      to
      the Company, and is no longer restricted.




F-26





Cash
      on
      hand in the bank account of IP Holdings 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, $4.3 million and $4.1 million as of December
      31, 2006 and December 31, 2005, respectively, have been disclosed as restricted
      cash within the Company's current assets. Further, in connection with IP
      Holdings' 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, $11.7 million
      and
      $5.0 million as of December 31, 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
      as
      of December 31, 2006 are as follows: $55.1 million principal amount bears
      interest at a fixed interest rate of 8.45% with a 6-year term, $24.5 million
      principal amount bears interest at a fixed rate of 8.12% with a 6- year term,
      and $76.3 million principal amount bears interest at a fixed rate of 8.99%
      with
      a 6 1⁄2 year term 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 IP Holdings) is obligated
      to
      make any payment with respect to the Asset-Backed Notes, and the assets of
      the
      Company and its subsidiaries (other than IP Holdings) are not available to
      IP
      Holdings' creditors. The assets of IP Holdings are not available to the
      creditors of the Company or its subsidiaries (other than IP
      Holdings).





*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 Kmart License by the former owners of
      Joe
      Boxer.   The 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 note may be off-set against any royalties
      owed under the Kmart License.  As of December 31, 2006, the outstanding
      balance of the note was $3,781. The note may be pre-paid without
      penalty.




F-27




*Debt
      Maturities*





The
      Company’s debt maturities are the following:




Total
              
              
              2007
              
              
              2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              thereafterDue
                  to Sweet (Note 2)
              
              $
              3,170
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              3,170
              
              $
              -Kmart
                  Note
              
              
              3,781
              
              
              3,781
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Asset
                  backed notes
              
              
              155,857
              
              
              18,351
              
              
              20,408
              
              
              22,231
              
              
              24,216
              
              
              26,380
              
              
              44,271Total
                  Debt
              
              $
              162,808
              
              $
              22,132
              
              $
              20,408
              
              $
              22,231
              
              $
              24,216
              
              $
              29,550
              
              $
              44,271


**13.  **Stockholders'
        Equity****


*Public
      Offering*





On
      December 13, 2006 the Company completed a public offering of common stock
      pursuant to registration statements that were declared effective by the
      Securities and Exchange Commission (“SEC”). All 10,784,750 shares of common
      stock offered in the final prospectus were sold at $18.75 per share. Net
      proceeds from the offering amounted to approximately $189.5
      million.





*Stock
      Options*





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options which have no vesting restrictions and are fully
      transferable. In addition, option valuation models require the input of highly
      subjective assumptions including the expected stock price volatility. Because
      the Company's employee stock options have characteristics significantly
      different from those of traded options, and because changes in the subjective
      input assumptions can materially affect the fair value estimate, in management's
      opinion, the existing models do not necessarily provide a reliable single
      measure of the fair value of its employee stock options.





The
      fair
      value for these options was estimated at the date of grant using a Black-Scholes
      option-pricing model with the following weighted-average
      assumptions:





Year
                ended
            
            Year
                ended
            
            11-Months
                endedDecember
                31,
            
            December
                31,
            
            December
                31,2006
            
            2005
            
            2004Expected
                Volatility
            
            .30-.50
            
            .30-.55
            
            .69-.77Expected
                Dividend Yield
            
            0%
            
            0%
            
            0%Expected
                Life (Term)
            
            3-5
                years
            
            3-5
                years
            
            3-5
                yearsRisk-Free
                Interest Rate
            
            3.00-4.75%
            
            3.00-4.24%
            
            3.24-4.06%





The
      weighted-average fair value of options granted (at their grant date) during
      the
      Current Year, the Prior Year, and the 11-Month Prior Period was $11.87, $7.36,
      and $2.72 per share, respectively.





In
      1989,
      the Company's Board of Directors adopted, and its stockholders approved, the
      Company's 1989 Stock Option Plan (the “1989 Plan”). The 1989 Plan, as amended in
      1990, provides for the granting of incentive stock options (“ISO's”) and limited
      stock appreciation rights (“Limited Rights”), covering up to 222,222 shares of
      common stock. The 1989 Plan terminated on August 1, 1999.





Under
      the
      1989 Plan, ISO's were to be granted at not less than the market price of the
      Company's Common Stock on the date of the grant. Stock options not covered
      by
      the ISO provisions of the 1989 Plan (“Non-Qualifying Stock Options” or “NQSO's”)
      were granted at prices determined by the Board of Directors.




F-28
 
 In
          1997,
          the Company's stockholders approved the Company's 1997 Stock Option Plan
          (the
“1997 Plan”). The 1997 Plan authorizes the granting of common stock options to
          purchase up to 3,500,000 shares of Company common stock. All employees,
          directors, independent agents, consultants and attorneys of the Company,
          including those of the Company's subsidiaries, are eligible to be granted
          NQSO's
          under the 1997 Plan. ISO's may be granted only to employees of the Company
          or
          any subsidiary of the Company. The 1997 Plan terminates in 2007.
 
