**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,
                2007**





**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. x









Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer”, “accelerated filer”, and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act:




Large accelerated filer x
            Accelerated filer o
            Non-accelerated filer o
            Smaller reporting company o(Do not check if a smaller reporting
              company)





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the 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, 2007 was approximately
      $1.26 billion. As of February 26, 2008, 57,391,675 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
            
            9Item
                1B.
            
            Unresolved
                Staff Comments
            
            16Item
                2.
            
            Properties
            
            16Item
                3.
            
            Legal
                Proceedings
            
            17Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            18PART
                IIItem
                5.
            
            Market
                for Registrant's Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            18Item
                6.
            
            Selected
                Financial Data
            
            19Item
                7.
            
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            20Item
                7A.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            27Item
                8.
            
            Financial
                Statements and Supplementary Data
            
            28Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            28Item
                9A.
            
            Controls
                and Procedures
            
            28Item
                9B.
            
            Other
                Information
            
            32PART
                IIIItem
                10.
            
            Directors,
                Executive Officers and Corporate Governance
            
            32Item
                11.
            
            Executive
                Compensation
            
            35Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            51Item
                13.
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            53Item
                14.
            
            Principal
                Accounting Fees and Services
            
            54PART
                IVItem
                15.
            
            Exhibits,
                Financial Statement Schedules
            
            55Signatures
            
            56Consolidated
                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; Bright Star Footwear, Inc., which is referred to
      as
      Bright Star; 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; Studio IP
      Holdings LLC, which is referred to as Studio IP Holdings; and Official-Pillowtex
      LLC, which is referred to as Official-Pillowtex or
      Pillowtex.***





**PART
      I**





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





**General**




The
      Company is a brand management company engaged in licensing, marketing and
      providing trend direction for a portfolio of owned consumer brands. The Company
      currently owns 16 brands, Candie's®, Bongo®, Badgley Mischka®, Joe Boxer®,
      Rampage®, Mudd®, London Fog®, Mossimo®, Ocean Pacific®/OP®, Danskin®, Rocawear®,
      Cannon®, Royal Velvet®, Fieldcrest®, Charisma® and Starter®, which it licenses
      directly to leading retailers, wholesalers and suppliers for use across a wide
      range of product categories, including apparel, fashion accessories, footwear,
      beauty and fragrance, and home products and decor. 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 help
      maintain and build brand integrity.





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.





The
      Company also continues to arrange, as agent, through its wholly-owned
      subsidiary, 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 on sales.




Since
      October 2004, the Company has acquired the following 14 brands:




**Date
                acquired**
            
            **Brand**October
                2004
            
            Badgley
                MischkaJuly
                2005
            
            Joe
                BoxerSeptember
                2005
            
            RampageApril
                2006
            
            MuddAugust
                2006
            
            London
                FogOctober
                2006
            
            MossimoNovember
                2006
            
            Ocean
                Pacific/OPMarch
                2007
            
            Danskin
                and RocawearOctober
                2007
            
            Official-Pillowtex
                brands  (including Cannon, Royal Velvet, Fieldcrest and
                Charisma)December
                2007
            
            Starter




In
      connection with its 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, pursue additional
      international licensing arrangements and purchase new brands to build its
      trademark portfolio.




3




**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 its telephone number is (212) 730-0300. The Company’s website
      address is www.iconixbrand.com. The information on the Company’s website does
      not constitute part of this Form 10-K. The Company has included its 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 the Company’s wholly-owned subsidiary, IP Holdings; Badgley
      Mischka®  is
      the
      registered trademark of the Company’s wholly-owned subsidiary, Badgley Mischka
      Licensing; Mossimo® is the registered trademark of the Company’s wholly-owned
      subsidiary, Mossimo Holdings; Ocean Pacific®  and
      OP®  are the
      registered trademarks of the Company’s wholly-owned subsidiary, OP Holdings;
      Danskin®, Danskin Now®, Rocawear® and Starter® are the registered trademarks of
      the Company’s wholly-owned subsidiary, Studio IP Holdings; and Fieldcrest®,
      Royal Velvet®, Cannon® and Charisma® are the registered trademarks of the
      Company’s wholly-owned subsidiary, Official-Pillowtex. 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**





The
      Company’s objective is to continue
      to develop and build a diversified portfolio of iconic consumer brands by
      organically growing its existing portfolio and by acquiring new brands that
      leverage the Company’s brand management expertise and existing infrastructure.
      To achieve this objective, the Company intends to:




·
            *extend
                its existing brands*by
                adding additional product categories, expanding the brands’ retail
                presence and optimizing its licensees’ sales through innovative marketing
                that increases consumer awareness and loyalty;




·
            *continue
                its international expansion*through
                additional partnerships with leading retailers and wholesalers worldwide;
                and




·
            *continue
                acquiring consumer brands*with high consumer awareness, broad appeal, applicability to a range
                of
                product categories and an ability to diversify the Company’s
                portfolio.




In
      managing its brands, the Company seeks to capitalize on the brands’ histories,
      while simultaneously working to keep them relevant to today’s consumer.





As
      of
      December 31, 2007, the Company’s brand portfolio consisted of the following 16
      iconic consumer brands:





***Candie’s.*** Candie’s
      is known primarily as a junior lifestyle brand, with products in the footwear,
      apparel and accessories categories, and has achieved brand recognition for
      its
      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, Fergie and, currently,
      Hayden Panettiere.




***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 16 Bongo licenses, including those licensed
      internationally to wholesalers in South America and Central America. Celebrity
      spokespeople for the Bongo brand have included Liv Tyler, Rachel Bilson, Nicole
      Richie, the stars of the top rated MTV television reality show *Laguna Beach* ,
      and
      Vanessa Minnillo. Currently, Kim Kardashian is the spokesperson for the Bongo
      brand.




***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 has 18 Badgley Mischka licenses. 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. Currently, the spokesperson for the brand is
      actress Teri Hatcher.




***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
      Corporation (“Kmart”), a wholly-owned subsidiary of Sears Holding Corporation,
      has held the exclusive license in the United States covering Joe Boxer apparel,
      fashion accessories and home products 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. The brand is also being developed internationally,
      with 14 international licenses, including licenses in Canada, Mexico, the United
      Kingdom, and Scandinavia.




4




***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 licenses the brand to 17 wholesalers in the United States and to
      partners in parts of South and Central America and the Middle East. Supermodel
      Petra Nemcova is the spokesperson for the Rampage brand and has modeled for
      its
      campaigns for the past few seasons.




***Mudd.*** Mudd
      is a
      highly recognizable junior apparel brand, particularly in the denim and footwear
      categories. It was established in 1995 and acquired by the Company in April
      2006. There are 15 licenses for Mudd products, including jeanswear, footwear,
      eyewear and a variety of other accessories, which are distributed through
      mid-level department stores such as JC Penney.




***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 has 13 London
      Fog licenses, including a direct-to-retail license agreement with Hudson’s Bay
      Corporation in Canada, covering apparel, accessories and lifestyle products.
      Spokespeople for the London Fog brand have included Kevin Bacon and Nicolette
      Sheridan.




***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
      1986 and acquired by the Company in October 2006. 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 eight wholesale partners in Australia, New Zealand,
      South America, Mexico, the Philippines, and Japan.




***Ocean
      Pacific/OP.*** Ocean
      Pacific and OP are global action-sports lifestyle apparel brands which trace
      their heritage to Ocean Pacific’s roots as a 1960’s surfboard label. The Company
      acquired the Ocean Pacific brands in November 2006 at which time it assumed
      15
      domestic licenses covering such product categories as footwear, sunglasses,
      kids’ apparel and fragrance. For the Ocean Pacific brands, the Company has 21
      wholesale licenses and two direct-to-retail licenses, including one with
      Wal-Mart Stores, Inc. (“Wal-Mart”) for the United States, Brazil, India and
      China, and one with The Style Company for the Middle East.




***Danskin*** .
      Danskin, our oldest brand, is a 125 year-old iconic brand of women's activewear,
      legwear, dancewear, yoga apparel and fitness equipment, which the Company
      acquired in March 2007. The Danskin brand is sold through better department,
      specialty and sporting goods stores and through freestanding Danskin boutiques
      and Danskin.com. In addition, the Company has a direct-to-retail license with
      Wal-Mart for its Danskin Now® brand for apparel and fitness
      equipment.




***Rocawear.*** Rocawear
      is a leading international, urban lifestyle apparel brand established by Shawn
      “Jay-Z” Carter, Damon Dash and Kareem Burke in 1999. The Company acquired the
      Rocawear brand in March 2007. There are 23 licenses for Rocawear products,
      including men’s, women’s and kids’ apparel, outerwear, footwear, jewelry,
      handbags and fragrance. Rocawear products are sold through better department
      and
      specialty stores. The founder, Jay-Z, remains actively involved in the brand
      as
      the core licensee, and has been contracted to aid with the creative direction
      of
      the brand.




*In
      October 2007, the Company expanded its portfolio by acquiring the following
      four
      brands through its acquisition of Official-Pillowtex* :




***Cannon.*** Cannon
      is one of the most recognizable brands in home textiles with a strong heritage
      and history and is known as the first textile brand to sew logos onto products.
      Cannon is distributed in over 1,000 doors in regional department stores,
      including Meijer, ShopKo, Mervyn’s and Steinmart, as well as in Wal-Mart and
      Costco. Cannon was established in 1887, making it the Company’s third oldest
      brand. In February 2008, the Company signed a direct-to-retail license with
      Kmart for Cannon.




***Royal
      Velvet.*** Royal
      Velvet is a distinctive luxury home textile brand that strives to deliver the
      highest quality to consumers. The Royal Velvet towel has been an industry
      standard since 1954 and is known as the authority for color and quality. Royal
      Velvet products, including towels, sheets, rugs and shams, are sold pursuant
      to
      seven licenses in over 3,000 locations through the high-end and better
      department store channels. The core licensee for Royal Velvet is Li & Fung
      Limited, which in February 2008 established an exclusive distribution
      arrangement with Bed Bath & Beyond Inc.




***Fieldcrest.*** Fieldcrest is a brand of contemporary relevance to the mass channel consumer.
      The brand is known for quality bed and bath textiles that are easy care, soft,
      easy to coordinate and classic in style. Fieldcrest home products are sold
      through the mass channel, with Target having the exclusive license in the United
      States since Spring 2005. The Fieldcrest brand was created in 1883, making
      it
      the Company’s second oldest brand.




***Charisma.*** Charisma
      home textiles were introduced in the 1970s and are known for their quality
      materials and classic designs. Charisma products are currently distributed
      through better department stores such as Bloomingdales. The Company has two
      licenses for the brand, including Westpoint Stevens, Inc..




*In
      December 2007, the Company acquired the Starter brand* .




5




***Starter.*** ** Starter,
      founded in 1971 and one of the original brands in licensed team merchandise,
      is
      a highly recognized and authentic brand of athletic apparel and footwear. Today,
      products bearing the Starter brand are distributed in the United States,
      primarily at Wal-Mart, through a number of different wholesale licensees.
      Starter is also licensed internationally and sold through retailers including
      Carrefour and Metro. Starter was acquired by the Company in December 2007.
      The
      Company currently has 27 Starter licenses.




**Scion
      LLC**





Scion
      LLC
      is a brand management and licensing company formed by the Company with Shawn
      “Jay-Z” Carter in March 2007 to buy, create and develop brands across a spectrum
      of consumer product categories. On November 7, 2007, Scion completed its first
      brand acquisition when its wholly-owned subsidiary purchased Artful DodgerTM, an
      exclusive, high end urban apparel brand for a purchase price of $15.0 million.
      Concurrent with the acquisition of Artful Dodger, Scion entered into a
      license agreement covering all major apparel categories for the United
      States.





**Bright
      Star**




Concurrent
      with the acquisition of Artful Dodger, Scion entered into a license
      agreement covering all major apparel categories for the United
      States.




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, 2007, and December
      31,
      2006, Bright Star’s agency commissions represented 1.5% and 3.0%, respectively,
      of the Company’s revenues.




**Transition
      to a brand management company**





Prior
      to
      2004, the Company designed, procured the manufacture of, and sold footwear
      and
      jeanswear under the two trademarks it owned at the time: Candie’s and Bongo.
      Commencing in May 2003, however, it 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, it had eliminated all of its Candie’s
      retail concept stores. Effective in August 2004, the Company also licensed
      out
      its Bongo jeans wear operations, which were previously conducted through its
      wholly-owned subsidiary, Unzipped Apparel, LLC (“Unzipped”). 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. As a result of these changes to its operations, since the end of 2004,
      the Company has had no wholesale or retail operations or product inventory
      and
      has operated solely as a brand management company.





Since
      October 2004, the Company has acquired 14 new brands, bringing its total number
      of iconic brands to 16 as of December 31, 2007, and, since July 2005, when
      the
      Company entered into its first multi-category retail license with Kohl’s, the
      Company has entered into multi-category retail licenses with a number of other
      retailers, such as Target, Sears Holding Corporation and Wal-Mart. As of
      December 31, 2007, the Company had 220 wholesale and retail
      licenses.





**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, fashion
      accessories, sportswear, home products and décor, and 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.





The
      Company maintains retail and wholesale licenses. The retail licenses typically
      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 25 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 17 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, as well as distribution channels, in which the
      licensed products may be sold. Currently, most of the licenses are U.S. based
      licenses, but the Company anticipates the number of foreign based licenses
      to
      grow and revenue generated by international businesses to increase 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,
      2007, the Company had 220 royalty-producing licenses with respect to its 16
      brands.




The
      Company believes that coordination of 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.




6




In
      the
      fiscal year ended December 31, 2007, the Company’s largest direct-to-retail
      licenses were with Target, Kohl’s, and Kmart, which collectively represented 27%
      of total revenue for the period.





**Key
      licenses in fiscal 2007**




***Target
      license***




As
      part
      of the Company's acquisition of Mossimo, Inc. in October 2006, the
      Company acquired the license with Target, which originally commenced in 2000
      and
      was subsequently amended in March 2006. Pursuant to this 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, until January 31, 2010. If Target
      is current with payments of its obligations under the 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 years ended December 31, 2007 and 2006
      represented 13% and 5%, respectively, of the Company’s overall revenue for such
      periods.





***Kohl’s
      license***




In
      December 2004, the Company entered into a license agreement with Kohl’s, which
      was subsequently amended in February 2005. Pursuant to this 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 ended December 31, 2006).




The
      revenue generated from this contract totaled 8%, 14%, and 15% of the Company’s
      overall revenue for the years ended December 31, 2007, 2006 and 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 right to sell Candie’s
      ophthalmic eyewear (currently sold predominantly in doctors’ offices), which has
      been licensed to Viva International Group, Inc. since 1998.




***Kmart
      license***




As
      part
      of the Joe Boxer brand acquisition in July 2005, the Company assumed a license
      with Kmart, which commenced in August 2001, pursuant to which Kmart (now a
      wholly-owned subsidiary of Sears Holdings Corporation) 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.




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
      the license 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. The revenue generated from Kmart
      totaled 6%, 24%, and 28% of the Company’s overall revenue in the years ended
      December 31, 2007, 2006 and 2005, respectively.




7




**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, including
      those 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.





The
      Company’s advertising expenditures for each of its brands are dedicated largely
      to creating and developing creative advertising 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.iconixbrand.com ) to
      further market its brands by providing brand materials 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 its licensees, separate, dedicated sites for its
      brands.




A
      majority of the Company’s license agreements require the payment of an
      advertising royalty by the licensee. 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 brand management and marketing functions 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 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 are focused on identifying 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 brand and for each product season, and then
      works with licensees to maintain consistency with the overall brand presentation
      across product categories. In addition, the Company has product approval rights
      in most licenses and further controls the look and mix of products its licensees
      produce through that process. With respect to Badgley Mischka, Mossimo and
      Rocawear, the Company has contracted the exclusive services of 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 its annual reports on Form 10-K,
      quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments
      to those reports filed with or furnished to the Securities and Exchange
      Commission (the “SEC”) 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. In addition, there are websites for most of the Company’s
      brands, for example, at www.candies.com,  www.badgleymischka.com, www.joeboxer.com and www.rocawear.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 brands’ 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.




**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 numerous products categories
      including such categories as the apparel and home products and
      decor industries. For example, while Rampage may compete with XOXO 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 other couture apparel and bridal brands. Other of our brands (such as
      Danskin), which are distributed both at the mass level (for instance with
      Danskin through the diffusion brand Danskin Now) and at the department and
      specialty store level under the core Danskin label (for instance with Danskin),
      may have many competitors in different or numerous distribution channels. 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
      from other brand owners in similar categories for the best
      licensees.




8




In
      addition, the Company 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 six 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/OP related trademarks; Studio IP Holdings owns the Danskin, Rocawear
      and
      Starter related trademarks; and Official-Pillowtex owns the Fieldcrest, Royal
      Velvet, Cannon and Charisma trademarks, each 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.




**Seasonality**
 
 The
        majority of the products manufactured and sold under the Company's brands
        and
        licenses are for apparel, accessories, footwear and home products and decor,
        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.




**Employees**




As
      of
      December 31, 2007, the Company had a total of 94 full-time employees. Of these
      94 employees, five are executive officers of the Company, seven others are
      senior managers, 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
      relationship with its employees to be satisfactory. ****




**Financial
      information about geographical areas**





Revenues
      from external customers related to operations in the United States and foreign
      countries are as follows:




Year
                Ended
            
            Year
                Ended
            
            Year
                EndedDecember
                31,
            
            December
                31,
            
            December
                31,*(000's
                omitted)*
            
            2007
            
            2006
            
            2005Revenues
                from external customers:United
                States
            
            $
            150,376
            
            $
            77,564
            
            $
            29,510Foreign
                countries
            
            
            9,628
            
            
            3,130
            
            
            646$
            160,004
            
            $
            80,694
            
            $
            30,156




**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:




*The
      failure of our licensees to adequately produce, market and sell products bearing
      our brand names in their license categories or to pay their obligations under
      their license agreements 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
      in most cases 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 amend such agreements to reduce the guaranteed minimums
      due
      thereunder, 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. A weak economy or softness in the apparel and
      retail sectors could exacerbate this risk. 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 ratios required in connection with our senior
      secured term loan facility and the asset-backed notes issued by our subsidiary,
      IP Holdings, and/or our ability or IP Holdings’ ability to make required
      payments with respect to such indebtedness. The failure to meet such debt
      service coverage ratios or to make such required payments would, with respect
      to
      our term loan facility, give the lenders thereunder the right to foreclose
      on
      the Ocean Pacific/OP, Danskin, Rocawear, Mossimo and Starter trademarks, the
      trademarks acquired by us in the Official-Pillowtex acquisition and other
      related intellectual property assets securing the debt outstanding under such
      facility and, with respect to the IP Holdings’ notes, give the holders of such
      notes 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 notes.




9




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




Although
      most of our licensees guarantee minimum net sales and minimum royalties to
      us, a
      failure of our brands or of products bearing our brands to achieve or maintain
      market acceptance could cause a reduction of our licensing revenues, and could
      further cause existing licensees not to renew their agreements. 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 brands and our licensees’ products, as well as market
      acceptance of any future products bearing our brands, 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 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 products bearing our
      marks and therefore have more limited control over such products’ quality and
      design than a traditional product manufacturer might have.




*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, 2007, we had consolidated debt of approximately $702.2 million,
      including secured debt of $408.3 million ($270.8 million under our senior
      secured term loan facility and $137.5 million under asset-backed notes issued
      by
      our subsidiary, IP Holdings), 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;




·
            impose
                restrictions on us with respect to future
                acquisitions;




·
            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 our term loan facility, it would enable the lenders to foreclose
      on
      the assets securing such debt, including the Ocean Pacific/OP, Danskin,
      Rocawear, Starter and Mossimo trademarks, as well as the trademarks acquired
      by
      us in connection with the Official-Pillowtex acquisition, and, in the case
      of IP
      Holdings’ asset-backed notes, it would 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.




10




*We
      are experiencing rapid growth. If we fail to manage our growth, our business
      and
      operating results could be harmed.*




Our
      business has grown dramatically over the past several years. For example, after
      the completion of our transition to a brand management company in 2004, our
      revenue increased from $30.2 million for the year ended December 31, 2005 to
      $160.0 million for the year ended December 31, 2007. Our growth has largely
      resulted from our acquisition of new brands of various sizes. Since October
      2004, we acquired 14 of the 16 iconic brands we currently own and increased
      our
      total number of licenses from approximately 18 to approximately 220.
      Furthermore, we continue to evaluate and pursue appropriate acquisition
      opportunities. Therefore, while we have no outstanding agreements or commitments
      with respect thereto, we believe that it is likely we will make additional
      acquisitions.




This
      significant growth has placed considerable demands on our management and other
      resources and continued growth could place additional demands on such resources.
      Our ability to compete effectively and to manage future growth, if any, will
      depend on the sufficiency and adequacy of our current resources and
      infrastructure and our ability to continue to identify, attract and retain
      personnel to manage our brands. There can be no assurance that our personnel,
      systems, procedures and controls will be adequate to support our operations
      and
      properly oversee our brands. The failure to support our operations effectively
      and properly oversee our brands could cause harm to our brands and have a
      material adverse effect on our business, financial condition and results of
      operations. In addition, we may be unable to leverage our core competencies
      in
      managing apparel brands to managing brands in new product
      categories.




Also,
      there can be no assurance that we will be able to sustain our recent growth.
      Our
      growth may be limited by a number of factors including increased competition
      for
      retail license and brand acquisitions, insufficient capitalization for future
      acquisitions and the lack of attractive acquisition targets, each as described
      further below. As we continue to grow larger, we will be required to make
      additional and larger acquisitions to continue to grow at our current pace.




*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.
      Historically, we have been involved in numerous acquisitions of varying sizes.
      We continue to explore new acquisitions. As our competitors pursue our brand
      management model, acquisitions have become more expensive and suitable
      acquisition candidates are becoming 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;




·
            potential
                difficulties associated with the retention of key employees, and
                the
                assimilation of any other employees, that may be retained by us in
                connection with or as a result of our acquisitions;
                and




·
            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.
      No
      assurance can be given with respect to the timing, likelihood or financial
      or
      business effect of any possible transaction. 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 (and in certain
      cases, convertible securities) 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.




11




*We
      may require additional capital to finance the acquisition of additional brands
      and our inability to raise such capital on beneficial terms or at all could
      restrict our growth.*




We
      may,
      in the future, require additional capital to help fund all or part of potential
      trademark acquisitions. If, at the time required, we do not have sufficient
      cash
      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 additional 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.




*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,
      fashion accessories, footwear, beauty and fragrance, and home products and
      decor industries,
      in which 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.




*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, other brand management
      companies and private equity groups 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
      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 these risks 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.




*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. 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 may be precluded from obtaining a trademark registration
      in
      such country 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.




12




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.




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




Our
      licensees Target, Kohl's and Kmart were our three largest direct-to-retail
      licensees during the year ended December 31, 2007, representing approximately
      14%, 8% and 6%, respectively, of our total revenue for such period. 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 a 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; and, our other license agreement with Target grants
      it
      the exclusive U.S. license with respect to our Fieldcrest trademark for
      substantially all Fieldcrest-branded products for an initial term expiring
      in
      July 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. For example, 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 the guaranteed
      annual royalty minimums by approximately half, as a result of which our revenues
      from this license were substantially reduced.




*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, 2012, 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.




*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.*




Target,
      the primary licensee of our Mossimo brand, has the right at its option to
      terminate its license agreement with us if the services of Mossimo Giannulli
      as
      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 which could be required by Target under the Target license,
      for
      an initial term expiring on January 31, 2010, there can be no assurance
      that if his services are required by Target he will provide such services or
      that in the event we, and thus Target, were to lose the ability to draw on
      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.




13




*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, 2007, goodwill represented approximately $128.9 million, or
      approximately 10% of our total assets, and trademarks and other intangible
      assets represented approximately $1,038.2 million, or approximately 78% 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.




*We
      may not be able to pay the cash portion of the conversion price upon any
      conversion of the $287.5 million principal amount of our outstanding convertible
      senior subordinated notes, which would constitute an event of default with
      respect to such notes and could also constitute a default under the terms of
      our
      other debt.*




We
      may
      not have sufficient cash to pay, or may not be permitted to pay, the cash
      portion of the consideration that we may need to pay if our convertible senior
      subordinated notes are converted. Upon conversion of a note, we will be required
      to pay to the holder of such note a cash payment equal to the lesser of the
      principal amount of such note and its conversion value. This part of the payment
      must be made in cash, not in shares of our common stock. As a result, we may
      be
      required to pay significant amounts in cash to holders of the convertible notes
      upon their conversion.




If
      we do
      not have sufficient cash on hand at the time of conversion, we may have to
      raise
      funds through debt or equity financing. Our ability to raise such financing
      will
      depend on prevailing market conditions. Further, we may not be able to raise
      such financing within the period required to satisfy our obligation to make
      timely payment upon any conversion. In addition, the terms of any current or
      future debt, including our outstanding term loan facility, may prohibit us
      from
      making these cash payments or otherwise restrict our ability to make such
      payments and/or may restrict our ability to raise any such financing. In
      particular, the terms of our outstanding term loan facility restrict the amount
      of proceeds from collateral pledged to secure our obligations thereunder that
      may be used by us to make payments in cash under certain circumstances,
      including payments to the convertible notes holders upon conversion. Although
      the terms of our outstanding term loan facility do not restrict our ability
      to
      make payments in cash with assets not pledged as collateral to secure our
      obligations thereunder, such assets may not generate sufficient cash to enable
      us to satisfy our obligations to make timely payment of the notes upon
      conversion. A failure to pay the required cash consideration upon conversion
      would constitute an event of default under the indenture governing the
      convertible notes, which might constitute a default under the terms of our
      other
      debt.




*Proposed
      changes in the accounting method for convertible debt securities could, if
      implemented, have an adverse impact on our reported or future financial
      results.*




For
      the
      purpose of calculating diluted earnings per share, a convertible debt security
      providing for net share settlement of the excess of the conversion value over
      the principal amount, if any, and meeting specified requirements under Emerging
      Issues Task Force, or EITF, Issue No. 90-19, “Convertible Bonds with Issuer
      Option to Settle for Cash upon Conversion,” such as our convertible notes, is
      accounted for similar to non-convertible debt, with the stated coupon
      constituting interest expense and any shares issuable upon conversion of the
      security being accounted for under the treasury stock method. The effect of
      the
      treasury stock method in relation to our convertible notes is that the shares
      potentially issuable upon conversion of the notes are not included in the
      calculation of our diluted earnings per share until the conversion price is
“in
      the money,” at which time we are assumed to have issued the number of shares of
      common stock necessary to settle.




In
      July
      2007, the Financial Accounting Standards Board, or FASB, voted unanimously
      to
      reconsider the current accounting treatment for convertible debt securities
      that
      require or permit settlement in cash, either in whole or in part, upon
      conversion, or cash settled debt securities (which would include our outstanding
      convertible notes). Under a proposed staff position issued by the FASB in August
      2007 for a method of accounting that would be applied retroactively, the debt
      and equity components of such cash settled debt securities would be bifurcated
      and accounted for separately in a manner that reflects the issuer’s economic
      interest cost. While
      the
      effect on us of this proposal cannot be quantified unless and until the FASB
      finalizes its guidance, under this proposal, we could recognize higher interest
      on our convertible notes at effective rates more comparable to what we would
      have incurred had we issued nonconvertible debt with otherwise similar terms.
      Therefore, if the proposed method of accounting for cash settled debt securities
      is adopted by the FASB as described above, it would have an adverse impact
      on
      our past and future reported financial results. In addition, any other change
      that could affect the accounting for convertible securities, including any
      changes in generally accepted accounting principles in the United States, could
      have a material impact on our reported or future financial results.




The
      comment period for the proposed FASB staff position described above expired
      on
      October 15, 2007. We cannot determine at this time whether this staff position
      will ultimately be adopted in its present form or at all. In the event the
      proposed method of accounting described above is adopted, we will, pursuant
      to
      the terms of the indenture governing our outstanding convertible notes, have
      the
      right for a period of 90 days thereafter, at our option, to call the convertible
      notes for redemption. However, although we will have such redemption right,
      we
      may not have sufficient cash to pay, or may not be permitted to pay, the
      required cash portion of the consideration that would be due to holders of
      the
      convertible notes in the event we elected to exercise such right or the ability
      to raise funds through debt or equity financing within the time period required
      for us to make such an election.




14




*Changes
      in the accounting method for business combinations will have an adverse impact
      on our reported or future financial results.*




Currently
      and for the years ended December 31, 2007 and prior, in accordance with
      Statement of Financial Accounting Standard (“SFAS”) 141 “Business Combinations”
(“SFAS 141”) all acquisition-related costs such as attorney’s fees and
      accountant’s fees, as well as contingent consideration to the seller, are
      capitalized as part of the purchase price.




