**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, 2005**
  **OR**
  **[
        ]**  **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 including zip code)*
 
 Registrant's
        telephone number, including area code: (212) 730-0030
 Securities
        registered pursuant to Section 12(b) of the Act: None
 
 Securities
        registered pursuant to Section 12(g) of the Act:
 Common
        Stock, $.001 Par Value
 Preferred
        Share Purchase Rights
 
 Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act. Yes o No x
 
 Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act. Yes o No x
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports) and (2) has been subject to such filing requirements
        for
        the past 90 days.
 Yes x No o
 
 Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein, and will not be contained, to the
        best
        of registrant's knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K. o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 Large
        accelerated filer o  Accelerated
        filer x  Non-accelerated
        filer o
 Indicate
          by check mark whether the registrant is a shell company (as defined in
          Rule
          12b-2 of the Exchange Act). □ Yes x
          No
  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, 2005 was approximately
          $192 million. As of March 1, 2006, 35,648,616 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
              2Item
                  1A.
              Risk
                  Factors
              8Item
                  1B.
              Unresolved
                  Staff Comments
              12Item
                  2.
              Properties
              13Item
                  3.
              Legal
                  Proceedings
              13Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              14PART
                  IIItem
                  5.
              Market
                  for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities
              15Item
                  6.
              Selected
                  Financial Data
              16Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              17Item
                  7A.
              Quantitative
                  and Qualitative Disclosure about Market Risk
              24Item
                  8.
              Financial
                  Statements and Supplementary Data
              25Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              25Item
                  9A.
              Controls
                  and Procedures
              25Item
                  9B.
              Other
                  Information
              28PART
                  IIIItem
                  10.
              Directors
                  and Executive Officers of the Registrant
              28Item
                  11.
              Executive
                  Compensation
              30Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              34Item
                  13.
              Certain
                  Relationships and Related Transactions
              35Item
                  14.
              Principal
                  Accountant Fees and Services
              36PART
                  IVItem
                  15.
              Exhibits,
                  Financial Statement Schedules
              37SignaturesConsolidated
                  Financial Statements
              F-1
 
 
 