 In
          2000,
          the Company's stockholders approved the Company's 2000 Stock Option Plan
          (the
          "2000 Plan"). The 2000 Plan authorizes the granting of common stock options
          to
          purchase up to 2,000,000 shares of Company common stock. All employees,
          directors, independent agents, consultants and attorneys of the Company,
          including those of the Company's subsidiaries, are eligible to be granted
          NQSO's
          under the 2000 Plan. The 2000 Plan terminates in 2010.
 
 In
          2001,
          the Company adopted the 2001 Stock Option Plan (the "2001 Plan"). The 2001
          Plan
          authorizes the granting of common stock options to purchase up to 2,000,000
          shares of Company common stock. All employees, directors, independent agents,
          consultants and attorneys of the Company, including those of the Company's
          subsidiaries, are eligible to be granted NQSO's under the 2001 Plan. The
          2001
          Plan terminates in 2011.
 
 In
          2002,
          the Company's stockholders approved the Company's 2002 Stock Option Plan
          (the
          "2002 Plan"). The 2002 Plan authorizes the granting of common stock options
          to
          purchase up to 2,000,000 shares of Company common stock. All employees,
          directors, independent agents, consultants and attorneys of the Company,
          including those of the Company's subsidiaries, are eligible to be granted
          ISO's
          and NQSO's under the 2002 Plan. The 2002 Plan terminates in 2012.
 
 In
          2006,
          the Company's stockholders approved the Company's 2006 Equity Incentive
          Plan
          (the "2006 Plan"). The 2006 Plan authorizes the granting of common stock
          options
          to purchase up to 2,000,000 shares of Company common stock, of which note
          more
          than 500,000 shares may be granted as ISO’s. All employees, directors,
          independent agents, consultants and attorneys of the Company, including
          those of
          the Company's subsidiaries, are eligible to be granted NQSO's and other
          stock-based awards under the 2006 Plan, and employees are also eligible
          to be
          granted ISO’s under the 2006 Plan. No new awards may be granted under the Plan
          after July 2016.
 
 The
          options that were granted under the Plans expire between five and ten years
          from
          the date of grant.
  Summaries
          of the Company's stock options, warrants and performance related options
          activity, and related information for the Current Year, the Prior Year,
          and the
          11-Month Prior Period follows:
  Weighted-AverageOptions
                
                Exercise
                    PriceOutstanding
                    January 31, 2004
                
                
                5,646,506
                
                $
                2.29Granted
                
                
                1,455,000
                
                
                2.72Canceled
                
                
                (512,700
                )
                
                2.54Exercised
                
                
                (1,108,680
                )
                
                1.61Expired
                
                
                (12,500
                )
                
                1.94Outstanding
                    December 31, 2004
                
                
                5,467,626
                
                $
                2.52Granted
                
                
                2,905,501
                
                
                7.10Canceled
                
                
                (142,500
                )
                
                2.63Exercised
                
                
                (708,877
                )
                
                2.14Expired
                
                
                (15,125
                )
                
                0.74Outstanding
                    December 31, 2005
                
                
                7,506,625
                
                $
                4.31Granted
                
                
                43,000
                
                
                16.99Canceled
                
                
                (17,750
                )
                
                2.28Exercised
                
                
                (1,762,243
                )
                
                4.55Expired
                
                
                -
                
                
                -Outstanding
                    December 31, 2006
                
                
                5,769,632
                
                $
                4.35Exercisable
                    at December 31, 2006
                
                
                5,646,964
                
                $
                5.97


F-29


The
        weighted average contractual term (in years) of options outstanding as of
        December 31, 2006, 2005, and 2004, were 6.00, 7.03, and 6.70 respectively.
        The
        weighted average contractual term (in years) of options exercisable as of
        December 31, 2006, 2005, and 2004, were 5.97, 7.02, and 6.15
        respectively.
 
 The
        total
        fair value of options vested during the Current Year, Prior Year, and 11-month
        Prior Period, were $.02 million, $6.84 million, and $0.4 million,
        respectively.
 
 Cash
        received from option exercise under all share-based payment arrangements
        for the
        Current Year, Prior Year, and 11-month Prior Period, was $4.0 million, $1.6
        million, and $1.7 million respectively. No tax benefit was realized for the
        tax
        deductions from option exercise of the share-based payment arrangements because
        of the Company’s NOL’s. Total amount of tax benefits to be realized in the
        future is $7.0 million.
 
 The
        aggregate intrinsic value is calculated as the difference between the market
        price of our common stock as of December 31, 2006 and the exercise price
        of the
        underlying options. During the Current Year, the Prior Year, and the 11-Month
        Prior Period, the aggregate intrinsic value of options exercised was $40.9
        million, $5.7 million, and $4.2 million, respectively. During the Current
        Year,
        the Prior Year, and the 11-Month Prior Period, the aggregate intrinsic value
        of
        options exercisable was $84.9 million, $43.7 million, and $13.0 million,
        respectively. In addition, the aggregate intrinsic value of options outstanding
        was $86.8 million, $44.1 million, and $15.7 million for the Current Year,
        Prior Year, and 11-Month Prior Period, respectively.
  Weighted-AverageWarrants
              