In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141R”), which requires an acquirer to do the following:
      expense acquisition related costs as incurred; record contingent consideration
      at fair value at the acquisition date with subsequent changes in fair value
      to
      be recognized in the income statement; and recognize any adjustments to the
      purchase price allocation as a period cost in the income statement. SFAS
      141R applies prospectively to business combinations for which the acquisition
      date is on or after beginning of the first annual reporting period beginning
      on
      or after December 15, 2008. Earlier application is prohibited. At the date
      of
      adoption, SFAS 141R is expected to have a material impact on our results of
      operations and our financial position due to our acquisition
      strategy.





*Changes
      in effective tax rates or adverse outcomes resulting from examination of our
      income or other tax returns could adversely affect our results.*




Our
      future effective tax rates could be adversely affected by changes in the
      valuation of our deferred tax assets and liabilities, or by changes in tax
      laws
      or interpretations thereof. In addition, we are subject to the continuous
      examination of our income tax returns by the Internal Revenue Service and other
      tax authorities. We regularly assess the likelihood of recovering the amount
      of
      deferred tax assets recorded on the balance sheet and the likelihood of adverse
      outcomes resulting from examinations by various taxing authorities in order
      to
      determine the adequacy of our provision for income taxes. We cannot guarantee
      that the outcomes of these evaluations and continuous examinations will not
      harm
      our reported operating results and financial conditions.




*The
      market price of our common stock has been, and may continue to be, volatile,
      which could reduce the market price of our common stock.*




The
      publicly traded shares of our common stock have experienced, and may continue
      to
      experience, significant price and volume fluctuations. This market volatility
      could reduce the market price of our common stock, regardless of our operating
      performance. In addition, the trading price of our common stock could change
      significantly over short periods of time in response to actual or anticipated
      variations in our quarterly operating results, announcements by us, our
      licensees or our respective competitors, factors affecting our licensees’
markets generally and/or changes in national or regional economic conditions,
      making it more difficult for shares of our common stock to be sold at a
      favorable price or at all. The market price of our common stock could also
      be
      reduced by general market price declines or market volatility in the future
      or
      future declines or volatility in the prices of stocks for companies in the
      trademark licensing business or companies in the industries in which our
      licensees compete.




*Convertible
      note hedge and warrant transactions that we have entered into may affect the
      value of our common stock.*




In
      connection with the initial sale of our convertible notes, we entered into
      convertible note hedge transactions with affiliates of Merrill Lynch and Lehman
      Brothers, which hedging transactions are expected, but are not guaranteed,
      to
      eliminate the potential dilution upon conversion of the convertible notes.
      At
      the same time, we entered into sold warrant transactions with the hedge
      counterparties. In connection with such transactions, the hedge counterparties
      entered into various over-the-counter derivative transactions with respect
      to
      our common stock and purchased our common stock; and they may enter into or
      unwind various over-the-counter derivatives and/or purchase or sell our common
      stock in secondary market transactions in the future.




Such
      activities could have the effect of increasing, or preventing a decline in,
      the
      price of our common stock. Such effect is expected to be greater in the event
      we
      elect to settle converted notes entirely in cash. The hedge counterparties
      are
      likely to modify their hedge positions from time to time prior to conversion
      or
      maturity of the convertible notes or termination of the transactions by
      purchasing and selling shares of our common stock, other of our securities,
      or
      other instruments they may wish to use in connection with such hedging. In
      particular, such hedging modification may occur during any conversion reference
      period for a conversion of notes. In addition, we intend to exercise options
      we
      hold under the convertible note hedge transactions whenever notes are converted
      and we have elected, with respect to such conversion, to pay a portion of the
      consideration then due by us to the noteholder in shares of our common stock.
      In
      order to unwind their hedge positions with respect to those exercised options,
      the hedge counterparties will likely sell shares of our common stock in
      secondary market transactions or unwind various over-the-counter derivative
      transactions with respect to our common stock during the conversion reference
      period for the converted notes.




The
      effect, if any, of any of these transactions and activities on the trading
      price
      of our common stock will depend in part on market conditions and cannot be
      ascertained at this time, but any of these activities could adversely affect
      the
      value of our common stock. Also, the sold warrant transaction could have a
      dilutive effect on our earnings per share to the extent that the price of our
      common stock exceeds the strike price of the warrants.




15




*Future
      sales of our common stock may cause the prevailing market price of our shares
      to
      decrease.*




We
      have
      issued a substantial number of shares of common stock that are eligible for
      resale under Rule 144 of the Securities Act of 1933, as amended, or Securities
      Act, and that may become freely tradable. We have also already registered a
      substantial number of shares of common stock that are issuable upon the exercise
      of options and warrants and have registered for resale a substantial number
      of
      restricted shares of common stock issued in connection with our acquisitions.
      If
      the holders of our options and warrants choose to exercise their purchase rights
      and sell the underlying shares of common stock in the public market, or if
      holders of currently restricted shares of our common stock choose to sell such
      shares in the public market under Rule 144 or otherwise, the prevailing market
      price for our common stock may decline. The sale of shares issued upon the
      exercise of our derivative securities could also further dilute the holdings
      of
      our then existing stockholders, including holders of the notes that receive
      shares of our common stock upon conversion of their notes. In addition, future
      public sales of shares of our common stock could impair our ability to raise
      capital by offering equity securities.




*Provisions
      in our charter and in our share purchase rights plan and Delaware law could
      make
      it more difficult for a third party to acquire us, discourage a takeover and
      adversely affect our stockholders.*




Certain
      provisions of our certificate of incorporation and our share purchase rights
      plan, either alone or in combination with each other, could have the effect
      of
      making more difficult, delaying or deterring unsolicited attempts by others
      to
      obtain control of our company, even when these attempts may be in the best
      interests of our stockholders. Our certificate of incorporation currently
      authorizes 150,000,000 shares of common stock to be issued. Based on our
      outstanding capitalization at December 31, 2007, and assuming the exercise
      of
      all outstanding options and warrants and the issuance of the maximum number
      of
      shares of common stock issuable upon conversion of all of our outstanding
      convertible notes, there are still a substantial number of shares of common
      stock available for issuance by our board of directors without stockholder
      approval. Our certificate of incorporation also authorizes our board of
      directors, without stockholder approval, to issue up to 5,000,000 shares of
      preferred stock, in one or more series, which could have voting and conversion
      rights that adversely affect or dilute the voting power of the holders of our
      common stock, none of which has been issued to date. Furthermore, under our
      share purchase rights plan, often referred to as a “poison pill,” if anyone
      acquires 15% or more of our outstanding shares, all of our stockholders (other
      than the acquirer) have the right to purchase additional shares of our common
      stock for a fixed price. We are also subject to the provisions of
      Section 203 of the Delaware General Corporation Law, which could prevent us
      from engaging in a business combination with a 15% or greater stockholder for
      a
      period of three years from the date it acquired that status unless appropriate
      board or stockholder approvals are obtained.




These
      provisions could deter unsolicited takeovers or delay or prevent changes in
      our
      control or management, including transactions in which stockholders might
      otherwise receive a premium for their shares over the then current market price.
      These provisions may also limit the ability of stockholders to approve
      transactions that they may deem to be in their best interests.




*Due
      to the recent downturn in the market, certain of the marketable securities
      we
      own may take longer to auction than initially anticipated.*





Marketable
      securities consist of investment grade auction rate securities. During the
      third
      and fourth quarter of fiscal 2007, our balance of auction rate securities failed
      to auction due to sell orders exceeding buy orders. These funds will not be
      available to us until a successful auction occurs or a buyer is found outside
      the auction process. As a result, $13.0 million of auction rate securities
      were
      written down to $10.9 million, based on third party estimates, as an unrealized
      pre-tax loss of $2.1 million to reflect a temporary decrease in fair value.
      We
      believe this decrease in fair value is temporary due to general macroeconomic
      market conditions, as the underlying securities have maintained their investment
      grade rating. There are no assurances that a successful auction will occur,
      or
      that we can find a buyer outside the auction process.





**Item
      1B. Unresolved Staff Comments**




None.




**Item
      2. Properties**




On
      November 9, 2007, the Company entered into a new lease with respect to the
      Company’s current and future offices at 1450 Broadway in New York, New York. The
      lease, among other things, covers approximately 30,550 square feet of office
      and
      showroom space (the “New Headquarters”) that the Company intends to occupy
      following the date that the landlord completes certain work in the space and
      delivers it to the Company (the “Delivery Date”), which is expected to occur on
      or prior to November 15, 2008. With respect to the New Headquarters, the lease
      will expire 15 years after the Delivery Date, providing for rental payments
      to
      commence on the 181 st day
      following the Delivery Date (the “Rent Commencement Date”) and provides for
      total annual base rental payments for such space of approximately $27.4 million
      (ranging from approximately $1.528 million for the first year following the
      Rent
      Commencement Date to approximately $2.157 million in the last year of the
      lease). The lease also provides for the temporary rental by the Company of
      (i)
      the approximately 15,000 square feet of office space currently occupied by
      the
      Company in the building for a term expiring on the 91 st day
      after the Rent Commencement Date at an annual rent of approximately $0.452
      million and gives the Company the right to extend the term of the lease
      with respect to such space such that it ends co-terminus with that of the New
      Headquarters for an annual rent of approximately $0.764 million and (ii)
      approximately 7,000 square feet of temporary office space on another floor
      of
      the building for a term expiring on the Rent Commencement Date at an annual
      rent
      of $0.315 million. The Company will also be required to pay its proportionate
      share of any increased taxes attributed to the premises.




16




In
      addition, in connection with the Starter acquisition, the Company assumed a
      lease for office space at 1350 Broadway, which covers approximately 13,090
      square feet of office and showroom space with an annual rent of $476,000, which
      expires on October 31, 2011, as well as a lease for approximately 7,900 square
      feet of office space in Bentonville, AR with an annual rent of $149,000. 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, LLC (“Sweet”), Azteca Productions
      International, Inc. (“Azteca”) and Apparel Distribution Services, LLC (“ADS”),
      respectively, and a principal of these entities and former member of the
      Company's Board of Directors, Hubert Guez, collectively referred to as the
      Guez
      defendants. The Company pursued numerous causes of action against the Guez
      defendants, including breach of contract, breach of fiduciary duty, trademark
      infringement and others and sought damages in excess of $20 million. On March
      10, 2005, Sweet, Azteca and ADS, collectively referred to as cross-complainants,
      filed a cross-complaint against the Company claiming damages resulting from
      a
      variety of alleged contractual breaches, among other things.




In
      January 2007, a jury trial was commenced, and on April 10, 2007, the jury
      returned a verdict of approximately $45 million in favor of the Company and
      its
      subsidiaries, finding in favor of the Company and its subsidiaries on every
      claim that they pursued, and against the Guez defendants on every counterclaim
      asserted. Additionally, the jury found that all of the Guez defendants acted
      with malice, fraud or oppression with regard to each of the tort claims asserted
      by the Company and its subsidiaries, and on April 16, 2007, awarded plaintiffs
      $5 million in punitive damages against Mr. Guez personally. The Guez defendants
      filed post-trial motions seeking, among other things, a new trial. Through
      a set
      of preliminary rulings dated September 27, 2007, the Court granted in part,
      and
      denied in part, the Guez defendants’ post trial motions, and denied plaintiffs’
request that the Court enhance the damages awarded against the Guez defendants
      arising from their infringement of plaintiffs’ trademarks. Through these
      rulings, the Court, among other things, reduced the amount of punitive damages
      assessed against Mr. Guez to $4 million, and reduced the total damages awarded
      against the Guez defendants by more than 50%.





The
      Court
      adopted these preliminary rulings as final on November 16, 2007. On the same
      day, the Court entered judgment against Mr. Guez in the amount of $10,964,730
      and ADS in the amount of $1,272,420, and against each of the Guez defendants
      with regard to each and every claim that they pursued in the litigation
      including, without limitation, ADS’s and Azteca’s unsuccessful efforts to
      recover against Unzipped any account balances claimed to be owed, totaling
      approximately $3.5 million including interest (collectively, the “Judgments”).
      In entering the Judgments, the Court upheld the jury’s verdict in favor of the
      Company relating to its writedown of the senior subordinated note due 2012,
      issued by the Company to Sweet in connection with the Company’s acquisition of
      Unzipped, for Unzipped’s 2004 fiscal year and disallowed the Company’s writedown
      of the note for Unzipped’s 2005 fiscal year. The current balance of the note is
      estimated to be approximately $12 million (including unpaid interest), without
      regard to offsets or the outcome of appeals. The Company believes that the
      balance of the note will be offset in its entirety by amounts recoverable
      against Guez and the Guez defendants. The monetary portion of the Judgments
      accrues interest at a rate of 10% per annum from the date of the Judgments’
entry. Also on November 16, 2007, the Court issued a Memorandum Order wherein
      it
      upheld an aggregate of approximately $6.8 million of the jury’s verdicts against
      Sweet and Azteca, but declined to enter judgment against these entities since
      it
      had ordered a new trial with regard to certain other damage awards entered
      against these entities by the jury. On March 7, 2008, the Court is scheduled
      to
      hear the attorneys’ fees and costs petitions filed by the Company and its
      subsidiaries.





On
      November 21, 2007, the Guez defendants filed a notice of appeal. They also
      filed
      a $49,090,491 undertaking with the Court, consisting primarily of a $43,380,491
      personal surety given jointly by Gerard Guez and Jacqueline Rose Guez, bonding
      the monetary portions of the Judgments. By Order dated December 17, 2007, the
      Court determined that the undertaking was adequate absent changed circumstances.
      This determination serves to prevent the Company and its subsidiaries from
      pursuing collection of the monetary portions of the Judgments during the
      pendency of the appeal. The Company and its subsidiaries filed a notice of
      appeal on November 26, 2007, appealing, among other things, those parts of
      the
      jury’s verdicts vacated by the Court in connection with the Guez defendants’
post-trial motions. The Company and its subsidiaries intend to vigorously pursue
      their appeal, and vigorously defend against the Guez parties’
appeal.




**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 a single claim that
      it
      owes Bader and Sportswear Mercenaries $72,000. Trial in this action is set
      to
      commence on April 28, 2008. The parties to this lawsuit have recently reached
      a
      settlement for which counsel is preparing a settlement agreement.




17




**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. 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 is awaiting receipt of the signed Settlement Agreement from the
      other parties, and has recorded this liability as accounts payable subject
      to
      litigation.




**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 and
      IP
      Holdings alleging certain breaches of contract and other claims and seeks,
      among
      other things, damages of at least $25 million. The Company and IP Holdings
      believe that, in addition to other defenses and counterclaims that they intend
      to assert, the claims in the lawsuit are the subject of a release and settlement
      agreement that was entered into by the parties in August 2005, and based upon
      this belief, moved to dismiss most of BAI’s claims. In response to the motion to
      dismiss, BAI made a cross-motion for partial summary judgment on some of its
      claims. On April 25, 2007, the Court entered an order refusing to consider,
      and
      declining to accept BAI's summary judgment motion. On January 2, 2008, the
      Court
      granted the Company’s and IP Holdings’ motion to dismiss BAI’s lawsuit virtually
      in its entirety, holding that all but one claim against the Company and five
      claims against IP Holdings were barred by the parties’ August 2005 release and
      settlement agreement or otherwise failed to state a claim. As to the sole
      remaining claim against the Company, BAI has indicated that it will be withdrawn
      against both the Company and IP Holdings. If the claim is not withdrawn
      promptly, the Company and IP Holdings intend to move for its dismissal. BAI
      has
      appealed the Court’s January 2, 2008 rulings, and the Company and IP Holdings
      intend to vigorously defend against this appeal.




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. (“TKO”). In that complaint, the Company and IP
      Holdings assert 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 in excess
      of $10 million and a permanent injunction with respect to the use of the Bongo
      trademark. On January 4, 2007, the District Court denied the motion of BAI
      and
      TKO to dismiss the federal court action, and instead stayed the proceeding.
      On
      January 14, 2008, the Company and IP Holdings requested that the District Court
      lift the stay. The Court scheduled a hearing on the matter on February 29,
      2008,
      which the Company plans to attend and will await a ruling from the Court
      thereafter.





**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, 2007Fourth
                Quarter
            
            $
            24.04
            
            $
            18.61Third
                Quarter
            
            
            24.48
            
            
            18.41Second
                Quarter
            
            
            23.37
            
            
            18.84First
                Quarter
            
            
            23.13
            
            
            18.01Year
                Ended December 31, 2006Fourth
                Quarter
            
            $
            20.39
            
            $
            14.49Third
                Quarter
            
            
            17.00
            
            
            12.64Second
                Quarter
            
            
            18.09
            
            
            13.70First
                Quarter
            
            
            14.89
            
            
            9.51




18




As
      of
      February 8, 2008 there were 2,211 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
      and
      repurchase of its common stock is restricted by certain of its current
      indebtedness and may be restricted or prohibited under 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” - “Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters” for certain information concerning
      securities issued under the Company's equity compensation plans.




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





*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 2004 period”). The
      Company's current reporting period is for the 12-month period January 1, 2007
      through December 31, 2007 (“fiscal 2007”), as are the prior year reporting
      periods from January 1, 2006 through December 31, 2006 (“fiscal 2006”) and from
      January 1, 2005 through December 31, 2005 (“fiscal 2005”).




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 had both licensing/ commission/footwear operations and apparel
      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 licensing and
      commission revenues, 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 2004 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 fiscal 2005 are not comparable
      to prior years; as a result of the Company’s acquisitions in fiscal 2006, the
      Company’s operating results for fiscal 2006 are not comparable to prior periods;
      and, as a result of the Company’s acquisitions in fiscal 2007, the Company’s
      operating results for fiscal 2007 are not comparable to prior
      periods.





*Selected
      Historical Financial Data*


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





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
                Year Ended December 31, 2007(2)
            
            Fiscal
                Year Ended December 31, 2006
            
            Fiscal
                Year Ended December 31, 2005
            
            11-Months
                Ended December 31, 2004*
            
            Fiscal
                Year Ended
              January
                31, 2004Income
                Statement DataLicensing
                and commission revenue
            
            $
            160,004
            
            $
            80,694
            
            $
            30,156
            
            $
            10,553
            
            $
            8,217Net
                sales
            
            
            -
            
            
            -
            
            
            -
            
            
            58,427
            
            
            123,160Net
                revenues
            
            
            160,004
            
            
            80,694
            
            
            30,156
            
            
            68,980
            
            
            131,377Operating
                income (loss)(1)
            
            
            121,789
            
            
            53,673
            
            
            15,361
            
            
            2,942
            
            
            (8,164
            )Interest
                expense - net
            
            
            25,512
            
            
            13,837
            
            
            4,453
            
            
            2,701
            
            
            3,118Net
                income (loss)(3)
            
            
            63,755
            
            
            32,501
            
            
            15,943
            
            
            241
            
            
            (11,340
            )Earnings
                per share:Basic
            
            $
            1.12
            
            $
            0.81
            
            $
            0.51
            
            $
            0.01
            
            $
            (0.45
            )Diluted
            
            $
            1.04
            
            $
            0.72
            
            $
            0.46
            
            $
            0.01
            
            $
            (0.45
            )Weighted
                average number of common shares outstanding:Basic
            
            
            56,694
            
            
            39,937
            
            
            31,284
            
            
            26,851
            
            
            25,181Diluted
            
            
            61,426
            
            
            45,274
            
            
            34,773
            
            
            28,706
            
            
            25,181




19




At
                December 31,
            
            At
              January
                31,Balance
                Sheet Data
            
            2007
            
            2006
            
            2005
            
            2004
            
            2004Current
                Assets
            
            $
            95,868
            
            $
            99,829
            
            $
            22,345
            
            $
            9,627
            
            $
            25,655Working
                capital (deficit)
            
            
            19,458
            
            
            64,124
            
            
            (4,388
            )
            
            (5,894
            )
            
            (4,564
            )Trademarks
                and other intangibles
            
            
            1,038,201
            
            
            467,688
            
            
            139,281
            
            
            16,591
            
            
            16,317Total
                assets
            
            
            1,336,130
            
            
            696,244
            
            
            217,244
            
            
            60,160
            
            
            74,845Long-term
                debt
            
            
            702,156
            
            
            162,808
            
            
            99,119
            
            
            22,488
            
            
            27,374Total
                stockholders' equity
            
            
            527,920
            
            
            465,457
            
            
            100,896
            
            
            24,258
            
            
            18,868




*
            Beginning
                in May 2003, the Company changed its business model to a licensing
                model.
                See “Item 1 - Business - Transition to a brand management company". As
                a
                result, fiscal 2007, fiscal 2006, fiscal 2005 and the 11-month 2004
                period
                results are not comparable with prior
                years.




(1)
            Includes
                special charges income of $6.0 million in fiscal 2007 and a special
                charges expense of $2.5 million in fiscal 2006, $1.5 million in
                fiscal 2005, $0.3 million in the 11-month 2004 period, and $4.5
                million in the year ended January 31, 2004 (“fiscal 2004”). Further,
                included in operating income for fiscal 2004, the 11-month 2004 period,
                and fiscal 2005 was an adjustment for the shortfall payment related
                to
                Unzipped of $1.6 million, $7.6 million, and $0.5 million, respectively
                (see Notes 8, 9, 10, and 13 of Notes to Consolidated Financial
                Statements).





(2)
            During
                fiscal 2007, the Company made four acquisitions. See Notes 2, 3,
                4, and 6
                of Notes to Consolidated Financial
                Statements.




(3)
            In
                fiscal 2006 and fiscal 2005, the Company recognized a net non-cash
                tax
                benefit of $6.2 million 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’s*****”**).




**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.




20




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, 2007, the Company
      owned 16 iconic consumer brands: Candie’s, Bongo, Badgley Mischka, Joe Boxer,
      Rampage, Mudd, London Fog, Mossimo, Ocean Pacific/OP, Danskin, Rocawear, Cannon,
      Royal Velvet, Fieldcrest, Charisma, and Starter. The Company licenses its brands
      worldwide through 220 retail and wholesale licenses for use in connection with
      a
      broad variety of product categories, including footwear, fashion accessories,
      sportswear, home products and décor, and beauty and fragrance. The Company’s
      business model allows it to focus on its core competencies of marketing and
      managing brands without many 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 applicability
      to a wide range of merchandise categories and an ability to further diversify
      its brand portfolio.




**Summary
      of operating results:**





The
      Company had net income of $63.8 million for fiscal 2007 as compared to net
      income of $32.5 million for fiscal 2006.





The
      Company's operating income was $121.8 million in fiscal 2007, compared to an
      operating income of $53.7 million in fiscal 2006.





**Fiscal
      2007 compared to fiscal 2006**





*Revenue.* Revenue
      for fiscal 2007 increased to $160.0 million from $80.7 million during fiscal
      2006. The two largest drivers of the growth of $79.3 million was a full year
      of
      revenue generated from the acquisitions of Mudd, London Fog, Mossimo and Ocean
      Pacific made during fiscal 2006 which contributed approximately $37.1 million,
      as well as approximately $49.3 million contributed by the fiscal 2007
      acquisitions of Danskin, Rocawear, the Official-Pillowtex brands (i.e. Cannon,
      Royal Velvet, Fieldcrest, Charisma) and Starter, which had no comparable revenue
      in fiscal 2006. For brands owned for the full year in fiscal 2007 and fiscal
      2006, revenue increased approximately 5%, excluding the Joe Boxer brand, where
      the license was renewed at lower guaranteed minimum royalties while extended
      for
      an additional term of four years and providing for expansion into Sears stores.
      (see Item 1. Business - Key Licenses in fiscal 2007).





*Operating
      Expenses.* Consolidated selling, general and administrative (“SG&A”) expenses totaled
      $44.3 million in fiscal 2007 compared to $24.5 million in fiscal 2006. The
      increase of $19.8 million was primarily related to (i) an increase of
      approximately $6.7 million in advertising mainly driven by increased advertising
      related to brands acquired in fiscal 2007, with no comparable advertising
      expense in fiscal 2006; (ii) an increase of approximately $5.6 million in
      payroll costs due to an increase in employee headcount of 48 people (comparing
      year-over-year ending headcount) relating primarily to our 2007 acquisitions,
      including Rocawear and Starter. Further, for fiscal 2007, non-cash items
      consisting of the amortization of restricted stock awards, and the amortization
      of intangible assets (mainly contracts and non-competes) as a direct result
      of
      the Mossimo, Ocean Pacific, Danskin, Rocawear and the Pillowtex brands
      acquisitions accounted for $1.7 million and $3.4 million,
      respectively.





For
      fiscal 2007 the Company’s special charges included $6.0 million net benefit, as
      compared to special charges expense of $2.5 million in fiscal 2006, both years
      relating to litigation involving Unzipped. The $6.0 million net benefit includes
      approximately $3.4 million in legal expenses and a $9.4 million benefit relating
      to the judgment received in
      November 2007 relating to the Unzipped litigation. See
      Note
      10 of Notes to Consolidated Financial Statements. The fiscal 2006 special
      charges expense is comprised of legal expenses involving the Unzipped
      litigation.





*Operating
      Income.* Operating income for fiscal 2007 increased to $121.8 million, or approximately
      76% of total revenue, compared to $53.7 million or approximately 67% of total
      revenue in fiscal 2006. The increase in our operating margin percentage is
      primarily the result of increased revenues relating to the 2007 acquisitions
      and
      a full year of revenue for 2006 acquisitions while leveraging off of the
      existing infrastructure and making modest additions to SG&A compared to the
      increase in revenue.





*Interest
      Income -* Interest
      income increased by $6.3 million in fiscal 2007 from $1.2 million to $7.5
      million. This increase was primarily driven by higher levels of cash balances
      throughout the year as compared to fiscal 2006 due to (i) cash generated from
      operations and (ii) cash raised through debt and equity financing which was
      on
      hand for during the first and third quarter of 2007 before used for
      acquisitions.




21




*Interest
      Expense* -
      Interest expense increased by $17.9 million in fiscal 2007 to $33.0 million,
      compared to interest expense of $15.1 million in fiscal 2006. This increase
      was
      due primarily to an increase in the Company’s debt financing arrangements in
      connection with the acquisitions of Rocawear, Official-Pillowtex and Starter,
      as
      well as interest related to the Sweet Note. See Note 8 of the Notes to
      Consolidated Financial Statements. Specifically interest expense relating to
      the
      new term loan facility, the convertible bond and the note issued to Sweet (“Sweet Note”)
      totaling
      approximately $12.4 million, $2.9 million and $2.8 million respectively with
      no
      comparable interest expense in fiscal 2006. Deferred financing costs increased
      by $1.3 million in fiscal 2007 to $2.0 million from $0.7 million in fiscal
      2006
      due to additional financing obtained in fiscal 2007.




*Provision
      for Income Taxes.* The
      effective income tax rate for fiscal 2007 is approximately 33.8% resulting
      in
      the $32.5 million income tax expense. This difference between the effective
      tax
      rate and the statutory rate of 35%, is mainly driven by the benefit in state
      income taxes and relates to fluctuations in state rates expected to be realized
      by the Company due to new or revised tax legislation as well as changes we
      have
      recently experienced in the level of business performed within specific tax
      jurisdictions. Fiscal 2006 had a $7.3 million income tax expense due primarily
      to a reduction in the Company’s valuation allowance. See Note 17 of Notes to Consolidated Financial
      Statements.




*Net
      income* .
      The
      Company’s net income was $63.8 million in fiscal 2007, compared to net income of
      $32.5 million in fiscal 2006, as a result of the factors discussed
      above.




**Fiscal
      2006 compared to fiscal 2005**




*Revenues.* Revenue
      for fiscal 2006 increased to $80.7 million, from $30.2 million in fiscal 2005.
      This revenue growth was driven by three factors: growth from brands owned by
      the
      Company prior to 2005, additional revenue from brands acquired during fiscal
      2005 and brands acquired in fiscal 2006. The growth in revenue from brands
      that
      were acquired prior to 2005, notably the Company’s Candie’s brand which is
      licensed to Kohl’s, amounted to $5.9 million. Additional revenue from brands
      that were acquired during fiscal 2005, 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.





*Operating
      Expenses.* Consolidated SG&A expenses totaled $24.5 million in fiscal 2006 compared to
      $13.3 million in fiscal 2005, an increase of $11.2 million. The increase in
      SG&A expenses was primarily related to an aggregate increase of $6.9
      million in advertising expense and payroll costs associated with additions
      to
      employee headcount, both relating primarily related to the Company’s recent
      acquisitions. Further, in fiscal 2006, the Company recorded an additional $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 fiscal 2005. Additionally, for fiscal 2006, non-cash items
      consisting of the amortization of intangible assets as a direct result of the
      Joe Boxer, Rampage, Mudd, Mossimo and Ocean Pacific acquisitions accounted
      for
      $1.9 million of the increase in SG&A expenses from such expenses in Fiscal
      2005.