    **PART
        I**
 **Item
        1.**  **Business**
 
 **Introduction**
  Iconix
        Brand Group, Inc. (the “ ***Company*** ”),
        which
        was incorporated in Delaware in 1978 and operated under the name Candie’s, Inc.
        until July 2005, is a brand management company focused on licensing and
        marketing a diversified portfolio of its own consumer brands. The Company
        currently owns five brands, Candie’s®, Bongo®, Badgley Mischka®, Joe Boxer® and
        Rampage®, which it licenses directly to leading retailers, wholesalers and
        suppliers for use across a wide range of product categories, including apparel,
        accessories, footwear, beauty and fragrance, and home, and in 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 design and trend guidance to assist them in maintaining and building
        brand integrity and appeal. The Company also continues to arrange, as agent,
        through its wholly-owned subsidiary, Bright Star Footwear, Inc. ***(“Bright
        Star*** ”),
        for
        the manufacture of footwear products for mass market and discount retailers
        under their private label brands. Bright Star has no inventory and earns
        commissions.
  The
        Company’s business strategy is to maximize the value of its 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.
  Until
        recently, the Company designed, procured the manufacture of, and sold footwear
        and jeanswear under its Candie’s and Bongo trademarks. In 2003, however, the
        Company made a strategic decision to change its business model and become
        a
        licensing company in order to maximize its core competencies in marketing
        and
        maximizing brand management. By mid-2004, the Company had licensed out all
        of
        its footwear and jeanswear operations and eliminated its entire retail and
        manufacturing operations and embarked on its strategy of owning, licensing
        and
        managing a broad and diversified portfolio of consumer brands. Within the
        next
        year, the Company acquired three additional brands: Badgley Mischka in October
        2004, Joe Boxer in July 2005 and Rampage in September 2005.
  With
        its
        new licensing model, the Company has eliminated its inventory risk,
        substantially reduced its operating exposure, improved its cash flows
        and net income margins, and benefited from the model’s scalability, which
        enables the Company to leverage new licenses with its existing infrastructure.
        The Company’s objective is to capitalize on its brand management expertise and
        relationships and continue to build a diversified portfolio of consumer brands
        that generate increasing revenues. To achieve this, the Company intends to
        continue pursuing organic growth, add new brands to its trademark portfolio,
        and
        pursue additional international licensing arrangements. The Company believes
        that this strategy will permit rapid growth, while simultaneously reducing
        the
        risks otherwise associated with dependence upon any one licensee, brand,
        product
        category or market.
  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’s prior reporting year, while it commenced
        on February 1, 2004, ended on December 31, 2004 and was thus reported as
        an
        11-month year (the “ ***11-month
        Prior Year*** ”).
        The
        Company’s current reporting period for its fiscal year ended December 31, 2005
        is for the full 12-month period (the “ ***Current
        Year*** ”).
  **The
        Company’s brands**
  **Candie’s**
  Candie’s
        is known primarily as a young women’s footwear, apparel and accessories brand
        and has achieved brand recognition for its sexy and fun image affiliations
        with
        celebrity spokespeople. Candie’s is the Company’s legacy trademark and the one
        upon which its former footwear operations were predominantly based. It was
        established in 1981 by one of the Company’s predecessor companies, from whom it
        purchased the brand in 1993. The primary licensee of the Candie’s brand 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
        an
        18-category Candie’s line of junior items (the ***“Kohl’s
        License”*** )
        All
        product categories will be exclusive to Kohl’s by the beginning of 2007, except
        optical frames which are licensed to Viva International Group. Inc.
        ( ***“Viva”*** ).
        Products range across sportswear, denim, footwear, handbags, intimate apparel
        and home. Celebrity spokespeople for the Candie’s brand have included Jenny
        McCarthy, Destiny’s Child, Alyssa Milano, Kelly Clarkson, Ashlee Simpson, Hilary
        Duff and Ciara.
  **Bongo**
  Bongo
        is
        a well-known California junior brand sold throughout mid-tier department
        stores
        and specialty stores, including Sears, JC Penney and Kohl’s. Founded in 1982 and
        acquired by the Company in 1998, Bongo has expanded from a denim driven brand
        into a lifestyle brand with a variety of product categories including footwear,
        tops, handbags, outerwear, swimwear, jewelry and children’s apparel. Celebrity
        spokespeople for the Bongo brand have included Liv Tyler, Rachel Bilson,
        Nicole
        Richie and the stars of the television reality show, *Laguna
        Beach* .
  2
 **Badgley
        Mischka**
  The
        Badgley Mischka brand is known worldwide as one of the premiere evening wear
        couture brands, and as a result of the Company’s recent launch of bridge-priced
        evening wear, is being developed as a life style designer brand. Highly