              Exercise
                  PriceOutstanding
                  January 31, 2004
              
              
              -
              
              $
              -Granted
              
              
              -
              
              
              -Canceled
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Expired
              
              
              -
              
              
              -Outstanding
                  December 31, 2004
              
              
              -
              
              $
              -Granted
              
              
              1,275,000
              
              
              6.56Canceled
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Expired
              
              
              -
              
              
              -Outstanding
                  December 31, 2005
              
              
              1,275,000
              
              $
              6.56Granted
              
              
              654,110
              
              
              11.53Canceled
              
              
              -
              
              
              -Exercised
              
              
              (1,129,935
              )
              
              6.29Expired
              
              
              -
              
              
              -Outstanding
                  December 31, 2006
              
              
              799,175
              
              $
              11.02Exercisable
                  at December 31, 2006
              
              
              467,508
              
              $
              12.60
 
 All
        warrants issued in connection with acquisitions are recorded at fair market
        value using the Black Scholes model and are recorded as part of purchase
        accounting. See Notes 4, 5, 6, 8 and 9.
 
 Other
        warrants issued to non-employees are valued at fair market value using the
        Black
        Scholes model and are expensed over the vesting period.
 
 The
        weighted average contractual term (in years) of warrants outstanding as of
        December 31, 2006 and 2005 were 8.87 and 9.03, respectively. The weighted
        average contractual term (in years) of warrants exercisable as of December
        31,
        2006 and 2005 were 8.83 and 9.17, respectively. There were no warrants
        outstanding as of December 31, 2004.
 
 The
        fair
        value of warrants vested during the Current Year and Prior Year, were $8.4
        million and $2.7 million, respectively. No warrants vested during the 11-Month
        Prior Period.




F-30


Cash
        received from warrants exercised under all share-based payment arrangements
        for
        the Current Year was $5.1 million.
  Weighted-AveragePerformance
                      Related Options
                  
                  Exercise
                      PriceOutstanding
                      January 31, 2004
                  
                  
                  -
                  
                  $
                  -Granted
                  
                  
                  -
                  
                  
                  -Canceled
                  
                  
                  -
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  -Expired
                  
                  
                  -
                  
                  
                  -Outstanding
                      December 31, 2004
                  
                  
                  -
                  
                  $
                  -Granted
                  
                  
                  1,200,000
                  
                  
                  8.81Canceled
                  
                  
                  -
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  -Expired
                  
                  
                  -
                  
                  
                  -Outstanding
                      December 31, 2005
                  
                  
                  1,200,000
                  
                  $
                  8.81Granted
                  
                  
                  -
                  
                  
                  -Canceled
                  
                  
                  (1,200,000
                  )
                  
                  8.81Exercised
                  
                  
                  -
                  
                  
                  -Expired
                  
                  
                  -Outstanding
                      December 31, 2006
                  
                  
                  -
                  
                  
                  -
 
 No
          performance related options were outstanding as of December 31, 2006, and
          2004.
          The weighted average contractual term (in years) of performance related
          options
          outstanding at December 31, 2005, was 9.56. No performance related options
          were
          exercisable as of December 31, 2006, 2005, and 2004.
 
 During
          the Current Year, the Prior Year, and the 11-Month Prior Period, the aggregate
          intrinsic value of performance related options outstanding was $0, $1.7
          million,
          and $0, respectively. In addition, the aggregate intrinsic value of performance
          related options exercisable was $0 for the Current Year, the Prior Year,
          and the
          11-Month Prior Period.
  At
        December 31, 2006, December 31, 2005, and December 31, 2004, exercisable
        stock
        options totaled 5,646,964, 7,439,957, and 4,420,125, and had weighted average
        exercise prices of $4.27, $4.31, and $2.45 per share,
        respectively.


In
        the
        Current Year, the Company recorded approximately $432,000 in expense, with
        an
        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 for employees ranging from 3-5 years, expected life for
        non-employees ranging from 3-5 years, risk-free interest rate from 3.0-4.75%,
        expected volatility from 30-50%, 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.
 
 At
        December 31, 2006, 1,904,345, 1,597,334, 922,250, and 564,721 common shares
        were
        reserved for issuance on exercise of stock options under the 2006, 2002,
        2001,
        and 2000 Stock Option Plan, respectively.




**Restricted
      stock**




Compensation
      cost for restricted stock is measured as the excess, if any, of the quoted
      market price of our stock at the date the common stock is issued over the amount
      the employee must pay to acquire the stock (which is generally zero). The
      compensation cost, net of projected forfeitures, is recognized over the period
      between the issue date and the date any restrictions lapse, with compensation
      cost for grants with a graded vesting schedule recognized on a straight-line
      basis over the requisite service period for each separately vesting portion
      of
      the award as if the award was, in substance, multiple awards. The restrictions
      do not affect voting and dividend rights.