For
      fiscal 2006 and Fiscal 2005, 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 10 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
      fiscal 2006, or 67% of net revenue, as compared to $15.4 million in fiscal
      2005, or 51% of net revenue.




*Net
      Interest Expense* .
      Net
      Interest expense increased by approximately $9.3 million in fiscal 2006 to
      $13.8
      million, compared to $4.5 million in fiscal 2005. 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. Included in the interest
      expense for fiscal 2006 was approximately $0.7 million amortization expense
      of
      deferred financing cost, compared to approximately $0.5 million in fiscal 2005.
      Partially offsetting the increase in interest expense was an increase in
      interest income. The interest income for fiscal 2006 totaled $1.2 million,
      compared to $0.3 million in fiscal 2005, 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
      fiscal 2006 and Fiscal 2005, the gross realized gain on sales of securities
      available for sale totaled $0 and $0.1 million, respectively.




*Provision
      (Benefit) for Income Taxes.* The effective income tax rate for fiscal 2006 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. Fiscal 2005 had a $5.0 million income tax benefit due primarily
      from a reduction in the Company’s valuation allowance. See Note 17 of Notes to
      Consolidated Financial Statements.




*Net
      income* .
      The
      Company recorded net income of $32.5 million in fiscal 2006, compared to net
      income of $15.9 million in fiscal 2005, an increase of 104%, as a result of
      the
      factors discussed above.




22




**Liquidity
      and Capital Resources**




*Liquidity*





The
      Company’s principal capital requirements have been to fund acquisitions, working
      capital needs, and to a lesser extent capital expenditures. The Company has
      historically relied on internally generated funds to finance its operations
      and
      its primary source of capital needs for acquisition have been the issuance
      of
      debt and equity securities. At December 31, 2007, December 31, 2006, and
      December 31, 2005, the Company’s cash totaled $53.3 million, $77.8 million, and
      $11.7, respectively, including restricted cash of $5.2 million, $4.3 million,
      and $4.1 million, respectively.





The
      Company believes that cash from future operations as well as currently available
      cash will be sufficient to satisfy its anticipated working capital requirements
      for the foreseeable future. The Company intends to continue financing its brand
      acquisitions through a combination of cash from operations, bank financing
      and
      the issuance of additional equity and/or debt securities. During 2007, the
      Company funded it’s acquisitions through a combination of cash reserves and new
      debt obligations. The Danskin acquisition was funded from the Company’s cash
      reserves, while the Rocawear, Pillowtex and Starter acquisitions were funded
      from the proceeds of the term loan facility and convertible senior subordinated
      notes (see obligations and commitments section). See Note 8 of Notes to
      Consolidated Financial Statements.





As
      of
      December 31, 2007, the marketable securities consist of investment grade auction
      rate securities. During the year, the Company invested $196.4 million in auction
      rate securities and the majority of these securities ($183.4 million) had
      successful auctions. However, beginning in the third quarter of fiscal 2007,
      $13
      million of the auction rate securities had failed auctions due to sell orders
      exceeding buy orders. These funds will not be available to the Company until
      a
      successful auction occurs or a buyer is found outside the auction process.
      As a
      result, $13.0 million of auction rate securities were written down to $10.9
      million as an unrealized pre-tax loss of $2.1 million to reflect a temporary
      decrease in fair value. As the write-down of $2.1 million has been identified
      as
      a temporary decrease in fair value, the write-down will not impact the Company’s
      earnings and is reflected as an other comprehensive loss in the consolidated
      statement of stockholders’ equity . The
      Company believes this decrease in fair value is temporary due to general
      macroeconomic market conditions, as the underlying securities have maintained
      their investment grade rating. Furthermore,
      the Company believes its cash flow from future operations and its cash will
      be
      sufficient to satisfy its anticipated working capital requirements for the
      foreseeable future, regardless of the timeliness of the auction process.





*Changes
      in Working Capital*





At
      December 31, 2007 and December 31, 2006 the working capital ratio (current
      assets to current liabilities) was 1.25 to 1 and 2.8 to 1, respectively. This
      decrease was driven by the decrease in cash and cash equivalents from $77.8
      million at December 31, 2006 to $53.3 million at December 31, 2007, as well
      as
      the following factors:





*Operating
      Activities*





Net
      cash
      provided by operating activities totaled $83.7 million in fiscal 2007, as
      compared to $29.3 million and $16.0 million of net cash provided by operating
      activities in fiscal 2006 and fiscal 2005, respectively. Cash provided by
      operating activities in fiscal 2007 increased primarily due to net income of
      $63.8 million, amortization of intangibles of $5.6 million, $2.3 million for
      the
      provision for doubtful accounts, an increase of $5.0 million in deferred
      revenues, net of acquisitions, driven by prepayments of certain royalties
      related to the Mudd brand, and an increase of $26.8 million in deferred income
      tax assets primarily related to the provision for income taxes for fiscal 2007,
      offset primarily by increases of $22.1 million in accounts receivable, net
      of
      acquisitions, primarily related to the Rocawear, Danskin and Pillowtex
      acquisitions. The Company continues to rely upon cash generated from licensing
      and commission operations to finance its operations.




Net
        cash
        provided from
        these operating activities totaled $29.3 million in fiscal 2006, compared
        to
        $16.0 million in fiscal 2005.
        For
        fiscal 2006, cash generated from licensing revenues are from licensees in
        connection with the Company's
        nine brands as of December 31, 2006.




*Investing
      Activities*





Net
      cash
      used in investing activities in fiscal 2007 totaled $598.2 million, as compared
      to $176.8 million in fiscal 2006 and $68.5 million in fiscal 2005. In fiscal
      2007, the Company purchased marketable securities totaling $196.4 million,
      from
      which marketable securities totaling $183.4 million were sold at par value
      during fiscal 2007. In addition, the Company paid $71.3 million in cash for
      certain assets relating to the Danskin brand, $206.1 million in cash for certain
      assets relating to the Rocawear brand, and $233.8 million in cash for certain
      assets relating to the acquisition of the Official-Pillowtex brands (Cannon,
      Royal Velvet, Fieldcrest, and Charisma), $60.3 million in cash for certain
      assets relating to the Starter brand, and $13.4 million in cash relating to
      Scion LLC’s acquisition of the Artful Dodger brand. See Notes 2, 3, 4, 5, and 6
      of Notes to Consolidated Financial Statements. Capital expenditures in fiscal
      2007 were $0.1, compared to $0.7 million in capital expenditures in fiscal
      2006.




The
        Company's cash used in investing activities in fiscal 2006 totaled $176.8
        million compared to $68.5 million
        used for fiscal 2005. Cash paid for the acquisitions of Mudd, London Fog,
        Mossimo, and Ocean Pacific,
        totaled approximately $173.7 million in fiscal 2006. Capital expenditures
        were
        $0.7 million for the fiscal
        2006 compared to $0.7 million in fiscal 2005. Capital expenditures for fiscal
        2006 were primarily in connection
        with the acquisition of office equipment and leasehold improvements, and
        other
        trademarks of $2.3
        million.




*Financing
      Activities*





Net
      cash
      provided by financing activities was $489.0 million in fiscal 2007, compared
      with $213.4 million in fiscal 2006 and $59.9 million in fiscal 2005. Of the
      $489.0 million in net cash provided by financing activities, $272.5 million
      was
      provided from the net proceeds of the issuance of the term loan facility, $281.1
      million from the net proceeds of our sale of the convertible notes, $37.5
      million from the proceeds of our sale of the sold warrants to the convertible
      note hedge counterparties, $3.6 million from proceeds in connection with the
      exercise of stock options. This was offset by an aggregate of $76.3 million
      used
      to purchase the purchased call options from the convertible note hedge
      counterparties, $20.1 million used for principal payments related to the
      asset-backed notes and the term loan facility, $3.5 million in cash placed
      in a
      non-current reserve account, and $6.2 million in financing costs which have
      been
      deferred to be amortized over the remaining life of the term loan facility.




In
      fiscal
      2006, $189.5 million was provided from the net proceeds of the equity offering;
      $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; the Company received proceeds of
      $9.1
      million from the exercise of stock options and warrants; approximately $148.5
      million was used for principal payments related to the asset-backed
      notes; $6.7 million in cash placed in a non-current reserve
      account.


23




**Obligations
      and commitments**




The
      Company funded three of the four 2007 acquisitions through new debt obligations.
      The Rocawear acquisition was funded from the proceeds of the Company’s $212.5
      million term loan facility. The Pillowtex acquisition was funded primarily
      from
      the proceeds of the offering of Convertible Senior Subordinated Notes. The
      Starter acquisition was funded from the net proceeds of an additional $60.0
      million in financing secured under the term loan facility. The Company has
      limited ability, however, to secure additional indebtedness with its existing
      assets due to certain provisions of the Term Loan Facility and IP Holdings’
existing Asset-Backed Notes.





*Term
      loan facility* .
      In
      connection with the Company’s acquisition of the Rocawear brand in March 2007,
      it entered into a credit agreement with respect to a term loan facility pursuant
      to which it borrowed, and received net proceeds of, $212.5 million.
      Subsequently, in December 2007, in connection with the Company’s acquisition of
      the Starter brand, the Company borrowed an additional $63.2 million under this
      term loan facility, in connection with which it received net proceeds of $60.0
      million.




The
      Company’s obligations under the credit agreement are secured by the Company’s
      pledge of its ownership interests in several of its subsidiaries. In addition,
      these and other of the Company’s subsidiaries have guaranteed such obligations
      and their guarantees are secured by a pledge of, among other things, the Ocean
      Pacific/OP, Danskin, Rocawear, Mossimo, Cannon, Royal Velvet, Fieldcrest,
      Charisma and Starter trademarks and related intellectual property assets.
      Amounts outstanding under the term loan facility bear interest, at the Company’s
      option, at the Eurodollar rate or the prime rate, plus an applicable margin
      of
      2.25% or 1.25%, as the case may be, per annum, with minimum principal payable
      in
      equal quarterly installments in annual aggregate amounts equal to 1.00% of
      the
      aggregate principal amount of the loans outstanding, in addition to an annual
      payment equal to 50% of the excess cash flow from the term loan facility group,
      with any remaining unpaid principal balance to be due on April 30, 2013. At
      December 31, 2007, the interest rate under the term loan facility was 7.08%
      and
      the balance outstanding under the term loan facility was $270.8 million. As
      of
      December 31, 2007, we are in compliance with all covenants relating to this
      debt
      obligation (see Note 8 to Consolidated Financial Statements).




*Convertible
      senior subordinated notes.* In
      June
      2007, the Company completed the sale of $287.5 million principal amount of
      its
      1.875% convertible senior subordinated notes due 2012 in a private offering
      to
      certain institutional investors from which it received net proceeds of
      approximately $281.1 million. The convertible notes bear interest at an annual
      rate of 1.875%, payable semi-annually in arrears on June 30 and December 31
      of
      each year, commencing as of December 31, 2007. At December 31, 2007, the balance
      of the convertible notes was $281.7 million.




Concurrently
      with the sale of the convertible notes, the Company purchased note hedges for
      approximately $76.3 million and issued warrants to the hedge counterparties
      for
      proceeds of approximately $37.5 million. These transactions will generally
      have
      the effect of increasing the conversion price of the convertible notes (by
      100%
      percent based on the price of the Company’s common stock at the time of the
      offering). As a result of these transactions, the Company recorded a reduction
      to additional paid-in-capital of $12.1 million. These
      note hedges and warrants are separate and legally distinct instruments that
      bind
      only the Company and the counterparties thereto and have no binding effect
      on
      the holders of the convertible notes.




The
      Company utilized the proceeds of the convertible notes as follows: approximately
      $233.8 million was used for the Pillowtex acquisition and approximately $38.8
      million was the net payment for the related convertible note hedge (see
      Note
      8 of Notes to Consolidated Financial Statements). There are no covenants for
      this debt obligation.




*Asset-backed
      note* s *.*  The
      financing for certain of the Company’s acquisitions in fiscal 2005 and fiscal
      2006 was accomplished though private placements of IP Holding’s asset-backed
      notes, which notes are currently secured by the Candies, Bongo, Joe Boxer,
      Rampage, Mudd and London Fog trademarks and related intellectual property
      assets. At December 31, 2007, the principal balance outstanding under the
      asset-backed notes was $137.5 million, of which $48.2 million principal amount
      bears interest at a fixed interest rate of 8.45% and $21.3 million principal
      amount bears interest at a fixed rate of 8.12%, each with a term ending in
      2012,
      and $68.0 million principal amount bears interest at a fixed rate of 8.99%
      with
      a term ending in 2013.




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, 2007 and 2006, $5.2 million
      and $4.3 million, respectively, have been disclosed as restricted cash within
      the Company’s current assets. Further, a liquidity reserve account has been
      established and the funds on deposit in such account are to be applied to the
      last principal payment due with respect to the asset-backed notes. Accordingly,
      the $15.2 million and $11.7 million in such reserve account as of December
      31,
      2007 and 2006, respectively, have been included on the Company’s balance sheets
      as restricted cash within its other assets. As
      of
      December 31, 2007, we are in compliance with all covenants relating to this
      debt
      obligation. (see Note 8 of Notes to Consolidated Financial
      Statements)




*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 a
      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.




24




In
      November 2007, in connection with the litigation in the California state court,
      the state court judge issued a signed judgment. This judgment stated that the
      Sweet Note originally $11 million when issued by the Company upon the
      acquisition of Unzipped from Sweet in 2002 should total approximately $12.2
      million as of December 31, 2007. The balance of this Sweet Note, prior to any
      adjustments related to the judgment was approximately $3.2 million. The Company
      increased the Sweet Note by approximately $6.2 and recorded the expense as
      a
      special charge. The Company further increased the Sweet Note by approximately
      $2.8 million to record the related interest and included the charge in interest
      expense. The balance of the Sweet Note as of December 31, 2007 is approximately
      $12.2 million and included in Current portion of Long Term
      Liabilities.




*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 principal amount of $10.8
      million that originated with the execution of the Kmart license by the former
      owners of Joe Boxer. The note provided for interest at 5.12% and was
      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 could be
      off-set against any royalties owed under the Kmart license. As of December
      31,
      2007 the remaining principal due to Kmart under the note was entirely off-set
      against royalties collectible under the Kmart license.





*Other.* The
      Company believes that it will be able to satisfy its ongoing cash requirements
      for operations and debt servicing for the foreseeable future, primarily with
      cash flow from operations. 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, 2007,
      and is based on information appearing in the Notes to Consolidated Financial
      Statements:





Contractual
                Obligations*(000’s
                omitted)*
            
            2008
            
            2009-2010
            
            2011-2012
            
            After
                2012
            
            TotalTerm
                Loan Facility
            
            $
            19,972
            
            $
            5,492
            
            $
            5,492
            
            $
            239,795
            
            $
            270,751Convertible
                Notes
            
            
            -
            
            
            -
            
            
            281,714
            
            
            -
            
            
            281,714Asset-Backed
                Notes
            
            
            20,408
            
            
            46.447
            
            
            59,848
            
            
            10,802
            
            
            137,505Sweet
                Note
            
            
            12,186
            
            
            -
            
            
            -
            
            
            -
            
            
            12,186Operating
                Leases
            
            
            1,583
            
            
            4,526
            
            
            3,804
            
            
            21,081
            
            
            30,994Employment
                Contracts(1)
            
            
            4,393
            
            
            5,539
            
            
            2,000
            
            
            -
            
            
            11,932Total
                Contractual Cash Obligations
            
            $
            58,542
            
            $
            62,004
            
            $
            352,858
            
            $
            271,678
            
            $
            745,082




(1)
      Includes all annual base salary commitments in addition to the new annual base
      salary commitment related to the new employment agreement for Neil Cole,
      President and CEO, signed January 28, 2008 (see Note 20 of Notes to Consolidated
      Financial Statements).




**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 “Item 1A-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.




25




**Effects
      of Inflation**





The
      Company does not believe that the relatively moderate rates of inflation
      experienced over the past few years in the United States, where it primarily
      competes, have had a significant effect on revenues or
      profitability.




**New
      Accounting Standards**





During
      fiscal 2007, the Company adopted certain new accounting standards issued by
      the
      FASB, as described below and summarized in Note 1 of 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 fiscal 2007.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (“SFAS
      157”) which establishes a framework for measuring fair value in generally
      accepted accounting principles and expands disclosures about fair value
      measurements. SFAS 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 157 is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods within those fiscal years. We are evaluating the impact adopting
      SFAS 157 will have on our consolidated financial statements.




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.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141R”), which requires an acquirer to do the following:
      expense acquisition related costs as incurred; to record contingent
      consideration at fair value at the acquisition date with subsequent changes
      in
      fair value to be recognized in the income statement; and any adjustments to
      the
      purchase price allocation are to be recognized as a period cost in the income
      statement. SFAS 141R applies prospectively to business combinations for which
      the acquisition date is on or after beginning of the first annual reporting
      period beginning on or after December 15, 2008. Earlier application is
      prohibited. At the date of adoption, SFAS 141R is expected to have a material
      impact on our results of operations and our financial position due to our
      acquisition strategy.





In
      December, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements—an amendment of ARB No. 51 .” This statement
      establishes accounting and reporting standards for the noncontrolling interest
      in a subsidiary and for the deconsolidation of a subsidiary. This statement
      is
      effective prospectively, except for certain retrospective disclosure
      requirements, for fiscal years beginning after December 15, 2008. Management
      is
      evaluating the impact adopting SFAS 160 will have on the Company’s results of
      operations and financial position.




**Critical
      Accounting Policies:**





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 collectability of accounts receivable.
      The Company estimates the collectability 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.




In
      connection with its 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 fiscal
      2007,
      fiscal 2006, and fiscal 2005, and no impairments were necessary.




26




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 approximately 20
      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 fiscal 2005 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, 2007, 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
      SFAS123(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 fiscal 2007 that it is more likely than not
      that the net deferred income tax asset recorded as of December 31, 2006 will
      be
      realized.




The
      Company adopted FIN 48 beginning January 1, 2007. The implementation of FIN
      48
      did not have a significant impact on the Company’s financial position or results
      of operations. The total unrecognized tax benefit was $1.1 million at the date
      of adoption. At December 31, 2007, the total unrecognized tax benefit was $1.1
      million. However, the liability is not recognized for accounting purposes
      because the related deferred tax asset has been fully reserved in prior years.
      The Company is continuing its practice of recognizing interest and penalties
      related to income tax matters in income tax expense. There was no accrual for
      interest and penalties related to uncertain tax positions for the year ended
      December 31, 2007. The Company files federal and state tax returns and is
      generally no longer subject to tax examinations for fiscal years prior to
      2003.





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





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





The
      Company limits exposure to foreign currency fluctuations by requiring
      substantially all of its revenue to be paid in United States dollars. As of
      December 31, 2007, the Company had approximately $270.8 million in variable
      interest debt under its Term Loan Facility. See Note 8 of the Notes to
      Consolidated Financial Statements for further explanation.




27




The
      Company is exposed to potential loss due to changes in interest rates.
      Investments with interest rate risk include marketable securities. Debt with
      interest rate risk includes the fixed and variable rate debt. To mitigate
      interest rate risks, the Company is, utilizing derivative financial instruments
      such as interest rate hedges to convert certain portions of the Company’s
      variable rate debt to fixed interest rates. If
      there
      were an adverse change in interest rates of 10%, the expected effect on net
      income would be immaterial.





The
      Company invested in certain investment grade auction rate securities. During
      the
      third and fourth quarter of fiscal 2007, our balance of auction rate securities
      failed to auction due to sell orders exceeding buy orders. These funds will
      not
      be available to us until a successful auction occurs or a buyer is found outside
      the auction process. As a result, $13.0 million of auction rate securities
      were
      written down to $10.9 million as an unrealized pre-tax loss of $2.1 million
      to
      reflect a temporary decrease in fair value. The Company believes this decrease
      in fair value is temporary due to general macroeconomic market conditions,
      as
      the underlying securities have maintained their investment grade rating. As
      the
      write-down of $2.1 million has been identified as a temporary decrease in fair
      value, the write-down will not impact our earnings and is reflected as an other
      comprehensive loss in the consolidated statement of stockholders’
equity .




In
      connection with the initial sale of convertible notes, the Company entered
      into
      convertible note hedge transactions with affiliates of Merrill Lynch and Lehman
      Brothers, which hedging transactions are expected, but are not guaranteed,
      to
      eliminate the potential dilution upon conversion of the convertible notes.
      At
      the same time, the Company entered into sold warrant transactions with the
      hedge
      counterparties. In connection with such transactions, the hedge counterparties
      entered into various over-the-counter derivative transactions with respect
      to
      the Company’s common stock and purchased the Company’s common stock; and they
      may enter into or unwind various over-the-counter derivatives and/or purchase
      or
      sell the Company’s common stock in secondary market transactions in the future.
      Such activities could have the effect of increasing, or preventing a decline
      in,
      the price of our common stock. Such effect is expected to be greater in the
      event we elect to settle converted notes entirely in cash. The hedge
      counterparties are likely to modify their hedge positions from time to time
      prior to conversion or maturity of the convertible notes or termination of
      the
      transactions by purchasing and selling shares of our common stock, other of
      our
      securities, or other instruments they may wish to use in connection with such
      hedging. In particular, such hedging modification may occur during any
      conversion reference period for a conversion of notes. In addition, we intend
      to
      exercise options we hold under the convertible note hedge transactions whenever
      notes are converted and we have elected, with respect to such conversion, to
      pay
      a portion of the consideration then due by us to the noteholder in shares of
      our
      common stock. In order to unwind their hedge positions with respect to those
      exercised options, the hedge counterparties will likely sell shares of our
      common stock in secondary market transactions or unwind various over-the-counter
      derivative transactions with respect to our common stock during the conversion
      reference period for the converted notes. The effect, if any, of any of these
      transactions and activities on the trading price of our common stock will depend
      in part on market conditions and cannot be ascertained at this time, but any
      of
      these activities could adversely affect the value of our common stock. Also,
      the
      sold warrant transaction could have a dilutive effect on our earnings per share
      to the extent that the price of our common stock exceeds the strike price of
      the
      warrants.






**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**





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. The purpose of disclosure controls is to ensure
      that information required to be disclosed in our reports filed with or submitted
      to the SEC under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules and forms.
      Disclosure controls are also designed to ensure that such information is
      accumulated and communicated to our management, including our principal
      executive officer and principal financial officer, to allow timely decisions
      regarding required disclosure.





Based
      on
      this evaluation, the principal executive officer and principal financial officer
      concluded that the Company’s disclosure controls and procedures are effective in
      timely alerting them to material information required to be included in our
      periodic SEC filings and ensuring that information required to be disclosed
      by
      the Company in the reports that it files or submits under the Exchange Act
      is
      recorded, processed, summarized and reported within the time period specified
      in
      the SEC’s rules and forms.




28




The
      principal executive officer and principal financial officer also conducted
      an
      evaluation of internal control over financial reporting (“Internal Control”) to
      determine whether any changes in Internal Control occurred during the quarter
      ended December 31, 2007 that may have materially affected or which are
      reasonably likely to materially affect Internal Control. Based on that
      evaluation, there has been no change in the Company’s Internal Controls over
      financial reporting during the quarter ended December 31, 2007 that has
      materially affected, or is reasonably likely to affect, the Company’s Internal
      Controls over financial reporting.




29




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




February
      28, 2008




To
      the
      Stockholders of Iconix Brand Group, Inc.




The
      management of Iconix Brand Group, Inc. is responsible for 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, 2007. 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, the undersigned officers concluded that our internal controls
      and procedures 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, the internal auditors
      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, the independent registered public accounting firm who audits
      our
      financial statements, has audited our internal control over financial reporting
      as of December 31, 2007 and has expressed an unqualified opinion
      thereon.




30




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board
      of
      Directors and Stockholders


Iconix
      Brand Group, Inc.


New
      York,
      New York




We
      have
      audited Iconix Brand Group, Inc. and Subsidiaries’ internal control over
      financial reporting as of December 31, 2007, based on criteria established
      in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (the
      COSO criteria). Iconix Brand Group, Inc.’s management is responsible for
      maintaining effective internal control over financial reporting and for its
      assessment of the effectiveness of internal control over financial reporting,
      included in the accompanying “Management’s Report on Internal Control Over
      Financial Reporting”. Our responsibility is to express an opinion on the
      Company’s internal control over financial reporting based on our audit.




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




A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (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, Iconix Brand Group, Inc maintained, in all material respects, effective
      internal control over financial reporting as of December 31, 2007, based on
      the
      COSO criteria *.*




We
      also
      have 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, 2007 and 2006, and the related consolidated
      statements of income, stockholders’ equity, and cash flows for each of the three
      years in the period ended December 31, 2007 and our report dated February,
      28,
      2008 expressed an unqualified opinion thereon.







/s/
      BDO
      Seidman, LLP




New
      York,
      New York


February
      28, 2008




31




**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
            
            50
            
            Chairman
                of the Board, President and Chief Executive OfficerDavid
                Conn
            
            40
            
            Executive
                Vice PresidentWarren
                Clamen
            
            43
            
            Chief
                Financial OfficerAndrew
                Tarshis
            
            41
            
            Senior
                Vice President and General CounselDeborah
                Sorell Stehr
            
            45
            
            Senior
                Vice President - Business Affairs and LicensingBarry
                Emanuel1,3
            
            66
            
            DirectorSteven
                Mendelow2,
                3
            
            65
            
            DirectorDrew
                Cohen1,
                2, 3
            
            39
            
            DirectorF.
                Peter Cuneo2,
                3
            
            63
            
            DirectorMark
                Friedman1,3
            
            44
            
            DirectorJames
                A. Marcum1, 2
            
            48
            
            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 2000 until March 2005, Mr. Clamen served as Vice President
      of Finance for Columbia House, one of the world's largest licensees of content
      for music and film ,and from December 1998 to June 2000, he was Vice President
      of Finance of Marvel Entertainment, Inc. a publicly traded entertainment company
      active in motion pictures, television, publishing, licensing and toys. 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.




32




***Andrew
      Tarshis*** has
      served as the Company’s Senior Vice President and General Counsel since
      September 2006. From July 2005, when he joined the Company in connection with
      its acquisition of the Joe Boxer brand, until September 2006, he served as
      the
      Company’s Senior Vice President, business affairs and associate counsel. Prior
      to joining the Company, 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 the Company’s 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 the Company’s subsidiaries. From September 1996 to
      December 1998, Ms. Sorell Stehr was Associate General Counsel with Nine
      West Group Inc., a women’s footwear corporation, 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 trustee of The Washington Institute for Near East Studies
      and
      actively involved with the Starlight Starbright Children's Foundation and the
      Foundation for Fighting Blindness. 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 President
      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 on the Company’s Board of 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-heating
      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.




***Mark
      Friedman*** has
      served on the Company’s Board of 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.





***James
      A. Marcum*** has
      served on the Company’s Board of Directors since October 2007. He is an
      Operating Partner and has served as an Operating Executive of Tri-Artisan
      Capital Partners, LLC, a merchant banking firm, since January 2004. In addition,
      since April 2007, Mr. Marcum has been a principal shareholder and has served
      as
      the Chairman and Chief Strategic Officer of Enabl-u Technologies Corp., an
      early
      stage interactive training and data management solutions provider. From January
      2005 to January 2006, he served in various capacities, including Chief Executive
      Officer and Director of Ultimate Electronics, Inc., a consumer electronics
      retailer specializing in home and car entertainment. From May 2001 to July
      2003,
      he served as an Executive Vice President, Chief Financial Officer and Executive
      Vice President of Operations of Hollywood Entertainment Corporation, a video
      home entertainment specialty retailer. Prior thereto, Mr. Marcum was recruited
      by private equity investors to serve in such roles as Executive Vice President
      and Chief Operating Officer of Lids, Inc., a specialty retailer of hats, and
      Vice Chairman and Chief Financial Officer of State Stores, Inc., a specialty
      retailer bringing branded apparel to small town America. Mr. Marcum has also
      served in senior executive capacities at Melville Corporation, a conglomerate
      of
      specialty retail chains in the apparel, footwear, drug, health and beauty aids
      and furniture and accessories sectors. He received a Bachelors degree from
      Southern Connecticut State University in accounting and economics in 1980.




33




**Election
      of officers**




Our Board
      of Directors elects the officers of the Company on an annual basis and its
      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 seven 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 2008.




**Committees
      of the Board of Directors**




Our bylaws
      authorize the Board of Directors to appoint one or more committees, each
      consisting of one or more directors. Our 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 and
      which are currently available on our website.




**Audit
      committee**





Our audit
      committee’s responsibilities include:


●
              appointing,
                    replacing, overseeing and compensating the work of a firm to
                    serve as the
                    independent registered public accounting firm to audit our 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 our interim and year-end operating
                results;


●
              considering
                    the adequacy of our 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 our audit committee are Messrs. Mendelow, Cuneo, Cohen and
      Marcum, 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. Our 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**




Our 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
                our corporate governance practices and reporting and making
                recommendations to the Board concerning corporate governance
                matters.