        associated with “red carpet” events, Badgley Mischka designs have been worn by
        such celebrities as Angelina Jolie, Catherine Zeta Jones, Halle Berry and,
        during the inaugural balls, by President George W. Bush’s daughters. The
        brand ****** was
        established in 1988 and acquired by the Company in 2004. The Company has
        licensed the brand to nine U.S. licensees across the categories of
        couture eveningwear, bridge apparel, fur, bridal, fragrance, handbags,
        eyewear, footwear, and hats and cold weather items. Badgley Mischka products
        are
        sold in luxury and better department and specialty stores, including Bergdorf
        Goodman, Saks Fifth Avenue and Bloomingdale’s. Mark Badgley and James Mischka,
        the founders of the brand, are employees of the Company and continue to provide
        design inspiration to the Company’s licensee.
  **Joe
        Boxer**
  Joe
        Boxer
        is one of the most recognized brands of underwear, loungewear, sleepwear,
        activewear and home in the U.S. and is known for its irreverent and humorous
        image and provocative promotional events. The brand was established in 1985
        and
        acquired by the Company in 2005. Since 2001, the Joe Boxer brand has been
        licensed in the U.S. to Kmart Corporation (“ ***Kmart”*** ),
        a
        wholly-owned subsidiary of Sears Holding Corp., under which license (the
        “ ***Kmart
        License*** ”)
        the
        brand is currently sold exclusively in Kmart stores. Products covered by
        the
        license include apparel, apparel accessories and home goods for men, women
        and
        children. The Company also licenses the Joe Boxer brand internationally to
        wholesalers in Canada and Mexico and to a retail store licensee in Northern
        Europe that markets the brand to better specialty and department
        stores.
  **Rampage**
  Rampage
        is known as a contemporary/junior women’s sportswear brand. It was established
        in 1982 and acquired by the Company in September 2005. The Company currently
        licenses the Rampage brand to 13 U.S. wholesalers in a variety of categories,
        including sportswear, footwear, outerwear, intimate apparel, fragrance, eyewear
        and handbags, which are sold through better department stores such as Macy’s.
        There is also a retail license for use of the Rampage name on approximately
        70
        mall-based stores. Supermodel Petra Nemcova is currently starring in the
        Company’s advertising campaign for this brand.
  **Former
        operations**
  In
        1993,
        the Company purchased the Candie’s trademark and certain related licenses from
        New Retail Concepts, Inc. (“ ***NRC*** ”),
        a
        company it later acquired in 1998. Thereafter, the Company commenced designing,
        manufacturing, selling and marketing Candie’s footwear and building the Candie’s
        brand into one of the most well-recognized junior footwear brands in the
        U.S. .
        As part of its Candie’s operations, the Company also operated Candie’s concept
        and outlet stores designed to create a distinctive Candie’s environment to
        showcase the brand and the increasingly broad variety of its products.
  During
        1995, the Company also commenced designing, procuring the manufacture of,
        selling and marketing footwear under the Bongo name, which it licensed from
        Michael Caruso & Co., Inc. (“ ***Caruso
        & Co*** ”),
        a
        well-developed manufacturer and marketer of Bongo jeanswear. The Company
        acquired Caruso & Co. in 1998. The Company also operated Bright Star, which
        at that time was an indirect supplier of footwear products for mass market
        and
        discount retailers under the private label brands of those retailers or
        trademarks owned or licensed by the Company.
  In
        1998,
        the Company also began to implement a licensing program entering into agreements
        with third parties for use of the Candie’s brand on fragrance, socks and
        eyewear, and by forming Unzipped Apparel, LLC (“ ***Unzipped*** ”),
        with
        its then 50% joint venture partner, Sweet Sportswear LLC (“ ***Sweet*** ”),
        for
        the purpose of marketing and distributing apparel and jeanswear under the
        Bongo
        brand. The Company licensed the Bongo trademark to Unzipped for use in the
        design, manufacture and sale of jeanswear and certain apparel products for
        a
        term ending in March 2003, and Sweet was responsible for operating Unzipped’s
        Bongo jeanswear business.
  Subsequently,
        in April 2002, the Company acquired Sweet’s 50% interest in Unzipped, making it
        the Company’s wholly- owned subsidiary, and entered into a variety of agreements
        with Sweet and its affiliates relating to the operations of Unzipped, including
        a management agreement (the “ ***Sweet
        Management Agreement*** ”),
        a
        supply agreement and a distribution agreement (collectively, the “ ***Sweet
        Agreements*** ”),
        for
        initial terms expiring in January 2005. In August 2004, however, the Company
        terminated all of its contractual relations with Sweet and its affiliated
        entities, commenced litigation against them and the individual that controlled
        them, and, as described below, licensed the Bongo jeanswear operations to a
        new licensee. See “Item 3. Legal Proceedings.”
  Commencing
        with the Company’s 2002 acquisition of Sweet’s 50% interest in Unzipped and
        until its termination of the Sweet Agreements in August 2004, the Company’s
        operations were comprised of two reportable segments: its