F-31




The following tables summarize information about unvested restricted stock
      transactions (shares in thousands):




2006Shares
            
            Weighted
              Average
                Grant Date
              Fair
              ValueNonvested,
                January 1
            
            
            -
            
            
            -Granted
            
            
            95,655
            
            $
            17.46Vested
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -Non-vested,
                December 31
            
            
            95,655
            
            $
            17.46




The
      Company has awarded restricted shares of common stock to certain employees.
      The
      awards have restriction periods tied to employment and vest over a period of
      2-3
      years. The cost of the restricted stock awards, which is the fair market value
      on the date of grant net of estimated forfeitures, is expensed ratably over
      the
      vesting period. During the Current Year, the Company awarded 95,655 restricted
      shares with a vesting period of 2-3 years and a fair market value of
      approximately $1,671,000. As of December 31, 2006, no restricted stock grants
      had vested.





Unearned
      compensation expense related to restricted stock grants for the Current Year
      was
      approximately $250,000. An additional amount of $1.4 million is expected to
      be
      expensed evenly over a period of approximately 2-3 years.




*Stockholder
      Rights Plan*





In
      January 2000, the Company's Board of Directors adopted a stockholder rights
      plan. Under the plan, each stockholder of common stock received a dividend
      of one right for each share of the Company's outstanding common stock, entitling
      the holder to purchase one thousandth of a share of Series A Junior
      Participating Preferred Stock, par value, $0.01 per share of the Company, at
      an
      initial exercise price of $6.00. The rights become exercisable and will trade
      separately from the Common Stock ten business days after any person or group
      acquires 15% or more of the Common Stock, or ten business days after any person
      or group announces a tender offer for 15% or more of the outstanding Common
      Stock.





*Stock
      Repurchase Program*





On
      September 15, 1998, the Company's Board of Directors authorized the repurchase
      of up to two million shares of the Company's Common Stock, which was replaced
      with a new agreement on December 21, 2000, authorizing the repurchase of up
      to
      three million shares of the Company's Common Stock. In the Current Year and
      the
      Prior Year, no shares were repurchased in the open market.




**14.  **Earnings
        Per Share****





Basic
      earnings per share includes no dilution and is computed by dividing net income
      available to common shareholders by the weighted average number of common shares
      outstanding for the period. Diluted earnings per share reflect, in periods
      in
      which they have a dilutive effect, the effect of common shares issuable upon
      exercise of stock options. The difference between reported basic and diluted
      weighted-average common shares results from the assumption that all dilutive
      stock options outstanding were exercised and all convertible bonds have been
      converted into common stock. Diluted loss per share reflects, in periods in
      which they have a dilutive effect, the effect of common shares issuable upon
      exercise of stock options.





As
      of
      December 31, 2006, of the total potentially dilutive shares related to stock
      options, none were anti-dilutive, compared to 7.3 million of total 8.4 million
      as of December 31, 2005, and 2.1 million of total 5.7 million as of December
      31,
      2004.




**15.  **Commitments
        and Contingencies****




**Sweet
      Sportswear/Unzipped litigation**




On
      August
      5, 2004, the Company, along with its subsidiaries, Unzipped, Michael Caruso
      & Co., referred to as Caruso, and IP Holdings, 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, Azteca Production International, Inc., referred
      to as Azteca, and Apparel Distribution Services, LLC, referred to as ADS, and
      a
      principal of these entities and former member of our board of directors, Hubert
      Guez, collectively referred to as defendants. The Company is pursuing numerous
      causes of action against defendants, including breach of contact, breach of
      fiduciary duty, trademark infringement and others and is seeking damages in
      excess of $20 million. On March 10, 2005, Sweet Sportswear, Azteca and ADS,
      collectively referred to as cross-complainants, filed a cross-complaint against
      the Company claiming damages resulting from a variety of contractual breaches,
      among other things.




F-32




On
      January 22, 2007, the case commenced trial in the California Superior Court
      and
      the trial is still being conducted.




***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 tortiously
      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, which was dismissed
      in its entirety on June 9, 2006, except with respect to one remaining claim
      asserted against it, a claim that it failed to pay Bader and Sportswear
      Mercenaries $72,000 in commissions and bonuses. The Company intends to
      vigorously defend against such claim.




***Redwood
      Shoe litigation***




This
      litigation, which was commenced in January 2002, by Redwood Shoe Corporation
      (“Redwood”), one of the Company’s former buying agents of footwear, was
      dismissed with prejudice by the court on February 15, 2007, pursuant to an
      agreement in principle by the Company, Redwood, its affiliate, Mark Tucker,
      Inc.
      (“MTI”) and MTI’s principal, Mark Tucker, to settle the matter. The proposed
      settlement agreement provides for the Company to pay a total of $1.9 million
      to
      Redwood and MTI. The stipulation and order dismissing the action may be reopened
      should the settlement agreement not be finalized and consummated by all of
      the
      parties. The Company currently anticipates that the settlement agreement will
      be
      executed in the first quarter of 2007.