The
      members of our nominating/governance committee are Messrs. Cohen, Emanuel,
      Friedman and Marcum, and Mr. Cohen currently serves as its
      chairperson.




34




**Compensation
      committee**




Our compensation
      committee's responsibilities include:




●
                setting
                        the compensation and negotiating the employment arrangements
                        for the chief
                        executive officer;
 ●
                    reviewing
                          and recommending approval of the compensation of our other executive
                          officers;
 ●
                        administering
                                our stock option and stock incentive
                                plans;
 ●
                            reviewing
                                    and making recommendations to the Board with
                                    respect to our 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.
  The
                          members of our compensation committee are Messrs. Mendelow, Cohen, Cuneo,
                          Emanuel and Friedman, and Mr. Friedman currently serves as its
                          chairperson.




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




Section
      16(a) of the Exchange Act requires our officers and directors, and persons
      who beneficially own more than 10% of a registered class of our 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 us with copies of all Section 16(a) forms they
      file.




Based
      solely on our review of the copies of such forms received by it, we believe
      that during fiscal 2007, there was compliance with the filing requirements
      applicable to its officers, directors and 10% common stockholders.




**Corporate
      governance policies**




We
      have 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, we
      have established an ethics website at www.ethicspoint.com .
      To
      assist individuals in upholding the code of conduct and to facilitate reporting,
      we have 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
      our code of business conduct are available, without charge, upon written
      request directed to our corporate secretary at Iconix Brand Group, Inc.,
      1450 Broadway, New York, NY 10018.





**Item
      11. Executive Compensation**




**Compensation
      Discussion and Analysis**





The
      purpose of this Compensation Discussion
      and Analysis is to provide the information necessary for understanding the
      compensation philosophy, policies and decisions which are material to the
      compensation of ourprincipal
      executive officer, our principal financial officer and our three other most
      highly compensated executive officers (we refer to these officers as our “named
      executive officers”)during
      2007. This Compensation Discussion and Analysis will place in context the
      information contained in the tables and accompanying narratives that follow
      this
      discussion.





**Philosophy
      and Objectives**





Our
      compensation philosophy is to offer our executive officers, including our named
      executive officers, compensation that is fair, reasonable and competitive,
      and
      that meets our goals of attracting, retaining and motivating highly skilled
      management personnel so that we can be in a position to achieve our financial,
      operational and strategic objectives to create long-term value for our
      stockholders.  We
      seek
      to deliver fair, reasonable 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 remain 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.




35




Our
      compensation program includes short-term elements, such as annual base salary,
      and in some cases, an annual incentive cash bonus, and long term elements such
      as equity-based awards through grants of restricted stock, restricted stock
      units 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 also
      take into account the roles played by each of our named executive officers
      and
      endeavor to individually customize their compensation packages to align the
      amount and mix of their compensation to their contributions to, and roles
      within, our organization. The compensation package for our chief executive
      officer, Mr. Neil Cole, differs from those of our other named executive officers
      in light of his distinct role and responsibilities within Iconix. As Mr.
      Cole makes executive decisions that influence our direction and growth
      initiatives, his total compensation is intended to be strongly aligned with
      objective financial measures, including a bonus driven by a formula set forth
      in
      his employment agreement based upon our performance.





We enter
      into employment agreements with senior officers, including our named executive
      officers, when the compensation committee determines that an employment
      agreement is in order for us to obtain a degree of certainty as to an
      executive’s continued employment in light of prevailing market conditions and
      competition for the particular position held by the officer, or where the
      compensation committee determines that an employment agreement is appropriate
      to
      attract an executive in light of market conditions, the prior experience of
      the
      executive or practices at our Company with respect to other similarly situated
      executives. Based on these and any other factors then deemed relevant, we have
      entered into written employment agreements with Messrs. Neil Cole, David Conn,
      Warren Clamen and Andrew Tarshis and Ms. Deborah Sorell Stehr.  See
“-
      Narrative to Summary Compensation Table and Plan-Based Awards Table - Employment
      Agreements” for a description of these employment agreements and related
      information. See
      also
“2008 Compensation Changes—New Employment Agreement with our Chief Executive
      Officer” for a description of a new employment agreement we entered into in
      January 2008.




**Forms
      of Compensation Paid to Named Executive Officers During
      2007**





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 restricted stock units, 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 2007, we awarded shares of restricted
      stock to four of the named executive officers in connection with performance
      based incentive awards.  While
      we
      have not formally adopted any policies with respect to cash versus equity
      components in the mix of executive compensation, we feel that it is important
      to
      provide for a compensation mix that allows for acquisition of a meaningful
      level
      of equity ownership by our named executive officers in order to help align
      their
      interests with those of our stockholders.




*Cash
      bonuses.* Two of
      our named executive officers in 2007 have a contractual right to receive a
      cash
      bonus, one based upon our performance, and the other a guaranteed
      amount.




*Perquisites
      and other personal benefits.* During
      2007, 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; and




·
              car
                  allowances.
 36
  **Objectives
            of Our Compensation Program**





The
      co mpensation
      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 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
      2007, the compensation of Mr. Cole, our chairman, president and chief executive
      officer was based on Mr. Cole’s employment agreement which expired on December
      31, 2007 (the “prior employment agreement”) and the general principles of our
      executive compensation program. In determining the salary and other forms of
      compensation for Mr. Cole, the compensation committee took into consideration
      Mr. Cole’s contribution to our growth over the past several years under his
      leadership, and his substantial experience and performance in the industry
      in general and with us in particular. The compensation committee also considered
      the increased responsibilities of Mr. Cole as a result of our diversification
      and substantial growth experienced by our company during his tenure. The
      compensation committee believes that Mr. Cole’s compensation for 2007 as our
      principal executive officer reflects our performance during 2007 and his
      significant contributions to that performance. Mr. Cole’s prior employment
      agreement, pursuant to which he was compensated in 2007, expired on December
      31,
      2007.





On
      January 28, 2008, we entered into a new employment agreement with Mr. Cole,
      effective as of January 1, 2008. See “2008 Compensation Changes - New Employment
      Agreement with our Chief Executive Officer”.




*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 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 nominating/governance
      committee on December 13, 2006. 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,
      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.




37




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 implement, subject to stockholder approval, a more structured
      bonus
      program for all our employees in conformance with Section 162(m), 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 such enhancement,
      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.




*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 our company, and expected contributions of each named executive officer
      to us.




The
      following were contractual increases in the base salaries of our named executive
      officers from 2006 to 2007 as set forth on the table below:




**Named
                Executive Officer**
            
            **2006
                Base Salary**
            
            **2007
                Base Salary**
            
            **Change
                in Base Salary**
            
            **Percentage
                of 2006 Base Salary**Neil
                Cole
            
            $
            550,000
            
            $
            600,000
            
            $
            50,000
            
            
            9
            %David
                Conn
            
            
            275,000
            
            
            300,000
            
            
            25,000
            
            
            9
            %Warren
                Clamen
            
            
            275,000
            
            
            300,000
            
            
            25,000
            
            
            9
            %Andrew
                Tarshis
            
            
            275,000
            
            
            300,000
            
            
            25,000
            
            
            9
            %Deborah
                Sorell Stehr
            
            
            220,000
            
            
            230,000
            
            
            10,000
            
            
            5
            %




*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.




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 2007,
      we
      continued to utilize restricted stock as a form of equity
      compensation 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.




38




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 2007 were as follows: David Conn 4,967,
      Warren Clamen - 4,967, Andrew Tarshis 4,967, and Deborah Sorell Stehr 3,725
      shares vesting over an 18-month period. The vesting date of a portion for each
      of Mr. Conn’s, Mr. Clamen’s, Mr. Tarshis’s, and Ms. Sorell Stehr’s
      shares was changed to vest simultaneously on January 1,
      2008.




*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 will receive a bonus for 2007
      of
      $649,000, and one named executive officer received a $25,000 bonus,
      pursuant to the terms of his employment agreement with
      us.




*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 some or all of our executive officers are described
      below. Perquisites are generally provided, as applicable, 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 2007, 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.




**Perquisite,
                Other Benefit or Other Item of Compensation (1)**
            
            
            **Aggregate
                Amount of This Perquisite Paid to All Named Executive Officers in
                2007**
            
            
            **Additional
                Explanation for Offering Certain Perquisites**Car
                allowances
            
            $
            98,279
            
            
            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.Life
                Insurance Premiums
            
            $
            21,420
            
            
            Reduces
                risk to the beneficiaries of executives in
                the event of the death of the executive.




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




39




*Other
      matters* .
      The compensation
      committee has not historically engaged consultants with respect to executive
      compensation matters. However, in 2007, the compensation committee engaged an outside consulting firm, James F. Reda &
Associates, LLC (“Reda & Associates”) for advice in 2007 in connection with
      the negotiation of the new employment agreement for our chief executive officer,
      which agreement was entered into in January 2008. See “2008 Compensation Changes
      - New Employment Agreement with our Chief Executive Officer”. Reda &
Associates has provided no other services to Iconix and has no other
      relationship or engagement with Iconix. 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.




**Tax
      Deductibility and Accounting Ramifications**





T he
      compensation committee generally takes into account the various tax and
      accounting ramifications of compensation paid to our executives. When
      determining amounts of equity-based grants to executives the compensation
      committee also considers the accounting expense associated with the
      grants.





Our
      2006
      Equity Incentive Plan and our other plans are intended to allow us to make
      awards to executive officers that are deductible under Internal Revenue Code
      Section 162(m), which otherwise sets limits on the tax deductibility of
      compensation paid to a company’s most highly compensated executive officers. The
      compensation committee will continue to seek ways to limit the impact of Section
      162(m). However, the compensation committee also believes that the tax deduction
      limitation should not compromise our ability to maintain incentive programs
      that
      support the compensation objectives discussed above. Achieving these objectives
      and maintaining flexibility in this regard may therefore result in compensation
      that is not deductible by Iconix for federal income tax purposes.





**Summary**





In
      summary, we believe that our mix of salary, cash incentives for short-term
      and long-term performance and the potential for additional equity ownership
      in
      Iconix motivates our management to produce significant returns for our
      stockholders. Moreover, we also believe that our compensation program strikes
      an
      appropriate balance between the interests and needs of Iconix in operating
      and
      further developing our business and suitable compensation levels that can lead
      to the enhancement of stockholder value.





**Compensation
      Committee Interlocks and Insider Participation**




During
      the year ended December 31, 2007, 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. In addition, none of the members of our compensation committee were
      formerly, or during the year ended December 31, 2007, employed by us in the
      capacity as an officer.




**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, 2007. 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




40




**SUMMARY
      COMPENSATION TABLE**




The
      following table includes information for 2007 with respect to our named
      executive officers.





**Summary
      Compensation Table**




**Salary**
                
                
                **Bonus**
                
                
                **Stock
                    Awards**
                
                
                **Option
                    Awards**
                
                
                **Non-Equity
                    Incentive Plan Compensation**
                
                
                **Change
                    in Pension Value and Non-qualified Deferred Compensation
                    Earnings**
                
                
                **All
                    Other Compensation**
                
                
                **Total****Name
                    and**
                
                
                
                
                
                **($)**
                
                
                **($)**
                
                
                **($)**
                
                
                **($)**
                
                
                **($)**
                
                
                **($)**
                
                
                **($)**
                
                
                **($)****Principal
                    Position**
                
                
                **Year**
                
                
                **(a)**
                
                
                **(b)**
                
                
                **(c)**
                
                
                **(d)**
                
                
                **(e)**
                
                
                **(f)**
                
                
                **(g)**
                
                
                **(h)**Neil
                    Cole
                
                
                FY
                    2007
                
                $
                600,000
                
                $
                649,000
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                118,574
                (1)
                $
                1,367,574President
                    and Chief Executive Officer
                
                
                FY
                    2006
                
                $
                550,000
                
                $
                -
                (2)
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                65,745
                
                $
                615,745David
                    Conn
                
                
                FY
                    2007
                
                $
                290,625
                
                $
                25,000
                
                $
                66,667
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                18,000
                
                $
                400,292Executive
                    Vice President
                
                
                FY
                    2006
                
                $
                265,486
                
                $
                50,000
                
                $
                -
                
                
                -
                
                $
                -
                
                $
                -
                
                $
                18,000
                
                $
                333,486Warren
                    Clamen
                
                
                FY
                    2007
                
                $
                279,167
                
                $
                -
                
                $
                166,667
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                18,000
                
                $
                463,834Chief
                    Financial Officer
                
                
                FY
                    2006
                
                $
                243,250
                
                $
                25,000
                
                $
                16,667
                
                
                -
                
                $
                -
                
                
                -
                
                $
                18,000
                
                $
                302,917Andrew
                    Tarshis
                
                
                FY
                    2007
                
                $
                281,250
                
                $
                -
                
                $
                166,664
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                18,000
                
                $
                465,914Senior
                    Vice President and General Counsel
                
                
                FY
                    2006
                
                $
                239,819
                
                $
                -
                
                $
                24,999
                
                
                -
                
                $
                -
                
                $
                -
                
                $
                18,000
                
                $
                282,818Deborah
                    Sorell Stehr
                
                
                FY
                    2007
                
                $
                230,000
                
                $
                -
                
                $
                116,661
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                18,000
                
                $
                364,661Senior
                    Vice President - Business Affairs and Licensing
                
                
                FY
                    2006
                
                $
                220,000
                
                $
                -
                
                $
                16,665
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                12,612
                
                $
                249,277




(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.(b)
            Bonuses
                are discretionary, fixed incentive, and/or percentage incentive,
                as
                provided for in the applicable employment agreements. For the year
                ended
                December 31, 2007, Mr. Cole earned a bonus for reaching certain EBITDA
                targets which were determined pursuant to the terms of his prior
                employment agreement, and Mr. Conn received a bonus which was determined
                by his employment agreement. For the year ended December 31, 2006,
                Mr.
                Conn and Mr. Clamen each received bonuses, which were determined
                by their
                employment agreements.(c)
            The
                amounts shown in this column represent the dollar amounts recognized
                as an
                expense by us for financial statement reporting purposes in the years
                ended December 31, 2007 and 2006 with respect to shares of restricted
                stock as determined pursuant to SFAS No. 123 (revised
                2004),*Share-Based Payment*(“SFAS 123(R)”). See Note 11 to Notes 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).




41




(d)
            Option
                awards include, as applicable, Iconix options and equity-based
                compensation instruments that have option-like features. There were
                no
                such awards for the years ended December 31, 2007 and
                2006.(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 years ended December 31, 2007
                and
                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 years ended December 31, 2007 and
                2006.(g)
            All
                other compensation includes, as applicable, car allowances 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)
            Represents
                Company paid premiums on a life insurance policy for the benefit
                of the
                beneficiaries of Mr. Cole, as well as a car
                allowance.




(2)
            Mr.
                Cole waived receipt of the bonus for 2006 he would have been entitled
                to
                under his prior employment
                agreement.





42




**GRANTS
      OF PLAN-BASED AWARDS**




The
      following table sets forth information for 2007 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**
                **(#)**
              
              
              **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
              
              
              4/30/07
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,967
              
              
              -
              
              
              -
              
              $
              20.13
              
              $
              100,000Warren
                  Clamen
              
              
              4/30/07
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,967
              
              
              -
              
              
              -
              
              $
              20.13
              
              $
              100,000Andrew
                  Tarshis
              
              
              4/30/07
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,967
              
              
              -
              
              
              -
              
              $
              20.13
              
              $
              100,000Deborah
                  Sorell Stehr
              
              
              4/30/07
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,725
              
              
              -
              
              
              -
              
              $
              20.13
              
              $
              75,000




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




**Employment
      Agreements**




The
      compensation committee determines the compensation, including related terms
      of
      employment agreements with us for those who have them, for each of the named
      executive officers.




Pursuant
      to his prior employment agreement (which expired on December 31, 2007 and has
      since been replaced by a new employment agreement - see “2008 Compensation
      Changes- New Employment Agreement with our Chief Executive Officer” and Note 20
      of Notes to Consolidated Financial Statements) with the Company, Neil Cole,
      served as our President and Chief Executive Officer at an annualized base salary
      of $500,000 in 2005, $550,000 in 2006 and $600,000 in 2007. In addition, Mr.
      Cole's prior employment agreement provided for us to pay him additional salary
      of $250,000 in four equal installments during 2005, all of which was paid.
      Under
      the prior employment agreement, for each year in which we met 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 was also entitled to a bonus as follows: $100,000 for 2005,
      $150,000 for 2006 and $200,000 for 2007. Mr. Cole received the bonus for 2005
      and will receive the bonus for 2007. In addition, Mr. Cole was entitled to
      receive a bonus equal to 5% of the amount, if any, by which our actual EBITDA
      for a fiscal year exceeded 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 would have reduced the actual EBITDA in the year for which the
      determination was made in determining whether and by how much the amounts set
      forth in (a) and (b) were exceeded. Mr. Cole was 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. In addition, his employment agreement with us provided
      that, if, within twelve months of a “change in control,” Mr. Cole’s employment
      was terminated by us without “cause,” as such terms are defined in his
      employment agreement, we were 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) reduced to the extent that this payment together with any other payment
      or
      benefit payable under the agreement constitutes an “excess parachute payment”
(as defined in Section 280G of the Internal Revenue Code of 1986). Pursuant
      to
      that 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 had also agreed with Mr. Cole that, if we were sold and immediately
      thereafter Mr. Cole was no longer employed by us or our successor in the
      capacity in which he was employed prior to the sale, he would have been entitled
      to a payment equal to 5% of the sale price in the event that sale price was
      at
      least $5.00 per share or the equivalent thereof with respect to an asset sale,
      and Mr. Cole had agreed not to compete with us for a period of twelve months
      after any sale that would have resulted in such payment to him.




43




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), reduced to the
      extent that this payment together with any other payment or benefit payable
      under the agreement constitutes an “excess parachute payment” (as defined in
      Section 280G of the Internal Revenue Code of 1986). One such benefit is
      the change in vesting of certain of the 4,967 shares of restricted
      stock awarded to him. 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 if, within twelve
      months of a “change in control,” Mr. Clamen’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) reduced to the
      extent that this payment together with any other payment or benefit payable
      under the agreement constitutes an “excess parachute payment” (as defined in
      Section 280G of the Internal Revenue Code of 1986). One such benefit is
      the change in vesting of certain of the 15,938 shares of
      restricted stock awarded to him. 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.




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), reduced to the extent
      that this payment together with any other payment or benefit payable under
      the
      agreement constitutes an “excess parachute payment” (as defined in Section 280G
      of the Internal Revenue Code of 1986). One such benefit is the change
      in vesting of certain of the 17,274 shares of restricted stock awarded
      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. Her employment agreement with
      us
      provides that, if, within twelve months of a “change in control,”
Ms. Stehr’s employment is terminated by us without “cause” or
      Mr. Stehr terminates her employment with us for “good reason,” as all such
      terms are defined in her employment agreement, we are obligated to make a
      lump-sum severance payment to her equal to $100 less than three times her
“annualized includable compensation for the base period” (as defined in
      Section 280G of the Internal Revenue Code of 1986) reduced to the extent
      that this payment together with any other payment or benefit payable under
      the
      agreement constitutes an “excess parachute payment” (as defined in Section 280G
      of the Internal Revenue Code of 1986). One such benefit is the change in vesting
      of  certain of the 12,955 shares of restricted stock awarded to
      her.




44




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




The
      following table sets forth information with respect to outstanding equity-based
      awards at December 31, 2007 for our nam ed
      executive officers.




**Option
                  Awards**
              
              
              **Stock
                  Awards****Name**
              
              
              **Number
                  of Securities Underlying Unexercised Options**
                **(#)**
                **Exercisable**
                **(a)**
              
              
              **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**
                **(#)**
              
              **Vesting
                  Date 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**
                **(S)**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
              
              
              50,000
                50,000
                25,000
                100,000
              
              
              -
                -
                -
                -
              
              
              -
                -
                -
                -
              
              $
                $
                $
                $
              4.82
                6.40
                10.00
                10.19
              
              
              05/24/15
                06/14//15
                12/28/15
                12/28/15
              
              
              4,967
                -
                -
                -
              
              1/1/08
              
              $
              97,651
                -
                -
                -
              
              
              -
                -
                -
                -
              
              
              -
                -
                -
                -Warren
                  Clamen
              
              
              60,000
                50,000
              
              
              -
                -
              
              
              -
                -
              
              $
                $
              5.06
                10.00
              
              
              03/09/15
                12/28/15
              
              
              5,486
                  5,485
                  4,967
              
              1/1/08
                    10/27/08
                    1/1/08
              
              $
              107,855
                    107,835
                    97,651
              
              
              --
              
              
              --Andrew
                  Tarshis
              
              
              10,000
              
              
              -
              
              
              -
              
              $
              8.81
              
              
              07/22/15
              
              
              6,154
                    6,153
                    4,967
              
              9/22/08
                  9/22/09
                  1/1/08
              
              $
              120,988
                    120,968
                    97,651
              
              
              -
              
              
              -Deborah
                  Sorell Stehr
              
              
              15,000
                60,000
                50,000
              
              
              -
                -
                -
              
              
              -
                -
                -
              
              $
                $
                $
              4.82
                8.03
                10.00
              
              
              05/24/15
                10/28/15
                12/28/15
              
              
              4,615
                    4,615
                    3,725
              
              1/1/08
                  12/31/08
                  1/1/08
              
              $
              90,731
                    90,731
                    73,234
              
              
              -
                -
                -
              
              
              -
                -
                -




45




Grant
        dates and vesting dates for all outstanding equity awards at December 31,
        2007
        are as follows:


**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
            
            
            50,000
              50,000
              25,000
              100,000
            
            
            05/24/05
              06/14/05
              12/28/05
              12/29/05
            
            
            05/24/05
              12/19/05
              12/28/05
              12/29/05Warren
                Clamen
            
            
            60,000
              50,000
            
            
            03/09/05
              12/28/05
            
            
            06/01/05
              12/28/05Andrew
                Tarshis
            
            
            10,000
            
            
            07/22/05
            
            
            07/22/05Deborah
                Sorell Stehr
            
            
            15,000
              60,000
              50,000
            
            
            05/24/05
              10/28/05
              12/28/05
            
            
            05/24/05
              10/28/05
              12/28/05




46




**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, 2007.




**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number
                of Shares Acquired on Exercise**
              **(#)**
            
            **Value
                Realized on Exercise**
              **($)**
              **(a)**
            
            **Number
                of**
              **Shares**
              **Acquired**
              **on
                Vesting**
              **(#)**
            
            **Value**
              **Realized**
              **on**
              **Vesting**
              **($)**Neil
                Cole
            
            
            -
            
            $
            -
            
            
            -
            
            
            -David
                Conn
            
            
            50,000
              50,000
            
            $
              $
            1,020,280
              1,014,895
            
            
            -
            
            
            -Warren
                Clamen
            
            
            80,000
            
            $
            1,427,617
            
            
            -
            
            
            -Andrew
                Tarshis
            
            
            50,000
              40,000
            
            $
              $
            559,604
              544,092
            
            
            6,154
              -
            
            
            140,927
              -Deborah
                Sorell Stehr
            
            
            100,000
            
            $
            1,677,154
            
            
            -
            
            
            -




(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.




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
            
            Infinite
                duration for trade secrets and two years otherwise
            
            Infinite
                duration
            
            None
            
            Infinite
                durationNon-solicitation
            
            Two
                Years
            
            Two
                Years
            
            None
            
            None
            
            One
                YearNon-competition
            
            One
                Year
            
            Two
                Years
            
            None
            
            None
            
            One
                YearNon-interference
            
            Two
                Years
            
            Two
                Years
            
            None
            
            None
            
            One
                YearNon-disparagement
            
            Five
                years
            
            None
            
            None
            
            None
            
            None




47




**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, 2007 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
            
            $600,000(3)
            
            $114,167
            
            $300,000(4)
            
            None
            
            $517,500Pro
                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




1  Upon Mr.
        Cole's termination without cause by us or for good reason by Mr. Cole, we
        are
        obligated to pay Mr. Cole's indemnity payments and legal fees incurred by
        him as
        a result of his termination. Our 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 2007.





3  Payable
      in monthly installments, not in a lump sum.





4  Only
      payable upon termination by us 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
      prior
      employment agreement with Mr. Cole provided that, if, within twelve months
      of a “change in control,” his employment was terminated by us without “cause” or
      he terminated his employment with us for “good reason,” as all such terms are
      defined in his employment agreement, we were obligated to make a lump-sum
      severance payment to Mr. Cole 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).





The
      employment agreements with Ms. Sorell 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).





48




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 our Company that (by assumption) occurred on December 31,
      2007.




**Name**
            
            
            **Cash
                Severance Payment**
              **($)****(1)**
            
            
            **Continuation
                of Medical/Welfare Benefits**
              **(Present
                Value)**
              **($)**
            
            
            **Value
                of Accelerated Vesting of Equity Awards**
              **($)****(2)**
            
            
            **Total
                Termination Benefits**
              **($)**Neil
                Cole
            
            
            5,134,829
            
            
            -
            
            
            -
            
            
            5,134,829David
                Conn
            
            
            2,258,626
            
            
            -
            
            
            12
            
            
            2,258,638Warren
                Clamen
            
            
            1,895,102
            
            
            -
            
            
            13,711
            
            
            1,908,812Andrew
                Tarshis
            
            
            1,711,749
            
            
            -
            
            
            14,951
            
            
            1,726,700Deborah
                Sorell Stehr
            
            
            1,170,877
            
            
            -
            
            
            46,993
            
            
            1,217,869




(1)
            Mr.
                Clamen, Mr. Tarshis and Ms. Sorell Stehr may be entitled to additional
                payments of $13,612, $14,852 and $46,894, respectively, to the extent
                that
                values of at least those amounts are ascribed to any post-termination
                obligations set forth in their respective employment
                agreements.(2)
            This
                amount represents the unrealized value of the unvested portion of
                the
                respectivenamed
                executive officer’s restricted stock based upon the closing price ofour
                common stock on December 31, 2007.(3)
            Under
                a prior non-competition and non-solicitation agreement, which terminated
                in January 2008, Mr. Cole would have been entitled to a payment upon
                the
                sale of our Company equal to 5% of the sale price (in the event that
                sale
                price was at least $5.00 per share or the equivalent thereof with
                respect
                to an asset sale). Assuming that all of the common stock of our Company
                had been purchased for the closing price as of December 31, 2007
                ($19.66
                per share), Mr. Cole would have been entitled to a payment of $56,278,716
                based upon our Company having approximately 57,252,000 shares outstanding
                as of December 31, 2007.




**2008
      Compensation Changes- New Employment Agreement with our Chief Executive
      Officer**





On
      January 28, 2008, we entered into a new, five-year (subject to a one-year
      extension) employment agreement (the “new employment agreement”), effective as
      of January 1, 2008, with Neil Cole, chairman of the board, president and chief
      executive officer, which replaces his prior employment agreement that expired
      on
      December 31, 2007. The new employment agreement also supersedes and terminates
      the prior non-competition and non-solicitation agreement between us and Mr.
      Cole, which, among other things, provided for him to receive 5% of the sale
      price upon a sale of our Company under certain circumstances.




Consistent
      with our philosophy on executive compensation, Mr. Cole‘s new employment
      agreement reflects a substantial portion of his compensation in the form of
      long-term equity incentives, including performance stock incentives that vest
      upon the achievement of specific metrics defined in the agreement, particularly,
      growth in EBITDA, market capitalization and stock price as measured by targets
      to be established and certified by the compensation committee.





As
      described above, in connection with the negotiation of the new employment
      agreement with Mr. Cole, the compensation committee retained Reda &
Associates, as its outside compensation consulting firm to provide advice.
      In
      assisting the compensation committee, Reda & Associates performed market
      research as to compensation levels in similarly capitalized companies in the
      industry, as well as companies that had achieved similar growth. Reda &
Associates also familiarized itself with the circumstances surrounding Mr.
      Cole’s expiring contract and separate non-competition and non-solicitation
      agreement, which provided Mr. Cole with 5% of the proceeds upon a sale
      of the Company under certain circumstances. As various aspects of our
      business, operations and management are unique, the compensation committee
      utilized the Reda & Associates research as one resource, rather than a
      stand-alone tool, in assessing the appropriate level of compensation and other
      terms under Mr. Cole’s new employment agreement.




Under
      his
      new employment agreement, Mr. Cole is entitled to an annual base salary of
      $1,000,000 and received a signing bonus of $500,000, which is repayable in
      full
      or on a pro rata basis under certain circumstances.




49




Pursuant
      to the terms of the new employment agreement, on February 19, 2008, Mr. Cole
      also was granted time-vested restricted common stock units with a fair market
      value (as defined in the new employment agreement) of $24,000,000 (1,181,684
      units) and 571,150 performance-based restricted common stock units with a fair
      market value (as defined in the new employment agreement) on that date of
      approximately $11,600,000. The restricted stock units will vest in five
      substantially equal annual installments commencing on December 31, 2008, subject
      to Mr. Cole’s continuous employment with us on the applicable vesting date, and
      the performance stock units will be subject to vesting based on our achievement
      of certain designated performance goals. Both grants are subject to forfeiture
      upon the termination of Mr. Cole’s employment under certain circumstances. In
      addition, Mr. Cole’s ability to sell or otherwise transfer the common stock
      underlying the restricted stock units and the performance stock units while
      he
      is employed by us is subject to certain restrictions. The grant of 216,639
      additional performance stock units and the common stock issuable thereunder
      is
      subject to stockholder approval of either an increase in the number of shares
      of
      common stock available for issuance under our 2006 Equity Incentive Plan or
      another incentive plan that would cover such grants. Mr. Cole will also be
      entitled to various benefits, including benefits available to our other senior
      executives and certain automobile, air travel and life insurance benefits.




In
      addition to his salary and benefits, Mr. Cole is eligible to receive an annual
      cash bonus for each completed calendar year provided we establish (subject
      to
      shareholder approval) an incentive bonus plan intended to satisfy the
      requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended,
      including as a performance goal thereunder the targets specified in the
      employment agreement. The bonus shall be a percentage of the base salary
      determined based on the level of our consolidated earnings before interest,
      taxes, depreciation and amortization of fixed assets and intangible assets
      achieved for such year against a target level established for such year by
      the
      compensation committee of the Board, in its sole discretion, but with prior
      consultation with Mr. Cole, as follows:




Annual
                Level of Targeted EBITDA Achieved
            %
                of Base Salaryless
                than 80%
            0%80%
                (threshold)
            50%90%
            75%100%
                (target)
            100%105%
            110%110%
            122.50%115%
            135%120%
                or more (maximum)
            150%





Mr.
      Cole’s annual bonus, if earned, will be paid in a lump sum cash payment in the
      calendar year following the calendar year for which it is earned.





Under
      Mr.
      Cole’s new employment agreement, if we terminate Mr. Cole’s employment for
“cause” or by Mr. Cole without “good reason”, he will receive his earned and/or
      accrued and unpaid compensation, other than any bonus compensation, then due
      to
      him and shares of common stock in respect of any of his already vested
      restricted stock. If we terminate Mr. Cole’s employment without cause or by
      him for good reason, he will receive, in addition to the foregoing, an amount
      equal to two times his base salary then in effect plus any previously earned
      but
      unpaid annual bonus for a prior fiscal year and a pro-rata annual bonus for
      the
      year of termination, and, if such termination or resignation occurs prior to
      January 1, 2011, two times the average of the annual bonus amounts he received
      for the two prior completed fiscal years. In addition, that portion of his
      performance stock units subject to vesting in the year of termination based
      on
      performance goals achieved as of the date of termination, and 75% of his
      unvested restricted stock units, will vest. If his employment is terminated
      by
      us without cause or by him for good reason within 12 months of a change in
      control, the amount of his base salary-related payment will increase to three
      times, instead of two times, his base salary then in effect and that portion
      of
      his performance stock units that would vest in the year of termination or in
      the
      future based on performance goals achieved as of the date of the change of
      control, and all of his unvested restricted stock units, will vest, and if
      such
      change in control occurs prior to January 1, 2011, he will also receive three
      times the average of the annual bonus amounts he received for the three prior
      completed fiscal years.




If
      Mr. Cole’s employment terminates as a result of his disability or death, he
      or his estate will be entitled to any previously earned and unpaid compensation
      then due to him. In addition, certain of his restricted stock will vest.




The
      new
      employment agreement with Mr. Cole also contains certain non-competition and
      non-solicitation covenants restricting such activities for periods equal to
      the
      term of the agreement and any renewal period plus one and two years,
      respectively, after the agreement is terminated for any reason.





50





**DIRECTOR
      COMPENSATION**




Effective
      May 1, 2007, the compensation committee determined that for each full year
      of
      service as a director of our company, each non-employee member of the Board
      would receive a cash payment of $40,000, payable 50% on or about each January
      1
      and 50% on or about each July 1, and 4,000 restricted shares of common stock
      vesting 100% on July 1 of each year. In addition, the compensation
      committee determined that the audit committee chair would receive an annual
      stipend of $15,000, and the chairs of the compensation committee and nominating
      and governance committee would recieve an annual stipend of $10,000, each
      payable each July 1. Since these resolutions went into effect on May 1, 2007,
      for the year ended December 31, 2007, the compensation committee determined
      that
      the cash payments and number of restricted shares issued be pro-rated and be
      paid upon and vest, respectively, on November 1, 2007.




The
      following table sets forth compensation information for 2007 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**
              **($)(1)**
            
            
            **Option
                Awards**
              **($)**
            
            
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
            
            
            **Change
                in Pension Value and Nonqualified Deferred Compensation
                Earnings**
            
            
            **All
                Other Compensation**
              **($)**
            
            
            **Total**
              **($)**Barry
                Emanuel
            
            $
            38,133
            
            $
            51,885
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            90,018Steven
                Mendelow
            
            $
            54,633
            
            $
            51,885
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            106,548Drew
                Cohen
            
            $
            49,633
            
            $
            51,885
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            101,518F.
                Peter Cuneo
            
            $
            39,633
            
            $
            197,722
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            237,355Mark
                Friedman
            
            $
            48,133
            
            $
            197,722
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            245,855James
                A. Marcum
            
            $
            9,205
            
            $
            13,889
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            23,094(1) Represents
              the dollar amount recognized by us for
              financial statement purchases for fiscal 2007 in accordance with FAS
              123R.





**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 February 26, 2008 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
      other convertible securities that are exercisable or convertible within 60
      days
      as of February 26, 2008 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. Shares of common stock subject to options, warrants,
      restricted stock units, restricted stock awards or convertible securities that
      are not exercisable or do not vest within 60 days from February 26, 2008 are
      not
      included in the table below as shares “beneficially owned”.





Percentage
      ownership of our common stock is based on the 57,391,675 shares of common stock
      outstanding as of February 26, 2008. The address for each beneficial owner,
      unless otherwise noted, is c/o Iconix Brand Group, Inc. at 1450 Broadway, New
      York, New York 10018.




**BENEFICIAL
      OWNERSHIP TABLE**




**Name
                of Beneficial Owner**
            
            
            **Amount
                and Nature of**
              **Beneficial
                Ownership**
            
            
            **Percent
                of Class**Neil
                Cole
            
            
            3,516,075
            (1)
            
            5.8
            %David
                Conn
            
            
            227,401
            (2)
            
            *Warren
                Clamen
            
            
            115,354
            (3)
            
            *Andrew
                Tarshis
            
            
            12,699
            (4)
            
            *Deborah
                Sorell Stehr
            
            
            129,717
            (5)
            
            *Barry
                Emanuel
            
            
            247,853
            (6)
            
            *Steven
                Mendelow
            
            
            292,688
            (7)
            
            *Drew
                Cohen
            
            
            108,382
            (8)
            
            *F.
                Peter Cuneo
            
            
            60,000
            
            
            *Mark
                Friedman
            
            
            22,364
            
            
            *James
                A. Marcum
            
            
            14,544Fred
                Alger Management, Inc.
              Alger
                Associates, Inc.
              111
                Fifth Avenue
              New
                York, New York 10003
            
            
            5,247,000
            (9)
            
            9.1
            %Baron
                Capital Group, Inc.
              767
                Fifth Avenue
              New
                York, NY 10153
            
            
            3,250,000
            (10)
            
            5.7
            %All
                directors and executive officers as a group (11 persons)
            
            
            4,747,077
            (11)
            
            7.7
            %





51




*
            
            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)
            
            Includes
                225,000 shares of common stock issuable upon exercise of
                options.(3)
            
            Includes
                110,000 shares of common stock issuable upon exercise of options.(4)
            
            Includes
                10,000 shares of common stock issuable upon exercise of options.(5)
            
            Includes
                125,000 shares of common stock issuable upon exercise of options.
                Does not
                include 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
                241,173 shares of common stock issuable upon exercise of
                options.(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 13G filed by Fred Alger Management, Inc. and Alger
                Associates, Incorporated on January 15, 2008.(10)
            
            Baron
                Capital Group, Inc. (“BCG”) is deemed to have beneficial ownership of
                these shares, which are held by BCG or entities that it controls.
                BCG
                disclaims beneficial ownership of the shares held by its controlled
                entities (or the investment advisory clients thereof) to the extent
                that
                persons other than BCG hold such shares. The information provided
                is based
                upon a Schedule 13G filed February 14, 2008, by BCG and its
                affiliates: Bamco, Inc.; Baron Small Cap Fund; and Ronald
                Baron.(11)
            
            Includes
                4,492,298 shares of common stock issuable upon exercise of
                options.




52




**Equity
      Compensation Plans**





The
      following table provides certain information with respect to all of our equity
      compensation plans in effect as of December 31, 2007.




Plan
                    Category
                
                Number
                    of securities to be
                  issued
                    upon exercise of
                  outstanding
                    options, warrants and rights
                  (a)
                
                Weighted-average
                  exercise
                    price of
                  outstanding
                    options, warrants and rights
                  (b)
                
                Number
                    of securities remaining
                  available
                    for issuance under
                  equity
                    compensation plans
                  (excluding
                    securities reflected in column (a))
                  (c)Equity
                    compensation plans approved by security holders:
                
                
                4,037,343
                
                
                4.55
                
                
                6,469,052Equity
                    compensation plans not approved by security holders(1):
                
                
                1,336,100
                
                
                5.92
                
                
                25,000(2
                )Total
                
                
                5,373,443
                
                
                4.34
                
                
                6,494,052




(1)
            Represents
                the aggregate number of shares of common stock issuable upon exercise
                of
                individual arrangements with option and warrant holders, including
                640,500
                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 through December 28, 2015, 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 Note 1 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**




Pursuant
      to its charter, our audit committee must review and approve, where appropriate,
      all related party transactions.





On
      May 1,
      2003, we 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, our Chief
      Executive Officer and President. During fiscal 2007 and fiscal 2006, we received
      $0.7 million and $1.4 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 us $434,000 December 31, 2007. The Candie's Foundation will
      pay-off the entire borrowing from us in 2008 although additional advances will
      be made as and when necessary. Mr. Cole's wife, Elizabeth Cole, performs
      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, Mark Friedman, and James A. Marcum meet the definition of
      "independent directors" as defined under the standards of independence set
      forth
      in the Marketplace Rules of the NASDAQ Stock Market.




53




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




**Audit
      Fees** .
      The
      aggregate fees billed by BDO Seidman, LLP for professional services rendered
      for
      the audit of the Company's annual financial statements for fiscal 2007 and
      fiscal 2006, 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 fiscal 2007 and fiscal 2006 totaled approximately
      $1,023,000 and $990,000 respectively.




**Audit-Related
      Fees** . 
      There were approximately $189,000 and $105,000 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
      fiscal 2007 and fiscal 2006, respectively, and that are not disclosed in the
      paragraph captions "Audit Fees" above. The majority of the audit-related fees
      in
      fiscal 2007 were related to the audits of the financial statements for Fiscal
      2007 acquisitions, whereas the majority of the audit-related fees in Fiscal
      2006
      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 fiscal 2007 and fiscal 2006, were approximately $55,000,
      and
      $35,000, respectively. The aggregate fees billed by BDO Seidman, LLP for
      professional services rendered for tax advice and tax planning, for fiscal
      2007
      and fiscal 2006, were $0 and $0, 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 fiscal 2007 and fiscal 2006.




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 fiscal 2007. 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.




54




**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, 2007 and 2006




-
      Consolidated Income Statements for the years ended December 31, 2007, 2006
      and
      2005




-
      Consolidated Statements of Stockholders' Equity for the ended December 31,
      2007,
      2006 and 2005




-
      Consolidated Statements of Cash Flows for the year ended December 31, 2007,
      2006
      and 2005




-
      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, 2007, 2006 and 2005




· -
      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.




55





**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:
                February 28, 2008
            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 andChief
                Executive Officer
              (Principal
                Executive Officer)
            
            February
                28, 2008/s/
Warren
              Clamen**Warren
                Clamen**
            
            Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)
            
            February
                28, 2008/s/
Barry
              Emanuel**Barry
                Emanuel**
            
            Director
            
            February
                28, 2008/s/
Drew
              Cohen**Drew
                Cohen**
            
            Director
            
            February
                28, 2008/s/
F.
              Peter Cuneo**F.
                Peter Cuneo**
            
            Director
            
            February
                28, 2008/s/
Mark
              Friedman**Mark
                Friedman**
            
            Director
            
            February
                28, 2008/s/
Steven
              Mendelow**Steven
                Mendelow**
            
            Director
            
            February
                28, 2008


/s/
James
              A. Marcum**James
                A. Marcum**
            
            Director
            
            February
                28, 2008




56




Index
      to
      Exhibits




Exhibit
                  Numbers
                
                Description2.1
                
                Asset
                    Purchase dated October 29, 2004 by and among B.E.M. Enterprise,
                    Ltd.,
                    Escada (USA) Inc., the Company and Badgley Mischka Licensing
                    LLC
                    (1)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 (2)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 (3)2.4
                
                Merger
                    Agreement dated as of March 31, 2006 by and among the Company,
                    Moss
                    Acquisition Corp., Mossimo, Inc., and Mossimo Giannulli
                    (4)2.5
                
                Asset
                    Purchase Agreement dated as of March 31, 2006, between the Company
                    and
                    Mudd (USA) LLC (5)2.6
                
                Amendment
                    dated April 11, 2006 to Asset Purchase Agreement dated as of
                    March 31,
                    2006 between the Company and Mudd (USA), LLC. (6)2.7
                
                Asset
                    Purchase Agreement, dated as of August 21, 2006, between the
                    Company and
                    London Fog Group, Inc. (7)2.8
                
                Asset
                    Purchase Agreement, dated as of October 31, 2006, between the
                    Company, The
                    Warnaco Group, Inc., and Ocean Pacific Apparel Corp. (including
                    the forms
                    of the Note and the Registration Rights Agreement)
                    (31)+2.9
                
                Assets
                    Purchase Agreement dated as of February 21, 2007 by and among
                    the Company,
                    Danskin, Inc. and Danskin Now, Inc. (32)+**2.10
                
                Asset
                    Purchase Agreement dated March 6, 2007 by and among the Company,
                    Rocawear
                    Licensing LLC, Arnold Bize, Shawn Carter and Naum Chernyavsky
                    (33)+2.11
                
                Purchase
                    and Sale Agreement, dated September 6, 2007, by and among the
                    Company,
                    Official Pillowtex LLC and the Sellers of interests in Official
                    Pillowtex,
                    LLC (“the Sellers”) (36)+2.12
                
                Asset
                    Purchase Agreement dated November 15, 2007 by and among the Company,
                    Exeter Brands Group LLC and NIKE, Inc. (38)+3.1
                
                Certificate
                    of Incorporation, as amended (8)3.2
                
                Restated
                    and Amended By-Laws (9)4.1
                
                Rights
                    Agreement dated January 26, 2000 between the Company and Continental
                    Stock
                    Transfer and Trust Company (10)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
                    (7)4.3
                
                Indenture,
                    dated June 20, 2007 between the Company and The Bank of New York
                    (35)
  57
  Exhibit
                  Numbers
                
                Description4.4
                
                Registration
                    Rights Agreement, dated June 20, 2007, by and among the Company,
                    Merrill
                    Lynch, Pierce, Fenner & Smith, Incorporated and Lehman Brothers Inc.
                    (35)10.1
                
                1997
                    Stock Option Plan of the Company (12)*10.2
                
                2000
                    Stock Option Plan of the Company (13)*10.3
                
                2001
                    Stock Option Plan of the Company (14)*10.4
                
                2002
                    Stock Option Plan of the Company (15)*10.5
                
                Non
                    -Employee Director Stock Incentive Plan (16)*10.6
                
                401(K)
                    Savings Plan of the Company (17)10.7
                
                Employment
                    Agreement between Neil Cole and the Company dated March 29, 2005
                    (18)10.8
                
                Employment
                    Agreement between Neil Cole and the Company dated January 28,
                    2008
                    (9)*10.9
                
                Employment
                    Agreement between Deborah Sorell Stehr and the Company dated
                    October 28,
                    2005 (24)*10.10
                
                Amendment
                    dated September 22, 2006 to the Employment Agreement dated October
                    28,
                    2005 between the Company and Deborah Sorell Stehr (28)*10.11
                
                Employment
                    Agreement between Warren Clamen and the Company (20)*10.12
                
                Amendment
                    dated October 27, 2006 to the Employment Agreement between the
                    Company and
                    Warren Clamen. (25)*10.13
                
                Employment
                    Agreement between the Company and David Conn dated May 28, 2004
                    (21)*10.14
                
                Employment
                    Agreement between the Company and Andrew Tarshis dated September
                    22, 2006
                    (28)*10.15
                
                Option
                    Agreement of Neil Cole dated November 29, 1999 (17)*10.16
                
                Iconix
                    Brand Group, Inc. 2006 Equity Incentive Plan (27)*10.17
                
                Restricted
                    Stock Agreement dated September 22, 2006 between the Company
                    and Andrew
                    Tarshis (28)*10.18
                
                Restricted
                    Stock Agreement dated September 22, 2006 between the Company
                    and Deborah
                    Sorell Stehr (28)*10.19
                
                Form
                    of Restricted Stock Agreement for officers under the Iconix Brand
                    Group,
                    Inc. 2006 Equity Incentive Plan (29)*10.20
                
                Form
                    of Restricted Stock Agreement for Directors under the Iconix
                    Brand Group,
                    Inc. 2006 Equity Incentive Plan
                    (29)*
  58
  Exhibit
                  Numbers
                
                Description10.21
                
                8%
                    Senior Subordinated Note due 2012 of the Company payable to Sweet
                    Sportswear, LLC. (22)10.22
                
                Letter
                    Agreement dated October 29, 2004 among UCC Funding Corporation,
                    Content
                    Holdings, Inc., the Company and Badgley Mischka Licensing LLC.
                    (1)10.23
                
                Form
                    of Option Agreement under the Company’s 1997 Stock Option Plan
                    (18)*10.24
                
                Form
                    of Option Agreement under the Company’s 2000 Stock Option Plan
                    (18)*10.25
                
                Form
                    of Option Agreement under the Company’s 2001 Stock Option Plan
                    (18)*10.26
                
                Form
                    of Option Agreement under the Company’s 2002 Stock Option Plan
                    (18)*10.27
                
                Agreement
                    dated June 2, 2006 among the Company, UCC Consulting, Content
                    Holdings,
                    James Haran and Robert D’Loren (26)10.28
                
                Common
                    Stock Purchase Warrant issued to UCC Consulting Corporation
                    (19)10.29
                
                Purchase
                    and Sale Agreement dated June 2, 2006 by and among the Company,
                    Content
                    Holdings, Robert D’Loren, Seth Burroughs and Catherine Twist
                    (26)10.30
                
                Non-Competition
                    and Non-Solicitation Agreement between the Company and Neil Cole
                    (6)*10.31
                
                Agreement
                    dated June 8, 2006 between the Company and William Sweedler
                    (26)10.32
                
                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 (11)+10.33
                
                Guaranty
                    dated as of October 31, 2006 by the Company in favor of Merrill
                    Lynch
                    Mortgage Capital Inc., as agent (11)10.34
                
                Amendment
                    to Employment Agreement between the Company and David Conn
                    (23)*10.35
                
                Registration
                    Rights Agreement dated as of March 9, 2007 by and between the
                    Company and
                    Danskin, Inc. (32)10.36
                
                Registration
                    Rights Agreement dated March 30, 2007 by and between the Company
                    and
                    Rocawear Licensing LLC (33)10.37
                
                Amended
                    and Restated Credit Agreement dated as of May 2, 2007 by and
                    among the
                    Company, Lehman Brothers Inc. as Arranger, and Lehman Commercial
                    Paper
                    Inc., as Lender, as Syndication Agent and as Administrative Agent
                    (34)+10.38
                
                Guarantee
                    and Collateral Agreement made by the Company and certain of its
                    subsidiaries in favor of Lehman Commercial Paper Inc., as Administrative
                    Agent (34)+10.39
                
                Purchase
                    Agreement, dated June 14, 2007, by and among the Company, Merrill
                    Lynch,
                    Pierce, Fenner & Smith, Incorporated and Lehman Brothers Inc.
                    (35)
  59
  Exhibit
                  Numbers
                
                Description10.40
                
                Letter
                    Agreement Confirming OTC Convertible Note Hedge, dated June 19,
                    2007 among
                    the Company, Merrill Lynch International and, solely in its capacity
                    as
                    agent thereunder, Merrill Lynch, Pierce, Fenner & Smith Incorporated
                    (35)10.41
                
                Letter
                    Agreement, Confirming OTC Convertible Note Hedge, dated June
                    19, 2007,
                    among the Company, Lehman Brothers - OTC Derivatives Inc. and,
                    solely in
                    its capacity as agent thereunder, Lehman Brothers (35)10.42
                
                Letter
                    Agreement, Confirming OTC Warrant transaction, dated June 19,
                    2007, among
                    the Company, Merrill Lynch International and, solely in its capacity
                    as
                    agent thereunder, Merrill Lynch, Pierce, Fenner & Smith Incorporated
                    (35)10.43
                
                Letter
                    Agreement, Confirming OTC Warrant Transaction, dated June 19,
                    2007, among
                    the Company, Lehman Brothers OTC Derivatives Inc. and, solely
                    in its
                    capacity as agent thereunder, Lehman Brothers (35)10.44
                
                Escrow
                    Agreement dated September 6, 2007 by and between the Company,
                    Ben Kraner,
                    on behalf of the Sellers, as each Seller’s authorized attorney-in-fact,
                    and U.S. Bank National Association, as escrow agent
                    (36)10.45
                
                Note
                    and Security Agreement dated November 7, 2007 made by Artful
                    Holdings, LLC
                    in favor of the Company (37)10.46
                
                Restricted
                    Stock Grant Agreement dated February 19, 2008 between the Company
                    and Neil
                    Cole (39)*10.47
                
                Restricted
                    Stock Performance Unit Agreement dated February 19, 2008 between
                    the
                    Company and Neil Cole (39)*10.48
                
                Lease
                    dated as of November 12, 2007 with respect to the Company’s Executive
                    Offices (39)21
                
                Subsidiaries
                    of the Company (39)23
                
                Consent
                    of BDO Seidman, LLP (39)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 (39)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 (39)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
                    (39)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
                    (39)
  60
  Exhibit
                  Numbers
                
                Description99.1
                
                Note
                    Purchase Agreement by and among IP Holdings LLC, the Company
                    and Mica
                    Funding, LLC, dated April 11, 2006 (30)+99.2
                
                Note
                    Purchase Agreement by and among IP Holdings LLC, the Company
                    and Mica
                    Funding, LLC, dated August 28, 2006 (7)+99.3
                
                Agreement
                    for Creative Director Services dated as of October 31, 2006 by
                    and among
                    the Company, Mossimo, Inc. and Mossimo Giannulli
                    (11)


______________________


(1)
            Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended October 31, 2004 and incorporated by reference
                herein.




(2)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated July 22, 2005 and incorporated by reference
                herein.




(3)
            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.




(4)
            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.




(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. 0000950117-06-001669) and
                incorporated by reference herein.




(6)
            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.




(7)
            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.




(8)
            Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended September 30, 2007 and incorporated by reference
                herein.




(9)
            Filed
                as an exhibit to the Company’s Current Report on Form 8-K for the event
                dated January 28, 2008 and incorporated by reference herein.





(10)
            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.




(11)
            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.




(12)
            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.




(13)
            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.




(14)
            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.




(15)
            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.




(16)
            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.




(17)
            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.




61




(18)
            Filed
                as an exhibit to the Company’s Transition Report on Form 10-K for the
                transition period from February 1, 2004 to December 31, 2004 and
                incorporated by reference herein.




(19)
            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.




(20)
            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.




(21)
            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.




(22)
            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.




(23)
            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.




(24)
            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.




(25)
            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.




(26)
            Filed
                as an exhibit to the Company’s Current Report on Form 8-K for the event
                dated June 2, 2006 and incorporated by reference
                herein.




(27)
            Filed
                as Annex B to the Company’s definitive proxy statement dated July 18, 2006
                as filed on Schedule 14A and incorporated by reference
                herein.




(28)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated September 22, 2006 and incorporated by reference
                herein.




(29)
            Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended September 30, 2006 and incorporated by reference
                herein.


(30)
              Filed as an exhibit to the Company's Current Report
                on
                Form 8-K for the event dated April 11, 2006 andincorporated
                by reference herein.


(31)
            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.




(32)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated March 9, 2007 and incorporated by reference
                herein.




(33)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated March 30, 2007 and incorporated by reference
                herein.




(34)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated May 1, 2007 and incorporated by reference
                herein.




(35)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated June 14, 2007 and incorporated by reference
                herein.




(36)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated October 3, 2007 and incorporated by reference
                herein.




(37)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated November 7, 2007 and incorporated by reference
                herein.




(38)
            Filed
                as an exhibit to the Company's Current Report on Form 8-K for the
                event
                dated December 17, 2007 and incorporated by reference
                herein.




62


(39)
              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.




** Portions
      of this document have been omitted and were filed separately with the Securities
      and Exchange Commission pursuant to a request for confidential treatment, which
      was granted under Rule 24b-2 of the Securities Exchange Act of
      1934.





63




**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, 2007**





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




F-1




**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-3—Consolidated
                Balance Sheets - December 31, 2007 and 2006
            
            
            F-4Consolidated
                Income Statements for the years ended December 31, 2007, 2006 and
                2005
            
            
            F-5Consolidated
                Statements of Stockholders' Equity for the years ended December 31,
                2007,
                2006 and 2005
            
            
            F-6Consolidated
                Statements of Cash Flows for the years ended December 31, 2007, 2006
                and
                2005
            
            
            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
            
            
            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, 2007 and 2006 and the related consolidated statements of
      income, stockholders' equity, and cash flows for each of the three years in
      the
      period ended December 31, 2007. These financial statements are the
      responsibility of the Company's management. Our responsibility is to express
      an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements, 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, 2007 and 2006, and the results of its operations and its cash
      flows
      for each of the three years in the period ended December 31, 2007 in conformity
      with accounting principles generally accepted in the United States of
      America.





As
      discussed in Note 1 to the consolidated financial statements, effective 2007,
      the Company adopted Financial Accounting Standards Board Interpretation No.
      48,
“ *Accounting for Uncertainty in Income Taxes - an interpretation of FASB No.
      109* .”
Effective 2006, the Company adopted SFAS No. 123R, “ *Share-Based Payment* .”




We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), Iconix Brand Group, Inc.'s internal control
      over financial reporting as of December 31, 2007, based on criteria established
      in Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO) and our report dated February
      28, 2008 expressed an unqualified opinion thereon.