***Bongo
      Apparel, Inc. litigation***




On
      or
      about June 12, 2006, Bongo Apparel, Inc. (“BAI”), filed suit in the Supreme
      Court of the State of New York, County of New York, against the Company alleging
      certain breach of contract and other claims and seeks, among other things,
      damages of at least $25 million. The Company believes that, in addition to
      other
      defenses and counterclaims that it intends 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 has moved to dismiss all claims. The motion
      is
      pending before the Court Additionally, on or about October 6, 2006, the Company
      and IP Holdings filed suit in the U.S. District Court for the Southern District
      of New York against BAI and its guarantor, TKO Apparel, Inc. In that complaint,
      the Company asserts various contract, tort and trademark claims that arose
      as a
      result of the failures of BAI with regard to the Bongo men’s jeanswear business
      and its wrongful conduct with regard to the Bongo women’s jeanswear
      business.  The
      Company and IP Holdings are seeking monetary damages in an amount to be
      determined at trial and a permanent injunction with respect to the use of the
      Bongo mark.




**Mossimo
      litigation**




In
      April
      2005, Mr. Mossimo Giannulli offered to acquire all of the outstanding publicly
      held common stock of Mossimo at a price of $4.00 per share. Following the
      announcement of such offer, six purported class action lawsuits were filed
      in
      the Court of Chancery of the State of Delaware seeking an injunction preventing
      the proposed acquisition of Mossimo by the Company and asserting that the
      Mossimo directors breached their fiduciary duties to the Mossimo stockholders.
      These six cases were consolidated. Although Mr. Giannulli subsequently
      withdrew his acquisition proposal, plaintiffs filed a first consolidated amended
      complaint in March 2006, in which they allege, among other things, that Mossimo
      and its board of directors breached their fiduciary duties and engaged in
      self-dealing in approving the merger agreement with the Company.




In
      addition, on April 12, 2006, a purported shareholder class action lawsuit
      was filed in the Superior Court of the State of California for the County of
      Los
      Angeles asserting similar claims against Mossimo and its directors with respect
      to the merger and seeking, among other relief, to enjoin the merger and rescind
      any agreements entered into in connection with the merger, and to recover costs,
      including attorney’s fees.




On
      September 27, 2006, Mr. Giannulli and other defendants entered into a
      memorandum of understanding with the Delaware plaintiffs to settle the Delaware
      action. The settlement was subject to the closing of the merger, the negotiation
      of a definitive stipulation of settlement and final approval by the Delaware
      Chancery Court. The terms of the memorandum of understanding provide that if
      the
      Company sells Mossimo or the Mossimo business prior to October 31, 2007 to
      an unaffiliated third party and if the consideration for such sale is greater
      than 120% of the amount paid to the Mossimo stockholders in the merger, 30%
      of
      that excess amount will be paid into a settlement fund to be administered and
      distributed by the plaintiffs’ lawyers under the supervision of the Delaware
      court. This additional amount, if it becomes due and distributable, will be
      paid
      to all persons who owned Mossimo stock, directly or indirectly, between
      April 12, 2005 and October 31, 2006, and will not constitute
      additional merger consideration. Mossimo also negotiated in good faith with
      the
      plaintiffs’ lead counsel concerning the amount of attorney fees and expenses to
      be paid by Mossimo or the Company, as its successor, and not to oppose such
      counsel’s application to the court of up to $800,000 in payment of such fees and
      expenses. In consideration of these terms, the parties agreed that they would
      fully and finally release and discharge all claims against each other. On
      December 4, 2006, the parties finalized the terms of the definitive settlement
      agreement and filed the same with the Delaware court. The Delaware court has
      entered an order directing the parties to issue a written notice to all Mossimo
      stockholders informing them, among other things, of the terms of the settlement
      and of their right to appear at a February 22, 2007 court hearing at which
      the
      Delaware court would consider whether the settlement is reasonable, adequate
      and
      in the best interest of the class. The Delaware court conducted the hearing
      on
      February 22, 2007 and on February 26, 2007, entered an order approving the
      settlement and dismissing the action with prejudice.




F-33




On
      October 27, 2006, Mr. Giannulli and other defendants also entered into
      a settlement letter with the California plaintiffs in the California action.
      Under the terms of this settlement, Mr. Giannulli and the other defendants
      have agreed to pay Plaintiffs’ counsel between $620,000 and $650,000. The
      California plaintiffs will be bound by the terms of the Delaware settlement
      once
      the settlement is approved by the Delaware Chancery Court and have agreed to
      file a request for dismissal with prejudice. As a result, if and when the
      settlement of the Delaware action is approved by the Delaware court and becomes
      effective, it will also bind the members of the purported class in the
      California litigation, rendering the California action moot. On March 1, 2007,
      the parties filed a stipulation with the California court dismissing the action
      with prejudice and requesting an order awarding Plaintiffs’ counsel between
      $620,000 and $650,000. The California court has scheduled a hearing on the
      stipulation for March 29, 2007.




**Normal
      Course litigation**




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 the Company’s financial position or future
      liquidity .




**16.  Related
                Party Transactions**





On
      May 1,
      2003, the Company granted Kenneth Cole Productions, Inc. the exclusive worldwide
      license to design, manufacture, sell, distribute and market footwear under
      its
      Bongo brand. The chief executive officer and chairman of Kenneth Cole
      Productions is Kenneth Cole, who is the brother of Neil Cole, the Company's
      Chief Executive Officer and President. During the Current Year, Prior Year
      and
      the 11-Month Prior Period, the Company received $1.3 million, $1.4 million
      and
      $1.1 million, respectively, in royalties from Kenneth Cole
      Productions.




The
      Candie's Foundation, a charitable foundation founded by Neil Cole for the
      purpose of raising national awareness about the consequences of teenage
      pregnancy, owed the Company $297 at December 31, 2006. The Candie's Foundation
      paid-off the entire borrowing from the Company in February 2007, although
      additional advance will be made as and when necessary. Mr. Cole's wife,
      Elizabeth Cole, was employed by the Candie's Foundation at an annualized salary
      of $80 until May 2005. She continues to perform services for the foundation
      but
      without compensation.




**17.  Operating
                Leases**





Future
      net minimum lease payments under non-cancelable operating lease agreements
      as of
      December 31, 2006 are approximately as follows:




Year
                ending December 31, 2007
            
            $
            532Year
                ending December 31, 2008
            
            
            132Year
                ending December 31, 2009
            
            
            66Totals
            
            $
            730





The
      leases require the Company to pay additional taxes on the properties, certain
      operating costs and contingent rents based on sales in excess of stated
      amounts.





Rent
      expense was approximately $749, $470, and $426 for Current Year, the Prior
      Year,
      and the 11-Months ending December 31, 2004 respectively. Contingent rent amounts
      have been immaterial for all periods.





**18.  Benefit
                and Incentive Compensation Plans and
                Other**





The
      Company sponsors a 401(k) Savings Plan (the “Savings Plan”) which covers all
      eligible full-time employees. Participants may elect to make pretax
      contributions subject to applicable limits. At its discretion, the Company
      may
      contribute additional amounts to the Savings Plan. The Company had no
      contributions for the Current Year, Prior Year, and the 11-Months ending
      December 31, 2004.




F-34




**19.   Income
                Taxes**





At
      December 31, 2006 the Company had available federal net operating losses
      carryforwards (“NOL's”) of approximately $56.7 million for income tax purposes,
      which expire in the years 2007 through 2025. Because of "ownership changes"
      (as
      defined in Section 382 of the Internal Revenue Code) occurring in previous
      fiscal years, the utilization of approximately $4.4 million of the net operating
      losses is limited to $602 per year and expires in 2007. The $4.4 million in
      net
      operating losses are expected to be utilized in 2006. The remaining $52.3
      million is not subject to such limitation and expires in the years 2009 through
      2025. As of December 31, 2006 the Company had available state and city NOL's
      totaling between $48.3 million and $88.1 million, substantially all of which
      expire in the years 2020 through 2025. Included in the Company's NOL's as of
      December 31, 2006 is $7.0 million from the exercises of stock options. The
      benefit from the utilization of this portion of the NOL will be recorded as
      a
      credit to additional paid in capital if and when the related deferred tax asset
      is determined to be realizable.





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 Year 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 by $6.2 million in the Current Year and $5.1 million in the Prior
      Year. The Company reduced the valuation allowance an additional $2.4 million,
      in
      the Current Year, which 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.




F-35




The
      income tax provision (benefit) for Federal and state income taxes in the
      consolidated income statements consists of the following:




Year
                Ended
              December
                31,
              2006
            
            
            Year
                Ended
              December
                31,
              2005
            
            
            11-Months
                Ended
              December
                31,2004Current:Federal
            
            $
            140
            
            $
            97
            
            $
            -State
            
            
            -
            
            
            -
            
            
            -Total
                current
            
            
            140
            
            
            97
            
            
            -Deferred:Federal
            
            
            5,510
            
            
            (4,274
            )
            
            -State
            
            
            1,685
            
            
            (858
            )
            
            -Total
                deferred
            
            
            7,195
            
            
            (5,132
            )
            
            -Total
                provision (benefit)
            
            $
            7,335
            
            $
            (5,035
            )
            $
            -





The
      Company's effective income tax rate differs from the federal statutory rate
      primarily as a result of a decrease in the deferred tax valuation allowance
      in
      the years ended December 31, 2006 and 2005.  In the 11-Months ended
      December 31, 2004, the effective income tax rate differs from
      the federal statutory rate as a result of prior losses incurred being
      available to offset current year income for financial statement
      purposes. The valuation allowance decreased in the year ended December 31,
      2006 as a result of an increase in the amount of the related deferred tax asset
      which management believes is more likely than not of realization.