/s/BDO
      Seidman, LLP




February
      28, 2008


New
      York,
      New York




F-3




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


**Consolidated
      Balance Sheets**


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




**December
                31,****2007**
            
            **2006****Assets**Current
                Assets:Cash
                (including restricted cash of $5,205 in 2007 and $4,268 in
                2006)
            
            $
            53,272
            
            $
            77,840Accounts
                receivable, net of reserve of $3,519 in 2007 and $1,633 in
                2006
            
            
            29,757
            
            
            14,548Due
                from affiliate
            
            
            434
            
            
            297Promissory
                note receivable
            
            
            1,000
            
            
            1,000Deferred
                income tax assets
            
            
            7,442
            
            
            3,440Prepaid
                advertising and other
            
            
            3,963
            
            
            2,704Total
                Current Assets
            
            
            95,868
            
            
            99,829Property
                and equipment:Furniture,
                fixtures and equipment
            
            
            2,903
            
            
            2,769Less:
                Accumulated depreciation
            
            
            (1,610
            )
            
            (1,385
            )1,293
            
            
            1,384Other
                Assets:Restricted
                cash
            
            
            15,186
            
            
            11,659Marketable
                securities
            
            
            10,920
            
            
            -Goodwill
            
            
            128,898
            
            
            93,593Trademarks
                and other intangibles, net
            
            
            1,038,201
            
            
            467,688Deferred
                financing costs, net
            
            
            8,270
            
            
            3,355Non-current
                deferred income tax assets
            
            
            21,158
            
            
            13,162Other
            
            
            16,336
            
            
            5,5741,238,969
            
            
            595,031Total
                Assets
            
            $
            1,336,130
            
            $
            696,244**Liabilities
                and Stockholders' Equity**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            15,804
            
            $
            7,043Accounts
                payable, subject to litigation
            
            
            1,878
            
            
            4,886Deferred
                revenue
            
            
            6,162
            
            
            1,644Current portion of long-term debt
            
            
            52,566
            
            
            22,132Total
                current liabilities
            
            
            76,410
            
            
            35,705Deferred
                income taxes
            
            
            73,418
            
            
            54,246Long-term
                debt, less current maturities
            
            
            649,590
            
            
            140,676Long
                term deferred revenue
            
            
            8,792
            
            
            160Total
                Liabilities
            
            
            808,210
            
            
            230,787Commitments
                and contingenciesStockholders'
                EquityCommon
                stock, $.001 par value-shares authorized 150,000; shares issued 57,330 and 56,227
                respectively
            
            
            58
            
            
            57Additional
                paid-in capital
            
            
            469,941
            
            
            468,881Retained
                earnings (deficit)
            
            
            60,941
            
            
            (2,814
            )Accumulated
                other comprehensive loss
            
            
            (2,353
            )
            
            -Less:
                Treasury stock - 198 shares at cost
            
            
            (667
            )
            
            (667
            )Total
                Stockholders’ Equity
            
            
            527,920
            
            
            465,457Total
                Liabilities and Stockholders' Equity
            
            $
            1,336,130
            
            $
            696,244





*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
            
            YearEnded
            
            Ended
            
            EndedDecember
                31,
            
            December
                31,
            
            December
                312007
            
            2006
            
            2005Licensing
                and commission revenue
            
            $
            160,004
            
            $
            80,694
            
            $
            30,156Selling,
                general and administrative expenses (net of recovery pursuant to an
                agreement of $438 in 2005)
            
            
            44,254
            
            
            24,527
            
            
            13,329Special
                charges, net
            
            
            (6,039
            )
            
            2,494
            
            
            1,466Operating
                income
            
            
            121,789
            
            
            53,673
            
            
            15,361Other
                expenses (income):Interest
                income
            
            
            (7,521
            )
            
            (1,243
            )
            
            (295
            )Interest
                expense
            
            
            33,033
            
            
            15,080
            
            
            4,823Net
                interest expense
            
            
            25,512
            
            
            13,837
            
            
            4,528Gain
                on sales of marketable securities
            
            
            -
            
            
            -
            
            
            (75
            )25,512
            
            
            13,837
            
            
            4,453Income
                before income taxes
            
            
            96,277
            
            
            39,836
            
            
            10,908Provision
                (benefit) for income taxes
            
            
            32,522
            
            
            7,335
            
            
            (5,035
            )Net
                income
            
            $
            63,755
            
            $
            32,501
            
            $
            15,943Earnings
                per share:Basic
            
            $
            1.12
            
            $
            0.81
            
            $
            0.51Diluted
            
            $
            1.04
            
            $
            0.72
            
            $
            0.46Weighted
                average number of common shares outstanding:Basic
            
            
            56,694
            
            
            39,937
            
            
            31,284Diluted
            
            
            61,426
            
            
            45,274
            
            
            34,773





*See
      accompanying notes to consolidated financial statements.*




F-5




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


**Consolidated
      Statements of Stockholders' Equity**


**(in
      thousands)**




Common
                  StockShares
              
              Amount
              
              Additional
                  Paid-in Capital
              
              Retained
                  Earnings (Deficit)
              
              Accumulated
                  Other Comprehensive Loss
              
              Treasury
                  Stock
              
              TotalBalance
                  at January 1, 2005
              
              
              28,293
              
              $
              29
              
              $
              76,154
              
              $
              (51,258
              )
              $
              -
              
              $
              (667
              )
              $
              24,258Issuance
                  of common stock related to acquisitions
              
              
              6,521
              
              
              6
              
              
              56,380
              
              
              -
              
              
              -
              
              
              -
              
              
              56,386Warrants
                    issued to non-employees related 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 to acquisitions
              
              
              7,360
              
              
              8
              
              
              122,493
              
              
              -
              
              
              -
              
              
              -
              
              
              122,501Warrants
                  issued to non-employees related to acquisitions
              
              
              -
              
              
              -
              
              
              8,273
              
              
              -
              
              
              -
              
              
              -
              
              
              8,273Issuance
                  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
              
              
              -
              
              
              -
              
              
              -
              
              
              9,101Stock
                  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
              )
              $
              465,457Issuance
                  of common stock related to acquisitions
              
              
              50
              
              
              -
              
              
              1,042
              
              
              -
              
              
              -
              
              
              -
              
              
              1,042Warrants
                  issued to non-employees related to acquisitions
              
              
              -
              
              
              -
              
              
              5,886
              
              
              -
              
              
              -
              
              
              -
              
              
              5,886Exercise
                  of stock options and warrants
              
              
              1,010
              
              
              1
              
              
              3,574
              
              
              -
              
              
              -
              
              
              -
              
              
              3,575Stock
                  option compensation expense
              
              
              -
              
              
              -
              
              
              135
              
              
              -
              
              
              -
              
              
              -
              
              
              135Tax
                  benefit of stock option exercises
              
              
              -
              
              
              -
              
              
              1,238
              
              
              -
              
              
              -
              
              
              -
              
              
              1,238Amortization
                  expense in connection with restricted stock
              
              
              43
              
              
              -
              
              
              1,476
              
              
              -
              
              
              -
              
              
              -
              
              
              1,476Expenses
                  related to common stock issuance
              
              
              -
              
              
              -
              
              
              (184
              )
              
              -
              
              
              -
              
              
              -
              
              
              (184
              )Net
                  cost of hedge on Convertible Note
              
              
              -
              
              
              -
              
              
              (12,107
              )
              
              -
              
              
              -
              
              
              -
              
              
              (12,107
              )Comprehensive
                  income:Net
                  Income
              
              
              -
              
              
              -
              
              
              -
              
              
              63,755
              
              
              -
              
              
              -
              
              
              63,755Change
                  in fair value of cash flow hedge
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (273
              )
              
              -
              
              
              (273
              )Change
                  in fair value of securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,080
              )
              
              -
              
              
              (2,080
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              61,402Balance
                  at December 31, 2007
              
              
              57,330
              
              $
              58
              
              $
              469,941
              
              $
              60,941
              
              $
              (2,353
              )
              $
              (667
              )
              $
              527,920




*See
      accompanying notes to consolidated financial statements.*




F-6




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


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




Year
                  Ended
              
              Year
                  Ended
              
              Year
                  EndedDecember
                  31,
              
              December
                  31,
              
              December
                  31,2007
              
              2006
              
              2005Cash
                  flows from operating activities:Net
                  income
              
              $
              63,755
              
              $
              32,501
              
              $
              15,943Depreciation
                  of property and equipment
              
              
              225
              
              
              210
              
              
              130Amortization
                  of trademarks and other intangibles
              
              
              5,572
              
              
              2,153
              
              
              1,733Amortization
                  of deferred financing costs
              
              
              1,292
              
              
              792
              
              
              -Amortization
                  of convertible note discount
              
              
              683
              
              
              -
              
              
              -Amortization
                  of restricted stock grants
              
              
              1,688
              
              
              250
              
              
              -Non-cash
                  settlement of a dispute
              
              
              (3,008
              )
              
              (150
              )
              
              -Gain
                  on sale of marketable securities
              
              
              -
              
              
              -
              
              
              (75
              )Bad
                  debt expense
              
              
              2,280
              
              
              1,373
              
              
              260Issuance
                  of common stock
              
              
              -
              
              
              -
              
              
              110Stock
                  option compensation
              
              
              135
              
              
              182
              
              
              173Write-off
                  of impaired assets
              
              
              -
              
              
              -
              
              
              95Shortfall
                  payment against Guarantee
              
              
              -
              
              
              -
              
              
              (438
              )Accrued
                  interest on long-term debt
              
              
              1,258
              
              
              831
              
              
              (134
              )Deferred
                  income tax provision (benefit)
              
              
              26,772
              
              
              2,589
              
              
              (5,132
              )Changes
                  in operating assets and liabilities, net of business
                  acquisitions:Accounts
                  receivable
              
              
              (22,149
              )
              
              (6,095
              )
              
              (1,553
              )Due
                  from affiliate
              
              
              (137
              )
              
              (104
              )
              
              34Factored
                  accounts receivable and payable to factor, net
              
              
              -
              
              
              -
              
              
              3,865Inventories
              
              
              -
              
              
              -
              
              
              279Prepaid
                  advertising and other
              
              
              (1,259
              )
              
              125
              
              
              (1,994
              )Other
                  assets
              
              
              (933
              )
              
              (3,700
              )
              
              (7
              )Deferred
                  revenue
              
              
              4,998
              
              
              (3,138
              )
              
              3,003Accounts
                  payable and accrued expenses
              
              
              2,515
              
              
              1,512
              
              
              (310
              )Net
                  cash provided by operating activities
              
              
              83,687
              
              
              29,331
              
              
              15,982Cash
                  flows used in investing activities:Purchases
                  of property and equipment
              
              
              (134
              )
              
              (739
              )
              
              (731
              )Purchases
                  of equity securities of other entities
              
              
              -
              
              
              -
              
              
              (663
              )Proceeds
                  from the sale of equity securities of other entities
              
              
              -
              
              
              -
              
              
              110Acquisition
                  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
              )
              
              -Acquisition
                  of Danskin
              
              
              (71,302
              )
              
              -
              
              
              -Acquisition
                  of Rocawear
              
              
              (206,057
              )
              
              -
              
              
              -Acquisition
                  of Pillowtex
              
              
              (233,781
              )
              
              -
              
              
              -Acquisition
                  of Starter
              
              
              (60,319
              )
              
              -
              
              
              -Acquisition
                  of Artful Dodger
              
              
              (13,358
              )Purchase
                  of trademarks
              
              
              (215
              )
              
              (2,328
              )
              
              (320
              )Purchase
                  of marketable securities
              
              
              (196,400
              )
              
              -
              
              
              -Sale
                  of marketable securities
              
              
              183,400
              
              
              -
              
              
              -Net
                  cash used in investing activities
              
              
              (598,166
              )
              
              (176,758
              )
              
              (68,518
              )Cash
                  flows provided by financing activities:Proceeds
                  from long-term debt
              
              
              553,531
              
              
              168,000
              
              
              85,489Proceeds
                  of loans from related parties
              
              
              -
              
              
              -
              
              
              (2,465
              )Proceeds
                  from the sale of warrants
              
              
              37,491
              
              
              -
              
              
              -Payment
                  for purchase of convertible note hedge
              
              
              (76,303
              )
              
              -
              
              
              -Proceeds
                  from exercise of stock options and warrants
              
              
              3,573
              
              
              9,101
              
              
              1,585Payment
                  of long-term debt
              
              
              (20,100
              )
              
              (148,545
              )
              
              (17,134
              )Proceeds
                  from common stock issuance, net
              
              
              -
              
              
              189,523
              
              
              -Proceeds
                  from payment of promissory note
              
              
              399Payment
                  of expenses related to common stock issuance
              
              
              (184
              )
              
              -
              
              
              -Deferred
                  financing costs
              
              
              (6,207
              )
              
              (550
              )
              
              (3,564
              )Excess
                  tax benefit from share-based payment arrangements
              
              
              1,238
              
              
              2,380
              
              
              -Restricted
                  cash - current
              
              
              (937
              )
              
              174
              
              
              (2,082
              )Restricted
                  cash - non-current
              
              
              (3,527
              )
              
              (6,677
              )
              
              (1,968
              )Net
                  cash provided by financing activities
              
              
              488,974
              
              
              213,406
              
              
              59,861Net
                  increase in cash and cash equivalents
              
              
              (25,505
              )
              
              65,979
              
              
              7,325Cash
                  and cash equivalents, beginning of year
              
              
              73,572
              
              
              7,593
              
              
              268Cash
                  and cash equivalents, end of year
              
              $
              48,067
              
              $
              73,572
              
              $
              7,593Balance
                  of restricted cash - current
              
              
              5,205
              
              
              4,268
              
              
              4,094Total
                  cash and cash equivalents including current restricted cash, end
                  of
                  year
              
              $
              53,272
              
              $
              77,840
              
              $
              11,687




*See
      accompanying notes to consolidated financial statements.*




F-7




**Supplemental
      disclosure of cash flow information:**





Year
                Ended
            
            Year
                Ended
            
            Year
                EndedDecember
                31,
            
            December
                31,
            
            December
                31,2007
            
            2006
            
            2005Cash
                paid during the year:Income
                taxes
            
            $
            1,697
            
            $
            -
            
            $
            -Interest
            
            $
            27,820
            
            $
            12,989
            
            $
            3,298




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




Year
                Ended
            
            Year
                Ended
            
            Year
                EndedDecember
                31,
            
            December
                31,
            
            December
                31,2007
            
            2006
            
            2005Acquisitions:Common
                stock issued
            
            $
            1,042
            
            $
            122,501
            
            $
            56,386Warrants
                issued - acquisition cost
            
            $
            5,886
            
            $
            8,273
            
            $
            2,441Liabilities
                assumed
            
            $
            8,152
            
            $
            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 Years Ended December 31, 2007, 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 sixteen brands, Candie's®,
      Bongo®, Badgley Mischka®, Joe Boxer®, Rampage®, Mudd®, London Fog®, Mossimo®,
      Ocean Pacific®, Danskin®, Rocawear®, Cannon®, Royal Velvet®, Fieldcrest®,
      Charisma®, and Starter® which it licenses to third parties for use in connection
      with a variety of apparel, fashion accessories, footwear, beauty and fragrance,
      and home products and decor. In addition, the Artful DodgerTM brand is owned by
      Scion LLC, a joint venture in which the Company has a 50% investment (see Note
      5). Furthermore, 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.




**1.
      Summary of Significant Accounting Policies**





***Principles
      of consolidation***





The
      consolidated financial statements include the accounts of the Company, its
      wholly owned subsidiaries, and, in accordance with FIN 46, “Consolidation of
      Variable Interest Entities- revised” (“FIN 46R”), the Company consolidates a
      joint venture in which it is the primary beneficiary. All significant
      intercompany transactions and balances 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 from 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 January 1, 2005 through December 31, 2007, the Company completed ten
      acquisitions. Notes 2, 3, 4, and 6 to the financial statements contain a more
      comprehensive discussion of the Company's acquisitions. The acquisitions and
      the
      acquisition dates are as follows:




**Acquisitions**
            
            **Acquisition
                date**Joe
                Boxer
            
            July
                22, 2005Rampage
            
            September
                16, 2005Mudd
            
            April
                11, 2006London
                Fog Trademark
            
            August
                28, 2006Mossimo
            
            October
                31, 2006Ocean
                Pacific
            
            November
                6, 2006Danskin
            
            March
                10, 2007Rocawear
            
            March
                30, 2007Pillowtex
                brands (Cannon, Royal Velvet, Fieldcrest, and Charisma)
            
            October
                3, 2007Starter
            
            December
                17, 2007





In
      addition, on November 7, 2007, Scion LLC, a joint venture in which the Company
      has a 50% investment, acquired the Artful Dodger brand. See Note 5.





***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.





***Cash***





Cash
      consists of short-term, highly liquid financial instruments with insignificant
      interest rate risk that are readily convertible to cash and have maturities
      of
      six months or less from the date of purchase.





***Marketable
      Securities***





Marketable
      securities, which are accounted for as available-for-sale, are stated at fair
      value in accordance with Statement of Financial Accounting Standards No. 115,
      “Accounting for Certain Investments in Debt and Equity Securities,” and consist
      of auction rate securities. Temporary changes in fair market value are recorded
      as other comprehensive income or loss, whereas other than temporary markdowns
      will be realized through the Company’s statement of operations.





As
      of
      December 31, 2007, the Company held $10.9 million in marketable securities.
      Although these auction rate securities continue to pay interest according to
      their stated terms, based on a third-party valuation of these specific auction
      rate securities as of December 31, 2007, the Company recorded an unrealized
      pre-tax loss of $2.1 million in other comprehensive loss as a reduction to
      shareholders’ equity to reflect a temporary decline in value reflecting a failed
      auction due to sell orders exceeding buy orders. The Company believes the
      decrease in fair value is temporary due to general macroeconomic market
      conditions, as the underlying securities have maintained their investment grade
      rating. These funds will not be available to us until a successful auction
      occurs or a buyer is found outside the auction process. As these instruments
      have failed to auction and may not auction successfully in the near future,
      the
      Company has classified its marketable securities as non-current.





There
      were no such investments as of December 31, 2006.





In
      November and December 2005, the Company invested $0.7 million 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
      approximately $0.1 million was recorded as realized gain in fiscal 2006. 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.





***Concentration
      of Credit Risk***





Financial
      instruments which potentially subject the Company to concentration of credit
      risk consist principally of temporary cash investments and accounts receivable.
      The Company places its cash and cash equivalents in investment-grade, short-term
      debt instruments with high quality financial institutions. The Company performs
      ongoing credit evaluations of its customers' financial condition and, generally,
      require no collateral from our customers. The allowance for non-collection
      of
      accounts receivable is based upon the expected collectability of all accounts
      receivable.




F-10




For
      the
      year ended December 31, 2007 (“fiscal 2007”), one licensee accounted for 14% of
      the Company’s revenue, compared to two licensees which accounted for 24% and 14%
      of the Company's revenue, respectively for the year ended December 31, 2006
      (“fiscal 2006”), compared to two licensees which accounted for 28% and 15% of
      the Company’s revenue for the year ended December 31, 2005 (“fiscal
      2005”).




***Accounts
      Receivable***




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




***Derivatives***





The
      Company’s primary objective for holding derivative financial instruments is to
      manage interest rates risks. The Company does not use financial instruments
      for
      trading or other speculative purposes. The Company uses derivative financial
      instruments to hedge the variability of anticipated cash flows of a forecasted
      transaction (a “cash flow hedge”). The Company’s strategy related to derivative
      financial instruments has been to use interest
      rate swaps to effectively convert a portion of outstanding variable-rate debt
      to
      fixed-rate debt to take advantage of lower interest rates.





The
      derivatives used by the Company as part of its risk management strategies are
      highly effective hedges because all the critical terms of the derivative
      instruments match those of the hedged item. On the date the derivative contract
      is entered into, the Company designates the derivative as a cash flow hedge.
      Changes in derivative fair values are deferred and recorded as a component
      of
      accumulated other comprehensive income until the associated hedged transactions
      impact the income statement, at which time the deferred gains and losses are
      reclassified to interest expense. Any ineffective portion of a hedging
      derivative’s changes in fair value will be immediately recognized. The fair
      values of the derivatives, which are based on quoted market prices, are reported
      as other assets.





***Restricted
      Stock***




Compensation
      cost for restricted stock is measured using the quoted market price of the
      Company’s stock at the date the common stock is issued. The compensation cost 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 borrowings under a term loan facility, convertible bond
      offering, and other bond financings. These costs have been deferred and are
      being amortized using the interest method over the life of the related
      debt.




***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.





***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.




***Goodwill
      and Other Intangibles*** ****





Goodwill
      represents the excess of purchase price over the fair value of net assets
      acquired in business combinations accounted for under the purchase method of
      accounting. The Company tests at least annually our goodwill and indefinite
      life
      trademarks for impairment through the use of discounted cash flow models. Other
      intangibles with determinable lives, including license agreements and
      non-compete agreements, are amortized on a straight-line basis over the
      estimated useful lives of the assets (currently ranging from 1.5 to 10 years).





F-11




The
      changes in the carrying amount of goodwill for the years ended December 31,
      2007
      and 2006 are as follows:




*(000’s
                omitted)*
            
            
            Year
              Ended
              December
                31,
              2007
            
            
            Year
              Ended
              December
                31,
              2006Beginning
                Balance
            
            $
            93,593
            
            $
            32,835Acquisitions
            
            
            30,785
            
            
            60,758Net
                adjustments to purchase price of prior period acquisitions
            
            
            4,520
            
            
            -Ending
                Balance
            
            $
            128,898
            
            $
            93,593





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 fiscal 2005, due to 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.





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 Candie’s licensing contract signed with Kohl's Department
      Stores (“Kohl's”) in late 2004, which has very rapidly expanded the Candie’s
      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, 2007 the net book value of the Candie's and Bongo trademarks
      totaled $14.4 million.




***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.





Bright
      Star acts as an agent and therefore only net commission revenue is recognized.
      Revenue is recognized upon shipment with related risk and title passing to
      the
      customers.





***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.





The
      Company adopted FIN 48 beginning January 1, 2007. The implementation of FIN
      48
      did not have a significant impact on the Company’s financial position or results
      of operations. At December 31, 2007, the total unrecognized tax benefit was
      $1.1
      million. However, the liability is not recognized for accounting purposes
      because the related deferred tax asset has been fully reserved in prior years.
      The Company is continuing its practice of recognizing interest and penalties
      related to income tax matters in income tax expense. There was no accrual for
      interest and penalties related to uncertain tax positions for the year ended
      December 31, 2007. The Company files federal and state tax returns and is
      generally no longer subject to tax examinations for fiscal years prior to
      2003.





*(000’s
                omitted)*Uncertain
                tax positions at December 31, 2006
            
            $
            780Increases
                during 2007
            
            
            320Decreases
                during 2007
            
            
            -Uncertain
                tax positions at December 31, 2007
            
            $
            1,100





F-12




***Stock-Based
      Compensation***





Pursuant
      to a provision in SFAS No. 123(R), "Accounting for Stock-Based Compensation",
      prior to 2006, 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 $0.5 million of compensation expense being reflected in pro-forma
      net
      income for fiscal 2005 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 the avoid
      recognizing stock based compensation expense associated with these options
      in
      future periods after the Company adopted SFAS No 123 (R).




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 recorded its
      provision for income taxes in Fiscal 2005. 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 11.




*(000’s
                omitted, except per share information)*
            
            Year
                ended December 31,2005Net
                income - as reported
            
            $
            15,943Add:
                Stock-based employee Compensation included in reported net
                income
            
            
            -Deduct:
                Stock-based employee compensation determined under the fair value
                based
                method
            
            
            (9,601
            )Pro
                forma net income
            
            $
            6,342Basic
                earnings per share:As
                reported
            
            $
            0.51Pro
                forma
            
            $
            0.20Diluted
                earnings per share:As
                reported
            
            $
            0.46Pro
                forma
            
            $
            0.18





***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.




F-13




***Advertising
      Campaign Costs***





All
      costs
      associated with production for the Company’s national advertising campaigns are
      expensed during the periods when the activities take place. All other
      advertising costs such as print and online media are expensed as incurred.
      Advertising expenses for fiscal 2007, fiscal 2006, and fiscal 2005 amounted
      to
      $14.5 million $7.9 million, and $2.9 million, respectively.





***New
      Accounting Standards***




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. Management is evaluating the impact
      adopting SFAS 157 will have on the Company’s results of operations and 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. Management is evaluating the
      impact adopting SFAS 159 will have on the Company’s results of operations and
      financial position.




In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141R”), which requires an acquirer to do the following:
      expense acquisition related costs as incurred; to record contingent
      consideration at fair value at the acquisition date with subsequent changes
      in
      fair value to be recognized in the income statement; and any adjustments to
      the
      purchase price allocation are to be recognized as a period cost in the income
      statement. SFAS 141R applies prospectively to business combinations for which
      the acquisition date is on or after beginning of the first annual reporting
      period beginning on or after December 15, 2008. Earlier application is
      prohibited. At the date of adoption, SFAS 141R is expected to have a material
      impact on our results of operations and our financial position due to the
      Company’s acquisition strategy.





In
      December, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements—an amendment of ARB No. 51 .” This statement
      establishes accounting and reporting standards for the noncontrolling interest
      in a subsidiary and for the deconsolidation of a subsidiary. This statement
      is
      effective prospectively, except for certain retrospective disclosure
      requirements, for fiscal years beginning after December 15, 2008. Management
      is
      evaluating the impact adopting SFAS 160 will have on the Company’s results of
      operations and financial position.





***Presentation
      of Prior Year Data***





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





**2.  Acquisition
      Of Danskin**




On
      March
      9, 2007, the Company completed its acquisition of the Danskin trademarks from
      Danskin, Inc. and Danskin Now, Inc. 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 directly by Triumph Apparel Corporation (formerly known as Danskin, Inc.)
      (“Triumph”) through freestanding Danskin boutiques and Danskin.com. In
      connection with the acquisition, the Company acquired Danskin Now, Inc.'s
      license of the Danskin Now® brand of apparel and fitness equipment to Wal-Mart
      Stores.




The
      purchase price for the acquisition was $70 million in cash and contingent
      additional consideration of up to $15 million based on certain criteria relating
      to the achievement of revenue and performance targets through 2011 involving
      the
      licensing of the Danskin brand, all or a portion of which contingent
      consideration, if earned, may be paid in shares of the Company's common
      stock. The effect of this contingent additional consideration will, if criteria
      is met, be recognized as an increase to goodwill. The cash portion of the
      purchase price was self-funded from the Company's cash reserves. Upon closing,
      a
      subsidiary of the Company entered into a license agreement with Triumph granting
      Triumph the right to continue to operate its wholesale business and freestanding
      retail stores under the Danskin marks acquired by the Company in the
      acquisition.




***(000's
                omitted except share and warrant
                information)***Cash
                paid at closing to sellers
            
            
            
            
            $
            70,000Fair
                value of 12,500 shares of $.001 par value common stock, at $19.33
                fair
                market value per share issued as a cost of the
                acquisition
            
            $
            241Fair
                value of 30,000 warrants ($20.18 exercise price) issued as a cost
                of the
                acquisition
            
            
            284Fair
                value of 133,334 warrants ($8.81 exercise price) issued as a cost
                of the
                acquisition
            
            
            1,976Total
                equity consideration
            
            
            
            
            
            2,501Other
                costs of the acquisition
            
            
            
            
            
            1,782Total
            
            
            
            
            $
            74,283




F-14




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





***(000's
      omitted)***


Trademarks
            
            $
            71,700License
                agreements
            
            
            1,700Goodwill
            
            
            883Total
                allocated purchase price
            
            $
            74,283





The
      Danskin trademark has been determined by management to have an indefinite useful
      life and accordingly, consistent with SFAS 142, no amortization is being
      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 3 to 5 years. The goodwill and trademarks
      are subject to a test for impairment on an annual basis. Any adjustments
      resulting from the finalization of the purchase price allocations will affect
      the amount assigned to goodwill. The $0.9 million of goodwill is deductible
      for
      income tax purposes.





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, 2006, see Note 6.





**3.  Acquisition
      Of Rocawear**





On
      March
      30, 2007, the Company completed its acquisition of the Rocawear brand and
      certain of the assets and rights related to the business of designing,
      marketing, licensing and/or managing the Rocawear brand from Rocawear Licensing
      LLC (“RLC”).




The
      purchase price for the acquisition was $204 million in cash with contingent
      additional consideration of up to $35 million based on certain criteria relating
      to the achievement of revenue and performance targets through 2012 involving
      the
      licensing of the Rocawear assets, all of which contingent consideration, if
      earned, is to be paid in shares of the Company's common stock. The effect of
      this contingent additional consideration will, if criteria is met, be recognized
      as an increase to goodwill. The cash portion of the purchase price was funded
      pursuant to the Company's credit agreement with Lehman Brothers Inc. and Lehman
      Commercial Paper Inc., which consists of a term loan facility in an aggregate
      principal amount of $212.5 million. For further details on this credit
      agreement, see Note 8. Upon the closing, a subsidiary of the Company entered
      into a license agreement, expiring in March 2012, with Roc Apparel Group,
      LLC (“Roc Apparel”), an affiliate of RLC, in which it granted Roc Apparel the
      exclusive right to use the Rocawear assets in connection with the design,
      manufacture, market and sale of menswear apparel products in the United States,
      its territories and possessions and military installations throughout the world.
      Further, upon closing, the Company committed an amount of $5.0 million to fund
      its investment in Scion LLC, a joint venture formed by the Company with Shawn
      Carter, a principal of RLC, which will operate as a brand management and
      licensing company to identify brands to be acquired across a broad spectrum
      of
      consumer product categories. This investment was funded in November 2007. See
      Note 5. During December 2007, the Company accrued $3.0 million, to be paid
      in
      shares to the sellers of Rocawear, as part of contingent consideration relating
      to the achievement of certain revenue targets. This $3.0 million has been
      recorded as additional goodwill and an increase in accrued liabilities, and
      will
      be credited to additional paid-in-capital once the shares are issued subsequent
      to year end.