The
      significant components of net deferred tax assets of the Company consist of
      the
      following:




December
                31,2006
            
            
            2005Net
                operating loss carryforwards
            
            
            26,596
            
            
            28,232Receivable
                reserves
            
            
            725
            
            
            106Depreciation
            
            
            340
            
            
            26Intangibles
            
            
            1,189
            
            
            989Contribution
                carryover
            
            
            307
            
            
            -Accrued
                compensation and other
            
            
            1,107
            
            
            527Total
                deferred tax assets
            
            
            30,264
            
            
            29,880Valuation
                allowance
            
            
            (13,662
            )
            
            (14,186
            )Net
                deferred tax assets
            
            
            16,602
            
            
            15,694Trademarks
                and goodwill
            
            
            (10,078
            )
            
            (4,201
            )Net
                deferred tax liabilities - acquisition
            
            
            (44,168
            )Total
                deferred tax liabilities
            
            
            (54,246
            )
            
            (4,201
            )Total
                net deferred tax assets (liabilities)
            
            $
            (37,644
            )
            $
            11,493Current
                portion of net deferred tax assets
            
            $
            3,440
            
            $
            3,716Non
                current portion of net deferred assets (liabilities)
            
            $
            (41,084
            )
            $
            7,777




F-36




**20.  Segment
                Information**





The
      Company has identified operating segments based on, among other things, the
      way
      the Company's management organizes the components of its business for purposes
      of allocating resources and assessing performance. Before the Prior Year, the
      Company's operations were comprised of two reportable segments:
      footwear/licensing and apparel. The footwear segment included Candie's footwear,
      Bongo footwear, private label footwear, retail store operations, and licensing.
      The apparel segment included Bongo jeanswear. Segment revenues were generated
      from the sale of footwear, apparel and accessories through wholesale channels
      and the Company's retail locations. The Company defined segment income as
      operating income before interest expense and income taxes.





Commencing
      in the Prior Year, the Company stopped reporting segment information under
      footwear/license and apparel operating segments since the Company has fully
      transitioned into a licensing business and the prior segment designations are
      no
      longer considered by management in evaluating operating performance. Summarized
      below are the Company's segment revenues, income (loss) and total assets by
      reportable segments for the 11-month Prior Year.




(000's
                omitted)
            
            Footwear/Licensing
            
            Apparel
            
            Elimination
            
            ConsolidatedFor
                the 11-Months ended December 31, 2004Total
                revenues
            
            $
            30,481
            
            $
            38,499
            
            $
            -
            
            $
            68,980Segment
                income
            
            
            1,841
            
            
            895
            
            
            -
            
            
            2,736Interest
                expense
            
            
            
            
            
            
            
            
            
            
            
            2,495Income
                before income tax provision
            
            
            
            
            
            
            
            
            
            
            $
            241Capital
                additions
            
            $
            24
            
            $
            6
            
            $
            -
            
            $
            30Depreciation
                and amortization expenses
            
            $
            1,672
            
            $
            465
            
            $
            -
            
            $
            2,137


F-37




**21.  Unaudited
                Consolidated Interim Financial
                Information**





Unaudited
      interim consolidated financial information for the Current Year and the Prior
      Year is summarized as follows:




First
                Quarter
            
            Second
                Quarter
            
            Third
                Quarter
            
            Fourth
                Quarter(in
                thousands except per share data)Current
                YearLicensing
                and commission revenue
            
            $
            13,269
            
            $
            18,409
            
            $
            22,113
            
            $
            26,903Operating
                income
            
            
            7,898
            
            
            10,880
            
            
            15,409
            
            
            19,486Net
                income
            
            
            7,357
            
            
            8,345
            
            
            7,946
            
            
            8,853Basic
                earnings per share
            
            
            0.21
            
            
            0.22
            
            
            0.20
            
            
            0.19Diluted
                earnings per share
            
            
            0.18
            
            
            0.19
            
            
            0.18
            
            
            0.17Prior
                YearLicensing
                and commission revenue
            
            
            4,300
            
            
            4,287
            
            
            9,205
            
            
            12,364Operating
                income
            
            
            1,242
            
            
            1,121
            
            
            5,048
            
            
            7,399Net
                income
            
            
            787
            
            
            2,511
            
            
            5,159
            
            
            7,486Basic
                earnings per share
            
            
            0.03
            
            
            0.09
            
            
            0.16
            
            
            0.21Diluted
                earnings per share
            
            
            0.03
            
            
            0.08
            
            
            0.14
            
            
            0.19




**22.  Change
                in Fiscal Year End**





As
      discussed in Note 1 - Summary of Significant Accounting Policies - effective
      in
      2004, the Company's fiscal year end has changed from January 31 to December
      31.
      Accordingly, the Company reported audited financial statements for the 11-Months
      ended December 31, 2004 in prior year's Form 10-K and financial statements
      for
      the 12 months ended December 31, 2005 in this Form 10-K. The following table
      provides certain unaudited financial information for the 12 months ended
      December 31, 2004.





12
                months endedDecember
                312004Net
                sales
            
            $
            62,734Licensing
                and commission revenue
            
            
            11,327Gross
                profit
            
            
            22,375Income
                before income taxes
            
            
            231Provision
                for income taxes
            
            
            -Net
                income
            
            
            231Basic
                earnings per share
            
            $
            0.01Diluted
                earning per share
            
            $
            0.01




**23.  Subsequent
      Events**





**Acquision
      of the Danskin ® Brand**





On
      March
      9, 2007, the Company completed its acquisition of the Danskin® brand and certain
      of the assets and rights related to the business of designing, marketing,
      licensing and/or managing the Danskin® brand. Danskin is a 125 year-old iconic
      brand of women's activewear, legwear, dancewear, yoga apparel and fitness
      equipment. The brand is sold through better department, specialty and sporting
      goods stores, and through freestanding Danskin boutiques and Danskin.com.
      Danskin also has a partnership with Wal-Mart Stores for its Danskin Now® brand
      of apparel and fitness equipment.