***(000's
                omitted except share and warrant
                information)***Cash
                paid at closing to sellers
            
            
            
            
            $
            204,000Fair
                value of 144,100 shares of $.001 par value common stock, at $20.81
                fair
                market value per share issued to be paid to sellers as part of contingent
                consideration
            
            
            3,000Fair
                value of 12,500 shares of $.001 par value common stock, at $20.40
                fair
                market value per share issued as a cost of acquisition
            
            
            255Fair
                value of 55,000 warrants ($20.40 exercise price) issued as a cost
                of the
                acquisition
            
            
            562Fair
                value of 133,334 warrants ($8.81 exercise price) issued as a cost
                of the
                acquisition
            
            
            2,109Total
                equity consideration
            
            
            
            
            
            5,926Other
                costs of the acquisition
            
            
            
            
            
            3,208Total
            
            
            
            
            $
            213,134





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





***(000's
                omitted)***Trademarks
            
            $
            200,000License
                agreements
            
            
            5,100Non-compete
                agreement
            
            
            3,000Goodwill
            
            
            5,034Total
                allocated purchase price
            
            $
            213,134




F-15




The
      Rocawear trademark has been determined by management to have an indefinite
      useful life and accordingly, consistent with SFAS 142, no amortization is being
      recorded in the Company's consolidated income statements. The license agreements
      are being amortized on a straight-line basis over the remaining contractual
      period of approximately 4 years. The goodwill and trademarks are subject to
      a
      test for impairment on an annual basis. Any adjustments resulting from the
      finalization of the purchase price allocations will affect the amount assigned
      to goodwill. The $5.0 million of goodwill is deductible for income tax
      purposes.





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, 2006, see Note 6.





**4.  Acquisition
      Of Pillowtex Brands**





On
      October 3, 2007, the Company completed its acquisition of all of the issued
      and
      outstanding limited liability company interests (the “Company Interests”) of
      Official-Pillowtex LLC (“Official-Pillowtex” or “Pillowtex”), from the owners of
      such Company Interests (the “Pillowtex Sellers”). Official Pillowtex is the
      owner of a portfolio of home brands including four primary brands, Cannon,
      Royal
      Velvet, Fieldcrest and Charisma and numerous other home brands including St.
      Mary's and Santa Cruz. The closing of this transaction occurred following the
      early termination of the statutory waiting period required under the
      Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.




The
      purchase price for the acquisition was $232.1 million in cash with contingent
      additional consideration of up to $15 million based on certain criteria relating
      to the achievement of revenue and performance targets through June 30, 2009
      involving the licensing of the Pillowtex assets, all of which contingent
      consideration, if earned, is to be paid in cash. The effect of this contingent
      additional consideration will, if criteria is met, be recognized as an increase
      to goodwill.





In
      accordance with the terms of the Purchase Agreement, on the Pillowtex closing
      date, the Company paid an aggregate of approximately $232.1 million in cash
      as
      the purchase price for the Company Interests, of which approximately $9.0
      million which was deposited into an escrow account, together with any interest
      and any other income earned thereon, will be paid to the Pillowtex Sellers
      by
      the U.S. Bank National Association, an escrow agent, on the twelve (12) month
      anniversary of the Pillowtex closing date, less any amounts due to the Company
      pursuant to the Pillowtex Sellers' indemnification obligations to the
      Company.




In
      connection with the Company’s purchase of Official Pillowtex, the Company
      pledged its membership interests in Official Pillowtex, as well as its
      membership interests in another of the Company’s wholly-owned subsidiaries,
      Mossimo Holdings LLC, to the lenders under the Company’s term loan facility (see
      Note 8). These two subsidiaries also became guarantors of the Company’s
      obligations under the term loan facility (see Note 8), and their guarantees
      are
      secured by a pledge of, among other things, the Official Pillowtex portfolio
      of
      brands and the Mossimo brand, respectively.




***(000's
                omitted except share and warrant
                information)***Cash
                paid at closing to sellers
            
            
            
            
            $
            232,100Fair
                value of 12,500 shares of $.001 par value common stock, at $23.66
                fair
                market value per share issued as a cost of acquisition
            
            
            296Fair
                value of 55,000 warrants ($23.66 exercise price) issued as a cost
                of the
                acquisition
            
            
            651Total
                equity consideration
            
            
            
            
            
            947Other
                estimated costs of the acquisition
            
            
            
            
            
            2,178Total
            
            
            
            
            $
            235,225







The
      preliminary purchase price allocation to the fair value of the assets acquired
      and liabilities assumed is as follows:




***(000's
                omitted)***Trademarks
            
            $
            212,000License
                agreements
            
            
            7,100Accounts
                receivable
            
            
            1,273Deferred
                revenue
            
            
            (8,152
            )Goodwill
            
            
            23,004Total
            
            $
            235,225




F-16




The
      Cannon, Royal Velvet, Fieldcrest, and Charisma trademarks have each been
      determined by management to have an indefinite useful life and accordingly,
      consistent with SFAS 142, no amortization is being recorded in the Company's
      consolidated income statements. The license agreements are being amortized
      on a
      straight-line basis over the remaining contractual period of approximately
      6
      years. The goodwill and trademarks are subject to a test for impairment on
      an
      annual basis. Any adjustments resulting from the finalization of the purchase
      price allocations will affect the amount assigned to goodwill. The $23.0 million
      of goodwill is deductible for income tax purposes.





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, 2006, see Note 6.





***5.
      Joint Venture and Acquisition of Artful Dodger***





In
      March
      2007, the Company had committed an amount of $5.0 million to fund the 50%
      investment in the common equity shares of Scion LLC, a joint venture formed
      by
      the Company with Shawn Carter, which will operate as a brand management and
      licensing company to identify brands to be acquired across a broad spectrum
      of
      consumer product categories. As consideration for Mr. Carter’s 50% investment in
      Scion, he contributed a license in perpetuity, with certain performance
      requirements, for the name “Shawn Carter”. At inception, the Company determined
      that it would consolidate Scion since the Company effectively holds a 100%
      equity interest and is the primary beneficiary in the variable interest entity
      as defined by FIN 46, “Consolidation of Variable Interest Entities- revised”
(“FIN 46R”). The impact of consolidating the joint venture into the Company’s
      consolidated statement of income increased licensing income by $0.2 million,
      due
      to the completion of the acquisition of the Artful Dodger brand in November
      2007
      (see below). The impact of consolidating the joint venture on the Company’s
      consolidated balance sheet  has
      increased current assets by $2.4 million, non-current assets by $15.5 million,
      and current liabilities by $2.0 million.





On
      November 7, 2007 (the “AH Closing Date”), Artful Holdings LLC (“AH”), a wholly
      owned subsidiary of Scion LLC, completed its acquisition of the intellectual
      property assets of Sovereign State LLC (“Sovereign”) associated with the Artful
      Dodger brand from Fashion Bureau Overseas NY, Inc. and Pan Mellowtex LLC, the
      principals of Sovereign. The purchase price of this acquisition was
      approximately $15.0 million, of which $13.5 million was paid in cash on the
      AH
      Closing Date, with $1.5 million deferred and payable upon the occurrence of
      certain events. The Artful Dodger trademark is estimated to have a useful life
      of 15 years. To finance this acquisition, the Company made available to AH
      an
      interest bearing senior secured term loan facility in the aggregate principal
      amount of $12 million pursuant to that certain Note and Security Agreement
      (as
      amended, restated or otherwise modified from time to time, referred to as the
      “AH Note”) executed by AH in favor of the Company on the AH Closing Date. The
      facility consists of two tranches, one in the principal amount of $10.5 million
      which was advanced to AH by the Company on the AH Closing Date, and the other
      in
      the principal amount of $1.5 million. The second tranche is available for
      borrowing by AH provided that no Event of Default (as defined in the AH Note)
      has occurred and is continuing at the time of such request. The obligations
      are
      guaranteed by Scion LLC, the sole manager/member of AH, and are also guaranteed,
      in part, by a manager of Scion LLC. The issuance of the loan facility was a
      reconsideration event under FIN 46R; the Company once again determined that
      it
      was the primary beneficiary and continued to consolidate the joint venture.
      As
      of December 31, 2007, the Company’s equity at risk was approximately $16
      million. The carrying value of the consolidated assets that are collateral
      for
      the variable interest entity’s obligations totaled $15.5 million comprised of a
      trademark. The assets of the Company are not available to the variable
      interest entity's creditors.





**6.  Acquisition
      Of Starter and Unaudited Pro-formas**





On
      December 17, 2007, the Company completed its acquisition of certain of the
      assets and rights related to the Starter Seller’s (as defined below) business of
      designing, marketing, licensing and/or managing the Starter brand of marks
      and
      intellectual property and related names (the “Starter Assets”) of Exeter Brands
      Group LLC, an Oregon limited liability company (the “Seller”), and NIKE, Inc.,
      an Oregon corporation (“Starter Parent”) pursuant to an Asset Purchase Agreement
      (the “Starter Purchase Agreement”) dated November 15, 2007 by and among the
      Company, Starter Seller and Starter Parent.




In
      accordance with the terms of the Starter Purchase Agreement, the Company paid
      to
      the Seller $60,000,000 in cash and assumed certain liabilities of the Seller
      related to the Starter Assets. The cash portion of the purchase price was
      funded pursuant to additional borrowings of $63.2 million under the Company's
      credit agreement with Lehman Brothers Inc. and Lehman Commercial Paper Inc.,.
      For further details on this credit agreement, see Note 8.




In
      accordance with the terms of the Purchase Agreement, the entered into a
      transitional license agreement with Seller in which it granted Seller the
      non-exclusive right to use the Starter Assets in connection with the
      manufacture, marketing, distribution, promotion, advertisement and sale of
      men’s
      and boy’s apparel. This transitional license agreement expires on August 31,
      2008.





***(000's
                omitted except share and warrant
                information)***Cash
                paid at closing to sellers
            
            
            
            
            $
            60,000Fair
                value of 12,500 shares of $.001 par value common stock, at $20.02
                fair
                market value per share issued as a cost of acquisition
            
            
            250Fair
                value of 30,000 warrants ($20.02 exercise price) issued as a cost
                of the
                acquisition
            
            
            304Total
                equity consideration
            
            
            
            
            
            554Other
                estimated costs of the acquisition
            
            
            
            
            
            1,080Total
            
            
            
            
            $
            61,634




F-17




The
      preliminary purchase price allocation to the fair value of the assets acquired
      and liabilities assumed is as follows:




***(000's
                omitted)***Trademarks
            
            $
            59,500License
                agreements
            
            
            270Goodwill
            
            
            1,864Total
            
            $
            61,634





The
      Starter trademark has been determined by management to have an indefinite useful
      life and accordingly, consistent with SFAS 142, no amortization will be recorded
      in the Company's consolidated income statements. The license agreements are
      being amortized on a straight-line basis over the remaining contractual period
      of approximately 1.5 years. The goodwill and trademarks are subject to a test
      for impairment on an annual basis. Any adjustments resulting from the
      finalization of the purchase price allocations will affect the amount assigned
      to goodwill. The $1.9 million of goodwill is deductible for income tax
      purposes.




The
      following unaudited pro-forma information presents a summary of the Company's
      consolidated results of operations as if the Danskin, Rocawear, Pillowtex,
      and
      Starter acquisitions (See Note 2, 3, 4, and 6) and their related financings
      had
      occurred on January 1, 2006, and as if the Mudd, Mossimo and Ocean Pacific
      acquisitions and their related financings had occurred on January 1, 2005.
      These
      pro forma results have been prepared for comparative purposes only and do not
      purport to be indicative of the results of operations which actually would
      have
      resulted had the acquisitions occurred on January 1, 2006, or which may result
      in the future.





Year
                ended
            
            Year
                ended
            
            Year
                endedDecember
                31,
            
            December
                31,
            
            December
                31,***(000’s
                      omitted, except per share
                      information)***
            
            2007
            
            2006
            
            2005Licensing
                and commission revenues
            
            $
            207,295
            
            $
            190,124
            
            $
            97,596Operating
                income
            
            $
            156,804
            
            $
            123,416
            
            $
            42,708Net
                Income
            
            $
            77,379
            
            $
            50,399
            
            $
            21,364Basic
                earnings per common share
            
            $
            1.36
            
            $
            1.15
            
            $
            0.51Diluted
                earnings per common share
            
            $
            1.26
            
            $
            1.02
            
            $
            0.47





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




Trademarks
      and other intangibles, net consist of the following:




December
                31, 2007
            
            December
                31, 2006Estimated
            
            Gross
            
            
            
            GrossLives
                in
            
            Carrying
            
            Accumulated
            
            Carrying
            
            Accumulated***(000's
                omitted)***
            
            Years
            
            Amount
            
            Amortization
            
            Amount
            
            AmortizationTrademarks:Indefinite
                life trademarks
            
            
            indefinite(1)
            
            $
            1,007,625
            
            $
            9,498
            
            $
            464,210
            
            $
            9,498Definite
                life trademarks
            
            
            10-15
            
            
            18,897
            
            
            856
            
            
            3,397
            
            
            494Non-compete
                agreements:
            
            
            2-15
            
            
            10,075
            
            
            4,585
            
            
            7,075
            
            
            3,000Licensing
                agreements:
            
            
            1.5-6
            
            
            21,093
            
            
            4,897
            
            
            6,923
            
            
            1,387Domain
                names
            
            
            5
            
            
            570
            
            
            223
            
            
            570
            
            
            108$
            1,058,260
            
            $
            20,059
            
            $
            482,175
            
            $
            14,487




F-18




Amortization
      expense for intangible assets was $5.6 million, $2.2 million, and $1.7 million
      for fiscal 2007, fiscal 2006, and Fiscal 2005, respectively. The trademarks
      of
      Joe Boxer, Rampage, Mudd, London Fog, Mossimo, Ocean Pacific, Danskin, Rocawear,
      Cannon, Royal Velvet, Fieldcrest, Charisma, and Starter have been determined
      to
      have an indefinite useful life and accordingly, consistent with SFAS 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, 2012 are estimated to
      be
      $7.1 million, $6.8 million, $6.6 million, $4.8 million, and $2.8 million,
      respectively.





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




**8.  Debt
      Arrangements**




The
      Company's debt is comprised of the
      following:


December
                31,*(000’s
                omitted)*
            
            2007
            
            2006Convertible
                Notes
            
            $
            281,714
            
            $
            -Term
                Loan Facility
            
            
            270,751
            
            
            -Asset-Backed
                Notes
            
            
            137,505
            
            
            155,857Sweet
                Note (Note 13)
            
            
            12,186
            
            
            3,170Kmart
                Note
            
            
            -
            
            
            3,781Total
                Debt
            
            $
            702,156
            
            $
            162,808








*Convertible
      Senior Subordinated Notes*





On
      June
      20, 2007, the Company completed the issuance of $287.5 million principal amount
      of the Company's 1.875% convertible senior subordinated notes due 2012 (the
      “Convertible Notes”) in a private offering to certain institutional investors.
      The net proceeds received by the Company from the offering were approximately
      $281.1 million.




The
      Convertible Notes bear interest at an annual rate of 1.875%, payable
      semi-annually in arrears on June 30 and December 31 of each year, beginning
      December 31, 2007. The Convertible Notes will be convertible into cash and,
      if
      applicable, shares of the Company's common stock based on a conversion rate
      of
      36.2845 shares of the Company's common stock, subject to customary adjustments,
      per $1,000 principal amount of the Convertible Notes (which is equal to an
      initial conversion price of approximately $27.56 per share) only under the
      following circumstances: (1) during any fiscal quarter beginning after September
      30, 2007 (and only during such fiscal quarter), if the closing price of the
      Company's common stock for at least 20 trading days in the 30 consecutive
      trading days ending on the last trading day of the immediately preceding fiscal
      quarter is more than 130% of the conversion price per share, which is $1,000
      divided by the then applicable conversion rate; (2) during the five business day
      period immediately following any five consecutive trading day period in which
      the trading price per $1,000 principal amount of the Convertible Notes for
      each
      day of that period was less than 98% of the product of (a) the closing price
      of
      the Company's common stock for each day in that period and (b) the conversion
      rate per $1,000 principal amount of the Convertible Notes; (3) if specified
      distributions to holders of the Company's common stock are made, as set forth
      in
      the indenture governing the Convertible Notes (“Indenture”); (4) if a “change of
      control” or other “fundamental change,” each as defined in the Indenture,
      occurs; (5) if the Company chooses to redeem the Convertible Notes upon the
      occurrence of a “specified accounting change,” as defined in the Indenture; and
      (6) during the last month prior to maturity of the Convertible Notes. If the
      holders of the Convertible Notes exercise the conversion provisions under the
      circumstances set forth, the Company will need to remit the lower of the
      principal balance of the Convertible Notes or their conversion value to the
      holders in cash. As such, the Company would be required to classify the entire
      amount outstanding of the Convertible Notes as a current liability in the
      following quarter. The evaluation of the classification of amounts outstanding
      associated with the Convertible Notes will occur every quarter.





Upon
      conversion, a holder will receive an amount in cash equal to the lesser of
      (a)
      the principal amount of the Convertible Note or (b) the conversion value,
      determined in the manner set forth in the Indenture. If the conversion value
      exceeds the principal amount of the Convertible Note on the conversion date,
      the
      Company will also deliver, at its election, cash or the Company's common stock
      or a combination of cash and the Company's common stock for the conversion
      value
      in excess of the principal amount. In the event of a change of control or other
      fundamental change, the holders of the Convertible Notes may require the Company
      to purchase all or a portion of their Convertible Notes at a purchase price
      equal to 100% of the principal amount of the Convertible Notes, plus accrued
      and
      unpaid interest, if any. If a specified accounting change occurs, the Company
      may, at its option, redeem the Convertible Notes in whole for cash, at a price
      equal to 102% of the principal amount of the Convertible Notes, plus accrued
      and
      unpaid interest, if any. Holders of the Convertible Notes who convert their
      Convertible Notes in connection with a fundamental change or in connection
      with
      a redemption upon the occurrence of a specified accounting change may be
      entitled to a make-whole premium in the form of an increase in the conversion
      rate.




Pursuant
      to Emerging Issues Task Force (“EITF”) 90-19, “Convertible Bonds with Issuer
      Option to Settle for Cash upon Conversion” (“EITF 90-19”), EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company's Own Stock” (“EITF 00-19”), and EITF 01-6, “The Meaning
      of Indexed to a Company's Own Stock” (“EITF 01-6”), the Convertible Notes are
      accounted for as convertible debt in the accompanying Condensed Consolidated
      Balance Sheet and the embedded conversion option in the Notes has not been
      accounted for as a separate derivative. For a discussion of the effects of
      the
      Convertible Notes and the convertible note hedge and warrants discussed below
      on
      earnings per share, see Note 12.




F-19




At
      December 31, 2007, the balance of the Convertible Notes was $281.7
      million.




In
      connection with the sale of the Convertible Notes, the Company entered into
      hedges for the Convertible Notes (“Convertible Note Hedges”) with respect to its
      common stock with two entities (the “Counterparties”). Pursuant to the
      agreements governing these Convertible Note Hedges, the Company has purchased
      call options (the “Purchased Call Options”) from the Counterparties covering up
      to approximately 10.4 million shares of the Company's common stock. These
      Convertible Note Hedges are designed to offset the Company's exposure to
      potential dilution upon conversion of the Convertible Notes in the event that
      the market value per share of the Company's common stock at the time of exercise
      is greater than the strike price of the Purchased Call Options (which strike
      price corresponds to the initial conversion price of the Convertible Notes
      and
      is simultaneously subject to certain customary adjustments). On June 20, 2007,
      the Company paid an aggregate amount of approximately $76.3 million of the
      proceeds from the sale of the Convertible Notes for the Purchased Call Options,
      of which $26.7 million was included in the balance of deferred income tax assets
      and will be recognized over the term of the Convertible Notes.




The
      Company also entered into separate warrant transactions with the Counterparties
      whereby the Company, pursuant to the agreements governing these warrant
      transactions, sold to the Counterparties warrants (the “Sold Warrants”) to
      acquire up to 3.6 million shares of the Company's common stock, at a strike
      price of $42.40 per share of the Company's common stock. The Sold Warrants
      will
      become exercisable on September 28, 2012 and will expire by the end of 2012.
      The
      Company received aggregate proceeds of approximately $37.5 million from the
      sale
      of the Sold Warrants on June 20, 2007.




The
      Convertible Note Hedge transactions and the warrant transactions were separate
      transactions, entered into by the Company with the Counterparties, and as such
      are not part of the terms of the Convertible Notes and will not affect the
      holders' rights under the Convertible Notes. In addition, holders of the
      Convertible Notes will not have any rights with respect to the Purchased Call
      Options or the Sold Warrants. As a result of these transactions, the Company
      recorded a reduction to additional paid-in-capital of $12.1
      million.




If
      the
      market value per share of the Company's common stock at the time of conversion
      of the Convertible Notes is above the strike price of the Purchased Call
      Options, the Purchased Call Options entitle the Company to receive from the
      Counterparties net shares of the Company's common stock, cash or a combination
      of shares of the Company's common stock and cash, depending on the consideration
      paid on the underlying Convertible Notes, based on the excess of the then
      current market price of the Company's common stock over the strike price of
      the
      Purchased Call Options. Additionally, if the market price of the Company's
      common stock at the time of exercise of the Sold Warrants exceeds the strike
      price of the Sold Warrants, the Company will owe the Counterparties net shares
      of the Company's common stock or cash, not offset by the Purchased Call Options,
      in an amount based on the excess of the then current market price of the
      Company's common stock over the strike price of the Sold Warrants.




These
      transactions will generally have the effect of increasing the conversion price
      of the Convertible Notes to $42.40 per share of the Company's common stock,
      representing a 100% percent premium based on the last reported sale price of
      the
      Company’s common stock of $21.20 per share on June 14, 2007.





*Term
      Loan Facility*





In
      connection with the acquisition of the Rocawear brand, in March 2007, the
      Company entered into a $212.5 million credit agreement (the “Credit Agreement”
or “Term Loan Facility”) with Lehman Brothers Inc. and Lehman Commercial
      Paper Inc. (“LCPI”). At the time, the Company pledged to LCPI 100% of the
      capital stock owned by the Company in OP Holdings and Management Corporation,
      a
      Delaware corporation (“OPHM”), and Studio Holdings and Management Corporation, a
      Delaware corporation (“SHM”). The Company's obligations under the Credit
      Agreement are guaranteed by each of OPHM and SHM, as well as by two of its
      other
      subsidiaries, OP Holdings LLC, a Delaware limited liability company (“OP
      Holdings”), and Studio IP Holdings LLC, a Delaware limited liability company
      ("Studio IP Holdings").




On
      October 3, 2007, in connection with the
      acquisition of the Company Interests of Official-Pillowtex with the proceeds
      of
      the Convertible Notes, the Company pledged to LCPI 100% of the capital stock
      owned by the Company in Mossimo Holdings and Management Corporation, a Delaware
      corporation (“MHM”), and Pillowtex Holdings and Management Corporation, a
      Delaware corporation (“PHM”). As a result, the Company's obligations under the
      Credit Agreement are guaranteed by each of OPHM, SHM, MHM, and PHM as well
      as by
      four of its other subsidiaries, OP Holdings LLC, a Delaware limited liability
      company (“OP Holdings”), Studio IP Holdings LLC, a Delaware limited liability
      company (“Studio IP Holdings”), Mossimo Holdings LLC (“Mossimo Holdings”),
      a Delaware limited liability company, and Official Pillowtex LLC, a
      Delaware limited liability company.





On
      December 17, 2007, in connection with the acquisition of the Starter brand,
      the
      Company borrowed $63.2 million pursuant to the Term Loan Facility (“Additional
      Borrowing”). The net proceeds received by the Company from the Additional
      Borrowing were $60 million. At the time of such Additional Borrowing, there
      was
      already outstanding under the Term Loan Facility a term loan in the principal
      amount equal to $211.4 million.





The
      guarantees are secured by a pledge to LCPI of, among other things, the Ocean
      Pacific, Danskin, Rocawear, Mossimo, Cannon, Royal Velvet, Fieldcrest, Charisma,
      and Starter trademarks and related intellectual property assets, license
      agreements and proceeds therefrom. Amounts
      outstanding under the term loan facility bear interest, at the Company’s option,
      at the Eurodollar rate or the prime rate, plus an applicable margin of 2.25%
      or
      1.25%, as the case may be, per annum, with minimum principal payable in equal
      quarterly installments in annual aggregate amounts equal to 1.00% of the
      aggregate principal amount of the loans outstanding, in addition to an annual
      payment equal to 50% of the excess cash flow from the Term Loan Facility group,
      with any remaining unpaid principal balance to be due on April 30, 2013. The
      Term Loan Facility can be prepaid, without penalty, at any time. The
      interest rate as of December 31, 2007 was 7.08%. At December 31, 2007, the
      balance of the Term Loan Facility was $270.8 million. The $272.5 million in
      proceeds from the Term Loan Facility were used by the Company as follows: $204.0
      million was used to pay the cash portion of the initial consideration for the
      acquisition of the Rocawear brand; $2.1 million was used to pay the costs
      associated with the Rocawear acquisition; $60 million was used to pay the
      consideration for the acquisition of the Starter brand; and $3.9 million was
      used to pay costs associated with the Term Loan Facility. The costs of $3.9
      million relating to the Term Loan Facility have been deferred and are being
      amortized over the life of the loan, using the effective interest method.




F-20




On
      July
      26, 2007, the Company purchased a hedge instrument to mitigate the cash flow
      risk of rising interest rates on the Term Loan Facility. This hedge instrument
      caps the Company’s exposure to rising interest rates at 6.00% for LIBOR for 50%
      of the forecasted outstanding balance of the Term Loan Facility (“Interest Rate
      Cap”). Based on management’s assessment, the Interest Rate Cap qualifies for
      hedge accounting under Statement of Financial Accounting Standards 133
“Accounting for Derivative Instruments and Hedging Transactions”. On a quarterly
      basis, the value of the hedge is adjusted to reflect its current fair value,
      with any adjustment flowing through other comprehensive income. At December
      31,
      2007, the fair value of the interest rate cap was $55,000, resulting in an
      other
      comprehensive loss of $273,000, which is reflected in the Consolidated Balance
      Sheet and Statement of Stockholders’ Equity, respectively.




*Asset-Backed
      Notes*





The
      financing for certain of the Company's acquisitions has been accomplished
      through private placements by its subsidiary, IP Holdings LLC ("IP
      Holdings") of Asset-Backed Notes secured by intellectual property assets
      (trade names, trademarks, license agreements and payments and proceeds with
      respect thereto relating to the Candie’s, Bongo, Joe Boxer, Rampage, Mudd and
      London Fog brands) of IP Holdings. At December 31, 2007, the balance of the
      Asset-Backed Notes was $137.5 million.




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, $5.2 million and $4.3 million as of December
      31, 2007 and December 31, 2006, 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, $15.2 million
      and
      $11.7 million as of December 31, 2007 and December 31, 2006, respectively,
      have
      been disclosed as restricted cash within other assets on the Company's balance
      sheets.





Interest
      rates and terms on the outstanding principal amount of the Asset-Backed Notes
      as
      of December 31, 2007 are as follows: $48.2 million principal amount bears
      interest at a fixed interest rate of 8.45% with a six year term, $21.3 million
      principal amount bears interest at a fixed rate of 8.12% with a six year term,
      and $68.0 million principal amount bears interest at a fixed rate of 8.99%
      with
      a six and a half year term.




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
      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.




F-21




In
      November 2007, the Company received a signed judgment related to the Sweet/Guez
      litigation. See Note 13.





The
      judgment also stated that the Sweet Note (originally $11 million when issued
      by
      the Company upon the acquisition of Unzipped from Sweet in 2002) should total
      approximately $12.2 million as of December 31, 2007. The recorded balance of
      this Sweet Note, prior to any adjustments related to the judgment was
      approximately $3.2 million. The Company increased the Sweet Note by
      approximately $6.2 and recorded the expense as a special charge. The Company
      further increased the Note by approximately $2.8 million to record the related
      interest and included the charge in interest expense. The Sweet Note as of
      December 31, 2007 is approximately $12.2 million and included in Current portion
      of Long Term Liabilities.





In
      addition, the Company was awarded a judgment of approximately $12.2 million
      for
      claims made by it against Hubert Guez and Apparel Distribution Services, Inc.
      As
      a result, the Company recorded a receivable of approximately $12.2 million
      and
      recorded the benefit in special charges. This receivable is included in other
      assets - non-current.





*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 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. As of December 31, 2007 the
      remaining principle due to Kmart under the note was entirely off-set against
      royalties collectible under the Kmart license.




*Debt
        Maturities*
 
 (In
        000's)
 
 The
        Company's debt maturities are the following:
  *(000’s
                  omitted)*
              
              Total
              
              2008
              
              2009
              
              2010
              
              2011
              
              2012
              
              thereafterConvertible
                  Notes
              
              $
              281,714
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              281,714
              
              $
              -Term
                  Loan Facility
              
              
              270,751
              
              
              19,972
              
              
              2,746
              
              
              2,746
              
              
              2,746
              
              
              2,746
              
              
              239,795Asset-Backed
                  Notes
              
              
              137,505
              
              
              20,408
              
              
              22,231
              
              
              24,216
              
              
              26,380
              
              
              33,468
              
              
              10,802Sweet
                  Note (Note 13)
              
              
              12,186
              
              
              12,186
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
                  Debt
              
              $
              702,156
              
              $
              52,566
              
              $
              24,977
              
              $
              26,962
              
              $
              29,126
              
              $
              317,928
              
              $
              250,597


**9.
      Unzipped Apparel, LLC (** ***“Unzipped”*** **)**





*Equity
      Investment*





On
      October 7, 1998, the Company formed Unzipped with its then 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 Sweet Note. See Note 13. In connection
      with
      the acquisition of Unzipped, the Company filed a registration statement with
      the
      Securities and Exchange Commission ("SEC") for the three million shares of
      the
      Company's common stock issued to Sweet, which was declared effective by the
      SEC
      on July 29, 2003.





*Related
      Party Transactions*





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





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 13.





There
      were no transactions with these related parties during fiscal 2007, fiscal
      2006,
      and fiscal 2005.





In
      November 2007, a judgment was entered in the Unzipped litigation, pursuant
      to
      which the $3.1 million in accounts payable to ADS/Azteca (previously shown
      as
“accounts payable - subject to litigation”) was eliminated and recorded in the
      income statement as a benefit in special charges.





As
      a
      result of the judgment, the balance of the $11 million principal amount Sweet
      Note, originally issued by the Company upon the acquisition of Unzipped from
      Sweet in 2002, including interest, was changed from approximately $3.2 million
      to approximately $12.2 million as of December 31, 2007. Of this increase,
      approximately $6.2 was attributed to the principal of the Sweet Note and the
      expense was recorded as expense as a special charge. The remaining $2.8 million
      of the increase was attributed to related interest on the Sweet Note and
      recorded as interest expense. The full $12.2 million current balance of the
      Sweet Note, including interest, as of December 31, 2007 is included in the
      current portion of Long Term Liabilities.





In
      addition, the Company was awarded a judgment of approximately $12.2 million
      for
      claims made by it against Hubert Guez and Apparel Distribution Services, Inc.
      As
      a result, the Company recorded a receivable of approximately $12.2 million
      and
      recorded the benefit in special charges. This receivable is included in Other
      Assets - non-current.




F-22




Special
      charges in 2007 also include legal expenses relating to this litigation of
      approximately $3.4 million.





**10.  Special
      Charges**





Special
      charges consist of legal expenses, net of write-offs, related to the Unzipped
      litigation. For fiscal 2007, the Company recorded a benefit to special charges
      of $6.0 million, compared to Fiscal 2006 and Fiscal 2005 where the Company
      recorded expenses of $2.5 million and $1.5 million, respectively. See
      Note 9 for explanation of the write-offs and legal expenses related to the
      Unzipped litigation.





**11.  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 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 and warrants (as described below) was estimated at
      the
      date of grant using a Black-Scholes option-pricing model with the following
      weighted-average assumptions:





Year
                ended December 31,2007
            
            2006
            
            2005Expected
                Volatility
            .40
            
            .30
                - .50
            
            .30
                - .55Expected
                Dividend Yield
            0%
            
            0%
            
            0%Expected
                Life (Term)
            5
                -
                7 years
            
            3
                -
                5 years
            
            3
                -
                5 yearsRisk-Free
                Interest Rate
            4.75%
            
            3.00
                - 4.75%
            
            3.00
                - 4.75%




The
      weighted-average fair value of options granted (at their grant date) during
      fiscal 2006 and fiscal 2005 was $11.87 and $7.36 per share, respectively. There
      were no options granted during fiscal 2007.





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.




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 terminated 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.




F-23




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 no 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 fiscal 2007, fiscal 2006, and fiscal
      2005
      follows:




*Options*
            
            Weighted-AverageOptions
            
            Exercise
                PriceOutstanding
                January 1, 2005
            
            
            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
            
            $
            4.35Granted
            
            
            -
            
            
            -Canceled
            
            
            (12,000
            )
            
            16.80Exercised
            
            
            (651,089
            )
            
            5.02Expired
            
            
            -
            
            
            -Outstanding
                December 31, 2007
            
            
            5,106,543
            
            $
            4.23Exercisable
                at December 31, 2007
            
            
            5,021,875
            
            $
            4.18




The
      weighted average contractual term (in years) of options outstanding as of
      December 31, 2007, 2006, and 2005, were 5.57, 6.00, and 7.03 respectively.
      The
      weighted average contractual term (in years) of options exercisable as of
      December 31, 2007, 2006, and 2005, were 5.54, 5.97, and 7.02
      respectively.





The
      total
      fair value of options vested during fiscal 2007, fiscal 2006, and fiscal 2005,
      were $0.1 million, $0.02 million, and $6.84 million, respectively.





Cash
      received from option exercise under all share-based payment arrangements for
      fiscal 2007, fiscal 2006, and fiscal 2005, was $3.2 million, $4.0 million,
      and
      $1.6 million respectively. A tax benefit of approximately $1.2 million and
      $2.4
      million for fiscal 2007 and fiscal 2006, respectively, were share-based payment
      arrangements. The total amount of tax benefits to be realized for the tax
      deductions from option exercise of the share-based payment arrangements for
      the
      year ended December 31, 2008 is expected to be approximately $6.5
      million.





The
      aggregate intrinsic value is calculated as the difference between the market
      price of our common stock as of December 31, 2007 and the exercise price of
      the
      underlying options. At December 31, 2007, 2006, and 2005, the aggregate
      intrinsic value of options exercised was $9.5 million, $40.9 million, and $5.7
      million, respectively. At December 31, 2007, 2006, and 2005, the aggregate
      intrinsic value of options exercisable was $77.4 million, $84.9 million, and
      $43.7 million, respectively. In addition, the aggregate intrinsic value of
      options outstanding was $78.8 million, $86.8 million, and $44.1 million at
      December 31, 2007, 2006, and 2005, respectively.





F-24




*Warrants*




Weighted-AverageWarrants
            
            Exercise
                PriceOutstanding
                January 1, 2005
            
            
            -
            
            $
            -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
            
            $
            11.02Granted
            
            
            436,668
            
            
            21.38Canceled
            
            
            -
            
            
            -Exercised
            
            
            (968,943
            )
            
            11.34Expired
            
            
            -
            
            
            -Outstanding
                December 31, 2007
            
            
            266,900
            
            $
            16.76Exercisable
                at December 31, 2007
            
            
            266,900
            
            $
            16.76





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 2, 3, 4, and 6. Certain warrants are exercised using
      the
      cashless method.





The
      Company values other warrants issued to non-employees at the commitment date
      at
      the fair market value of the instruments issued, a measure which is more readily
      available than the fair market value of services rendered, using the Black
      Scholes model. The fair market value of the instruments issued is expensed
      over
      the vesting period.





The
      weighted average contractual term (in years) of warrants outstanding as of
      December 31, 2007, 2006 and 2005 were 7.39, 8.87 and 9.03, respectively. The
      weighted average contractual term (in years) of warrants exercisable as of
      December 31, 2007, 2006 and 2005 were 7.39, 8.83 and 9.17,
      respectively.





The
      fair
      value of warrants vested during fiscal 2007, Fiscal 2006, and Fiscal 2005 were
      $5.9 million, $8.3 million and $2.4 million, respectively.





Cash
      received from warrants exercised under all share-based payment arrangements
      for
      fiscal 2007 and fiscal 2006 was $0.4 million and $5.1 million,
      respectively.




Performance
        Related Options


Weighted-AveragePerformance
                Related Options
            
            Exercise
                PriceOutstanding
                January 1, 2005
            
            
            -
            
            $
            -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
            
            
            -
            
            $
            -Granted
            
            
            -
            
            
            -Canceled
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Expired
            
            
            -
            
            
            -Outstanding
                December 31, 2007
            
            
            -
            
            $
            -




F-25




There
      were no performance related options outstanding for employees as of December
      31,
      2007 and 2006. 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, 2007, 2006, and
      2005.





At
      December 31, 2007, 2006, and 2005, the aggregate intrinsic value of performance
      related options outstanding was $0, $0 and $1.7 million, respectively. In
      addition, the aggregate intrinsic value of performance related options
      exercisable was $0 as of December 31, 2007, 2006, and 2005.




At
      December 31, 2007, December 31, 2006, and December 31, 2005, exercisable stock
      options totaled 5,021,875, 5,646,964, and 7,439,957, and had weighted average
      exercise prices of $4.18, $4.27, and $4,31 per share, respectively.





At
      December 31, 2007, 1,772,888, 1,394,108, 682,250, and 484,221 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.




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




2007
            
            2006Weighted
            
            
            
            WeightedAverage
            
            
            
            AverageGrant
                Date
            
            
            
            Grant
                DateShares
            
            Fair
                Value
            
            Shares
            
            Fair
                ValueNonvested,
                January 1
            
            
            95,655
            
            $
            17.46
            
            
            -
            
            $
            -Granted
            
            
            107,182
            
            
            20.68
            
            
            95,655
            
            
            17.46Vested
            
            
            (53,308
            )
            
            18.58
            
            
            -
            
            
            -Forfeited
            
            
            (5,402
            )
            
            18.51
            
            
            -
            
            
            -Non-vested,
                December 31
            
            
            144,127
            
            
            19.41
            
            
            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 fiscal 2007 and fiscal 2006, the Company awarded 107,182
      and 95,655 restricted shares, respectively, with a vesting period of 2-3 years
      and a fair market value of approximately $2.2 million and $1.7 million. As
      of
      December 31, 2007, 53,308 restricted stock grants had vested.





Unearned
      compensation expense related to restricted stock grants for fiscal 2007 and
      fiscal 2006 was approximately $1.7 million and $0.3 million, respectively.
      An additional amount of $1.9 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 fiscal 2007 and fiscal
      2006, no shares were repurchased in the open market.




**12.  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 and warrants. 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.




F-26




As
      of
      December 31, 2007, of the total potentially dilutive shares related to stock
      options and warrants, 0.1 million were anti-dilutive, compared to none as of
      December 31, 2006, and 7.3 million as of December 31, 2005.





Warrants
      issued in connection with the Company’s convertible note financing were
      anti-dilutive and therefore not included in this calculation. Portions of the
      convertible note that would be subject to conversion to common stock were
      anti-dilutive as of the year ended December 31, 2007 and therefore not included
      in this calculation.





A
      reconciliation of shares used in calculating basic and diluted earnings per
      share follows:




For
                the Year Ended*(000's
                omitted)*
            
            December
                31,2007
            
            2006
            
            2005Basic
            
            
            56,694
            
            
            39,937
            
            
            31,284Effect
                of exercise of stock options
            
            
            4,323
            
            
            5,241
            
            
            3,489Effect
                of exercise of warrants
            
            
            115
            
            
            -
            
            
            -Effect
                of contingent common stock issuance
            
            
            144
            
            
            -
            
            
            -Effect
                of assumed vesting of restricted stock
            
            
            150
            
            
            96
            
            
            -61,426
            
            
            45,274
            
            
            34,773




**13.  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, Azteca and ADS, respectively, and a principal of
      these entities and former member of the Company's board of directors, Hubert
      Guez, collectively referred to as the Guez defendants. The Company pursued
      numerous causes of action against the Guez defendants, including breach of
      contract, breach of fiduciary duty, trademark infringement and others and sought
      damages in excess of $20 million. On March 10, 2005, Sweet, Azteca and ADS,
      collectively referred to as cross-complainants, filed a cross-complaint against
      the Company claiming damages resulting from a variety of alleged contractual
      breaches, among other things.




In
      January 2007, a jury trial was commenced, and on April 10, 2007, the jury
      returned a verdict of approximately $45 million in favor of the Company and
      its
      subsidiaries, finding in favor of the Company and its subsidiaries on every
      claim that they pursued, and against the Guez defendants on every counterclaim
      asserted. Additionally, the jury found that all of the Guez defendants acted
      with malice, fraud or oppression with regard to each of the tort claims asserted
      by the Company and its subsidiaries, and on April 16, 2007, awarded plaintiffs
      $5 million in punitive damages against Mr. Guez personally. The Guez defendants
      filed post-trial motions seeking, among other things, a new trial. Through
      a set
      of preliminary rulings dated September 27, 2007, the Court granted in part,
      and
      denied in part, the Guez defendants’ post trial motions, and denied plaintiffs’
request that the Court enhance the damages awarded against the Guez defendants
      arising from their infringement of plaintiffs’ trademarks. Through these
      rulings, the Court, among other things, reduced the amount of punitive damages
      assessed against Mr. Guez to $4 million, and reduced the total damages awarded
      against the Guez defendants by approximately 50%.





The
      Court
      adopted these preliminary rulings as final on November 16, 2007. On the same
      day, the Court entered judgment against Mr. Guez in the amount of $10,964,730
      and ADS in the amount of $1,272,420, and against each of the Guez defendants
      with regard to each and every claim that they pursued in the litigation
      including, without limitation, ADS’s and Azteca’s unsuccessful efforts to
      recover against Unzipped any account balances claimed to be owed, totaling
      approximately $3.5 million including interest (collectively, the “Judgments”).
      In entering the Judgments, the Court upheld the jury’s verdict in favor of the
      Company relating to its writedown of the senior subordinated note due 2012,
      issued by the Company to Sweet in connection with the Company’s acquisition of
      Unzipped for Unzipped Fiscal Year 2004. The monetary portion of the Judgments
      accrues interest at a rate of 10% per annum from the date of the Judgments’
entry. Also on November 16, 2007, the Court issued a Memorandum Order wherein
      it
      upheld an aggregate of approximately $7,000,000 of the jury’s verdicts against
      Sweet and Azteca, but declined to enter judgment against these entities since
      it
      had ordered a new trial with regard to certain other damage awards entered
      against these entities by the jury. On March 7, 2008, the Court is scheduled
      to
      hear the attorneys’ fees and costs petitions filed by the Company and its
      subsidiaries.





On
      November 21, 2007, the Guez defendants filed a notice of appeal. They also
      filed
      a $49,090,491 undertaking with the Court, consisting primarily of a $43,380,491
      personal surety given jointly by Gerard Guez and Jacqueline Rose Guez, bonding
      the monetary portions of the Judgments. By Order dated December 17, the Court
      determined that the undertaking was adequate absent changed circumstances.
      This
      determination serves to prevent the Company and its subsidiaries from pursuing
      collection of the monetary portions of the Judgments during the pendency of
      the
      appeal. The Company and its subsidiaries filed a notice of appeal on November
      26, 2007, appealing, among other things, those parts of the jury’s verdicts
      vacated by the Court in connection with the Guez defendants’ post-trial motions.
      The Company and its subsidiaries intend to vigorously pursue their appeal,
      and
      vigorously defend against the Guez parties’ appeal.




F-27




***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 a single claim that
      it
      owes Bader and Sportswear Mercenaries $72,000. Trial in this action is set
      to
      commence on April 28, 2008. The parties to this lawsuit have recently reached
      a
      settlement for which counsel is preparing a settlement agreement.




***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. 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 is awaiting receipt of the signed Settlement Agreement from the
      other parties.




***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 and
      IP
      Holdings alleging certain breaches of contract and other claims and seeks,
      among
      other things, damages of at least $25 million. The Company and IP Holdings
      believe that, in addition to other defenses and counterclaims that they intend
      to assert, the claims in the lawsuit are the subject of a release and settlement
      agreement that was entered into by the parties in August 2005, and based upon
      this belief, moved to dismiss most of BAI’s claims. In response to the motion to
      dismiss, BAI made a cross-motion for partial summary judgment on some of its
      claims. On April 25, 2007, the Court entered an order refusing to consider,
      and
      declining to accept BAI's summary judgment motion. On January 2, 2008, the
      Supreme Court granted the Company’s and IP Holdings’ motion to dismiss BAI’s
      lawsuit virtually in its entirety, holding that all but one claim against the
      Company and five claims against IP Holdings were barred by the parties’ August
      2005 release and settlement agreement or otherwise failed to state a claim.
      As
      to the sole remaining claim against the Company, BAI has indicated that it
      will
      be withdrawn against both the Company and IP Holdings. If the claim is not
      withdrawn promptly, the Company and IP Holdings intend to move for its
      dismissal. BAI has appealed the Supreme Court’s January 2, 2008 rulings, and the
      Company and IP Holdings intend to vigorously defend against this
      appeal.




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. (“TKO”). In that complaint, the Company and IP
      Holdings assert 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 in excess
      of $10 million and a permanent injunction with respect to the use of the Bongo
      trademark. On January 4, 2007, the District Court denied the motion of BAI
      and
      TKO to dismiss the federal court action, and instead stayed the proceeding.
      On
      January 14, 2008, the Company and IP Holdings requested that the District Court
      lift the stay. The Court scheduled a hearing on the matter on February 29,
      2008,
      which the Company plans to attend and will await a ruling from the Court
      thereafter.





**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.





**14.  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 fiscal 2007, Fiscal 2006 and
      Fiscal 2005, the Company received $0.7 million, $1.3 million and $1.4 million,
      respectively, in royalties from Kenneth Cole Productions.




F-28




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 $0.4 million at December 31, 2007. The Candie's
      Foundation will pay-off the entire borrowing from the Company during 2008,
      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 $0.1 million until May 2005. She continues to perform services for the
      foundation but without compensation.





**15.  Operating
                Leases**





Future
      net minimum lease payments under non-cancelable operating lease agreements
      as of
      December 31, 2007 are approximately as follows:




*(000’s
      omitted)*


Year
                ending December 31, 2008
            
            $
            1,583Year
                ending December 31, 2009
            
            
            2,292Year
                ending December 31, 2010
            
            
            2,234Year
                ending December 31, 2011
            
            
            2,171Year
                ending December 31, 2012
            
            
            1,633Thereafter
            
            
            21,081Totals
            
            $
            30,994





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 $1.0 million, $0.7 million, and $0.5 million for
      Fiscal 2007, fiscal 2006, and Fiscal 2005, respectively. Contingent rent amounts
      have been immaterial for all periods.





**16.  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 fiscal 2007, fiscal 2006, and fiscal 2005.





**17.   Income
                Taxes**





At
      December 31, 2007 the Company had available federal net operating loss
      carryforwards (“NOL’s”) of approximately $18.8 million which were derived from
      stock options exercises, for income tax purposes, which expire in the years
      2009
      through 2025. As of December 31, 2007, the Company had available state and
      local
      NOL’s ranging from approximately $76 million to $116 million (inclusive of $18.8
      million from exercises of stock options).





The
      Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
      for Income Taxes” (“SFAS 109”). Under SFAS 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 109, including current and historical
      results of operations, 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 is of the opinion that the Company will be able to utilize the
      deferred tax assets in the foreseeable future, and as such do not anticipate
      requiring a further valuation allowance. In fiscal 2007, the Company has
      provided an additional valuation allowance of approximately $3 million to offset
      state and local tax NOL’s which the Company believes are unlikely to be utilized
      in the foreseeable future.





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




*(000's
                omitted)*
            
            Year
                EndedDecember
                31,2007
            
            Year
                EndedDecember
                31,2006
            
            Year
                EndedDecember
                31,2005Current:Federal
            
            $
            5,890
            
            $
            140
            
            $
            97State
                and local
            
            
            830
            
            
            -
            
            
            -Total
                current
            
            
            6,720
            
            
            140
            
            
            97Deferred:Federal
            
            
            27,616
            
            
            7,195
            
            
            (4,274
            )State
                and local
            
            
            (1,814
            )
            
            -
            
            
            (858
            )Total
                deferred
            
            
            25,802
            
            
            7,195
            
            
            (5,132
            )Total
                provision (benefit)
            
            $
            32,522
            
            $
            7,335
            
            $
            (5,035
            )




F-29




The
      Company's effective income tax rate differs from the federal statutory rate
      primarily as a result of a decrease in the tax rate on certain deferred tax
      liabilities.





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




December
                31,*(000's
                omitted)*
            
            2007
            
            2006Net
                operating loss carryforwards
            
            $
            16,866
            
            $
            26,596Receivable
                reserves
            
            
            1,654
            
            
            725Depreciation
            
            
            -
            
            
            340Federal
                Alternative Minimum Tax Credits
            
            
            958
            
            
            -Hedging
                transaction
            
            
            23,705
            
            
            -Intangibles
            
            
            1,396
            
            
            1,189Contribution
                carryover
            
            
            378
            
            
            307Accrued
                compensation and other
            
            
            268
            
            
            1,107Total
                deferred tax assets
            
            
            45,225
            
            
            30,264Valuation
                allowance
            
            
            (16,625
            )
            
            (13,662
            )Net
                deferred tax assets
            
            
            28,600
            
            
            16,602Trademarks,
                goodwill and other intangibles
            
            
            (24,310
            )
            
            (10,078
            )Depreciation
            
            
            (108
            )
            
            -Difference
                in cost basis of acquired intangibles
            
            
            (49,000
            )
            
            (49,000
            )Deferred
                tax asset - acquisition related
            
            
            -
            
            
            4,832Total
                deferred tax liabilities
            
            
            (73,418
            )
            
            (54,246
            )Total
                net deferred tax assets (liabilities)
            
            $
            (44,818
            )
            $
            (37,644
            )Current
                portion of net deferred tax assets
            
            $
            7,442
            
            $
            3,440Non
                current portion of net deferred assets (liabilities)
            
            $
            (52,260
            )
            $
            (41,084
            )





The
      following is a rate reconciliation between the amount of income tax provision
      (benefit) at the Federal rate of 35% and provision for (benefit from) taxes
      on
      operating profit (loss):





Year
                ended December, 31*(000's
                omitted)*
            
            2007
            
            2006
            
            2005Income
                tax provision computed at the federal rate of 35%
            
            $
            33,697
            
            $
            13,544
            
            $
            3,709Increase
                (reduction) in income taxes resulting from:State
                and local income taxes (benefit), net of federal income
                tax
            
            
            (640
            )
            
            -
            
            
            (944
            )Change
                in valuation allowance
            
            
            -
            
            
            (6,200
            )
            
            (7,800
            )Other,
                net
            
            
            (535
            )
            
            (9
            )
            
            -Total
            
            $
            32,522
            
            $
            7,335
            
            $
            (5,035
            )




The
      Company recognizes interest and penalties related to uncertain tax positions
      in
      income tax expense, which were zero for fiscal 2007, fiscal 2006, and fiscal
      2005.




The
      Company is subject to taxation in the U.S. and various state and local
      jurisdictions. The Company remains subject to examination by U.S. federal and
      state tax authorities for tax years 2003 through 2007.





**18.   Segment
      and Geographic Data**





The
      Company has one reportable segment, licensing and commission revenue generated
      from its brands. The geographic regions consist of the United States and Other
      (which principally represents Canada, Japan and Europe). Long lived assets
      are
      substantially all located in the United States. Revenues attributed to each
      region are based on the location in which licensees are located.




F-30




The
      net
      revenues by type of license and information by geographic region are as
      follows:




For
                the Year Ended*(000's
                omitted)*
            
            December
                31,2007
            
            2006
            
            2005Net
                sales by category:Direct-to-retail
                license
            
            $
            53,952
            
            $
            34,349
            
            $
            12,821Wholesale
                license
            
            
            103,639
            
            
            43,925
            
            
            15,169Other
                (commissions)
            
            
            2,413
            
            
            2,420
            
            
            2,166$
            160,004
            
            $
            80,694
            
            $
            30,156Net
                sales by geographic region:United
                States
            
            $
            150,376
            
            $
            77,564
            
            $
            29,510Other
            
            
            9,628
            
            
            3,130
            
            
            646$
            160,004
            
            $
            80,694
            
            $
            30,156




**19.  Unaudited
                Consolidated Interim Financial
                Information**





Unaudited
      interim consolidated financial information for fiscal 2007 and fiscal 2006
      is
      summarized as follows:




First
              Quarter
            
            Second
              Quarter
            
            Third
              Quarter
            
            Fourth
              Quarter(in
                thousands except per share data)Fiscal
                2007Licensing
                and commission revenue
            
            $
            30,841
            
            $
            39,071
            
            $
            42,681
            
            $
            47,411Operating
                income
            
            
            22,359
            
            
            29,729
            
            
            29,320
            
            
            40,381Net
                income
            
            
            12,747
            
            
            14,789
            
            
            16,993
            
            
            19,226Basic
                earnings per share
            
            
            0.23
            
            
            0.26
            
            
            0.30
            
            
            0.33Diluted
                earnings per share
            
            
            0.21
            
            
            0.24
            
            
            0.28
            
            
            0.31Fiscal
                  2006Licensing
                and commission revenue
            
            $
            13,269
            
            $
            18,409
            
            $
            22,113
            
            $
            26,903Operating
                income
            
            
            8,046
            
            
            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
            
            
            0.17





**20.  Subsequent
      Events**





On
      January 28, 2008, the Company entered into a new, five-year (subject to a
      one-year extension) employment agreement, effective as of January 1, 2008,
      with
      Neil Cole, chairman of the board, president and chief executive officer, which
      replaces his prior employment agreement that expired on December 31, 2007.
      The
      new employment agreement also supersedes and terminates the prior
      non-competition and non-solicitation agreement between the Company and Mr.
      Cole,
      which, among other things, provided for him to receive 5% of the sale price
      upon
      a sale of the company under certain circumstances.




Under
      the
      new employment agreement, Mr. Cole is entitled to an annual base salary of
      $1,000,000 and a signing bonus of $500,000, which is repayable in full or on
      a
      pro rata basis under certain circumstances. In addition, subject to stockholder
      approval of an incentive bonus plan at the Company’s next annual meeting of
      stockholders, Mr. Cole will be eligible to receive an annual cash bonus, not
      to
      exceed 150% of his base salary, based on the Company’s achievement of certain
      annual performance-based goals.




Pursuant
      to the terms of the new employment agreement, on February 19, 2008, Mr. Cole
      also was granted time-vested restricted common stock units with a fair market
      value on that date of $24.0 million (1,181,684 units) and
      571,150 performance-based restricted common stock units with a fair market
      value (as defined in the new employment agreement) on that date
      of approximately $11.6 million. The restricted stock units will vest
      in five substantially equal annual installments commencing on December 31,
      2008,
      subject to Mr. Cole’s continuous employment with the Company on the applicable
      vesting date, and the performance stock units will be subject to vesting based
      on the Company’s achievement of certain designated performance goals. Both
      grants are subject to forfeiture upon the termination of Mr. Cole's employment
      under certain circumstances.
      In addition, Mr. Cole's ability to sell or otherwise transfer the common stock
      underlying the
      restricted stock units and the performance stock units while he is employed
      by
      us is subject to certain restrictions.
      The grant of 216,639 additional performance stock units and the common stock
      issuable thereunder
      is subject to stockholder approval of either an increase in the number of shares
      of common stock available
      for issuance under our 2006 Equity Incentive Plan or another incentive plan
      that
      would cover such grants. Mr. Cole will also be entitled to various benefits,
      including benefits available to our other senior executives of the Company
      and
      certain automobile, air travel and life insurance benefits.




F-31




In
      addition to his salary and benefits, Mr. Cole is eligible to receive an annual
      cash bonus for each completed calendar year provided the Company establishes
      (subject to shareholder approval) an incentive bonus plan intended to satisfy
      the requirements of Section 162(m) of the internal revenue code of 1986, as
      amended, including as a performance goal thereunder the targets specified in
      the
      employment agreement. The bonus shall be a percentage of the base salary
      determined based on the level of the Company’s consolidated earnings before
      interest, taxes, depreciation and amortization of fixed assets and intangible
      assets achieved for such year against a target level established for such year
      by the compensation committee of the board, in its sole discretion, but with
      prior consultation with Mr. Cole. Mr. Cole’s annual bonus, if earned, will be
      paid in a lump sum cash payment in the calendar year following the calendar
      year
      for which it is earned.





F-32




**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 February 28, 2008, relating to the
      consolidated financial statements of Iconix Brand Group, Inc. and Subsidiaries,
      which is contained in Item 8 of this Form 10-K also included the audit of the
      financial statement schedule listed in the accompanying index. 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, when considered in relation to the
      basic consolidated financial statements taken as a whole, presents fairly,
      in
      all material respects, the information set forth therein.




/s/
      BDO
      Seidman, LLP




February
      28, 2008


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):Year
                ended December 31, 2007
            
            $
            1,633
            
            $
            2,280
            
            $
            (394)
            
            $
            3,519Year
                ended December 31, 2006
            
            $
            260
            
            $
            1,373
            
            $
            -
            
            $
            1,633Year
                ended December 31, 2005
            
            $
            -
            
            $
            260
            
            $
            -
            
            $
            260Due
                from Factor reserves (a):Year
                ended December 31, 2007
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Year
                ended December 31, 2006
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Year
                ended December 31, 2005
            
            $
            1,856
            
            $
            360
            
            $
            2,216
            
            $
            -Inventory
                reserves:Year
                ended December 31, 2007
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Year
                ended December 31, 2006
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Year
                ended December 31, 2005
            
            $
            2,252
            
            $
            154
            
            $
            2,406
            
            $
            -




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




S-2