The
      purchase price for the Danskin assets was $70 million in cash, together with
      the
      assumption of certain liabilities and contingent additional consideration of
      up
      to $15 million based on certain criteria relating to the achievement of revenue
      and performance targets involving the licensing of the Danskin assets; all
      or a
      portion of the contingent consideration may be paid in shares of the Company’s
      common stock. The cash portion of the purchase price was self-funded from the
      Company's cash reserves. Upon the closing, the sellers delivered the Danskin
      assets to a subsidiary of the Company, which entered into a license agreement
      with Danskin relating to Danskin’s continued operation of its wholesale business
      and freestanding retail stores.




F-38




**Proposed
      Acquisition of the Rocawear® Brand**





On
      March
      6, 2007, the Company entered into an Assets Purchase Agreement with Rocawear
      Licensing LLC (“Rocawear”) and each of Shawn Carter (“Carter”), Arnold Bize and
      Naum Chernyavsky to purchase the Rocawear **®** brand
      and certain of the assets and rights related to the business of designing,
      marketing, licensing and/or managing the Rocawear brand. Rocawear is a leading
      lifestyle apparel brand sold through better department and specialty stores.
      As
      part of the transaction, Carter will enter into an Endorsement/Services
      Agreement pursuant to which Carter will oversee all product development,
      marketing and licensing for the Rocawear **®** brand.
      The Company will also separately enter into an equal ownership joint venture
      agreement with Carter to establish a new brand management and licensing company
      which will identify brands to be acquired and/or developed across a broad
      spectrum of consumer product categories, including the luxury brand “Shawn
      Carter Collection”.




The
      purchase price for the Rocawear assets will be $204 million in cash and
      additional contingent consideration of up to $35 million based on certain
      criteria relating to the achievement of revenue and performance targets
      involving the licensing of the Rocawear assets; all or a portion of the
      contingent consideration may be paid in shares of the Company’s common stock.
      The cash portion of the purchase price due at closing of the acquisition will
      be
      funded from proceeds of a loan made by one or more affiliates of Lehman Brothers
      Inc. Upon the closing, the seller will deliver the Rocawear assets to a
      subsidiary of the Company, which will enter into a license agreement with ROC
      Apparel LLC, relating to the continued operation of the Men’s Rocawear wholesale
      distribution business. The Company currently expects the transaction, which
      is
      subject to certain closing conditions, to close in March 2007.




F-39




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




Board
      of Directors and Stockholders


Iconix
      Brand Group, Inc.


New
      York, New York





The
      audits referred to in our report dated March 14, 2007, relating to the
      consolidated financial statements of Iconix Brand Group, Inc. and Subsidiaries,
      which is contained in Item 8 of the Form 10-K included the audits of the
      financial statement schedule listed in the accompanying index for the fiscal
      years ended December 31, 2006, December 31, 2005, and the 11-months ended
      December 31, 2004. This financial statement schedule is the responsibility
      of
      the Company's management. Our responsibility is to express an opinion on the
      financial statement schedule based upon our audits.





In
      our
      opinion the financial statement schedule presents fairly, in all material
      respects, the information set forth therein.




/s/
      BDO
      Seidman, LLP




March
      14,
      2007


New
      York,
      New York




S-1




**Schedule
      II - Valuation and Qualifying Accounts**


**Iconix
      Brand Group, Inc. and Subsidiaries**


**(In
      thousands)**




Column
                A
            
            
            Column
                B
            
            
            Column
                C
            
            
            Column
                D
            
            
            Column
                EDescription
            
            
            Balance
                at
                Beginning
                  of
                Period
            
            
            Additions
              Charged
                to
              Costs
                and
              Expenses
            
            
            Deductions
            
            
            Balance
                at
                End
                  of
                PeriodReserves
                and allowances deducted from asset accounts:Accounts
                Receivables (a):12
                months ended December 31, 2006
            
            $
            260
            
            $
            1,373
            
            $
            -
            
            $
            1,63312
                months ended December 31, 2005
            
            $
            -
            
            $
            260
            
            $
            -
            
            $
            26011-Months
                ended December 31, 2004
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Due
                from Factor reserves (a):12
                months ended December 31, 2006
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -12
                months ended December 31, 2005
            
            $
            1,856
            
            $
            360
            
            $
            2,216
            
            $
            -11-Months
                ended December 31, 2004
            
            $
            1,271
            
            $
            1,099
            
            $
            514
            
            $
            1,856Inventory
                reserves:12
                months ended December 31, 2006
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -12
                months ended December 31, 2005
            
            $
            2,252
            
            $
            154
            
            $
            2,406
            
            $
            -11-Months
                ended December 31, 2004
            
            $
            4,094
            
            $
            1,937
            
            $
            3,779
            
            $
            2,252




(a)  These
                amounts include reserves for chargebacks, markdowns, co-op advertising
                allowances, and bad debts.


S-2