        licensing/commission/footwear segment, which included Candie’s footwear, Bongo
        footwear, private label footwear, Bright Star’s operations, retail store
        operations and licensing operations, and its apparel segment, which was
        comprised of Unzipped’s Bongo jeanswear operations. The activities associated
        with the apparel product sales segment were discontinued effective with the
        August 2004 termination of the Company’s relationship with Sweet. See Note 16 of
        Notes to Consolidated Financial Statements for certain segment information
        regarding the Company.
  3
 **Transition
        to brand management company**
  In
        2003,
        the Company began to implement the shift in its business model designed to
        transform it into a brand management company focused solely on the licensing
        and
        marketing of its brands and away from the direct design, manufacture, marketing
        and sale of branded merchandise. The Company’s strategy behind its change in the
        business model was to maximize its core competencies in marketing and building
        brand equity, achieve higher returns with limited operating risks, and pursue
        an
        aggressive strategy focused on expanding, strengthening and diversifying
        its
        portfolio of consumer brands and licenses through organic growth, the
        acquisition of new brands, and international expansion.
  **Replacement
        of Candie’s and Bongo footwear operations with licensing
        arrangements**
  The
        first
        step in the Company’s transition was to license its footwear operations, which
        the Company accomplished in May 2003, with respect to both its Candie’s and
        Bongo footwear operations. The first license was entered into with Kenneth
        Cole
        Productions, Inc. (“ ***KCP*** ”),
        pursuant to which the Company granted KCP the exclusive right to design,
        manufacture, distribute and sell women’s and kids’ footwear bearing the Bongo
        trademark (the “ ***Bongo/KCP
        Footwear License*** ”).
        The
        second license that the Company entered into was a license with Steven Madden
        Ltd (“ ***Steve
        Madden*** ”),
        pursuant to which the Company granted Steve Madden the exclusive right to
        design, manufacture, distribute and sell women’s and kids’ footwear bearing the
        Candie’s trademark (the “ ***Candie’s/Madden
        Footwear License*** ”). In
        connection with the Bongo/KCP Footwear License, the Company immediately ceased
        all manufacturing and shipping of Bongo footwear, th ereby
        effectively eliminating its operations as they related to the production
        and
        distribution of Bongo. With respect to Candie’s footwear
        products, the Company continued to purchase, ship, sell, warehouse and collect
        receivables for Candie’s footwear through the end of its fiscal year ended
        January 31, 2004 (“ ***Fiscal
        2004*** ”).
        As
        described below, the Company recently amended the Candie’s/Madden Footwear
        License in conjunction with a multi-category license of the Candie’s brand,
        including footwear, granted to Kohl’s. See “- Licensing relationships.”
  As
        a
        result of the granting of the Candie’s and Bongo footwear licenses and the
        elimination of the Company’s footwear operations, by the end of Fiscal 2004, the
        Company had closed all of its retail stores, substantially reduced its workforce
        and closed its office in Valhalla, New York to consolidate its office in
        New
        York City.
  **Replacement
        of Bongo jeanswear operations with a jeanswear license**
  The
        second significant step in the Company’s transition was the licensing of its
        jeanswear operations, which occurred when the Company entered into a license
        agreement, effective August 1, 2004, granting the right to design, manufacture,
        distribute and sell Bongo jeanswear to TKO Apparel Licensing, Inc.
        (“ ***TKO*** ”)
        (the
“ ***Bongo
        Jeanswear License*** ”).
        The
        Company also engaged TKO to manage the transition of Unzipped’s Bongo jeanswear
        business to a license. In November 2004, TKO assigned all of its rights in
        connection with the management agreement, as well as the Bongo Jeanswear
        License, to its affiliate, Bongo Apparel, Inc. (“BAI”).  In connection with
        the Bongo Jeanswear License and this transition, the designees of TKO purchased
        one million shares of the common stock of the Company at a price of $2.20
        per
        share. In a separate transaction, TKO agreed to lend Unzipped up to $2.5
        million. As of December 31, 2004, the loan balance was $2.5 million, which
        the
        Company repaid in 2005.
  Following
        the Company’s August 2004 termination of the Sweet Agreements, BAI completed the
        transition of Unzipped by the end of 2004 and commenced shipping Bongo jeanswear
        under the Bongo Jeanswear License as of January 1, 2005. As
        a
        result, during 2005, Unzipped sold no Bongo products. During
        the 11-month Prior Year, Unzipped sold its jeanswear products to a variety
        of
        mid-tier department store accounts in the United States, including May Co.,
        Sears, JC Penney, and Goody’s. During that period, JC Penney accounted for more
        than 10% of the Company’s consolidated net revenues relating to Bongo
        jeanswear.
  **Commencement
        of brand portfolio expansion**
  Following
        the Company’s replacement of its footwear and jeanswear operations with
        licensing arrangements, the Company actively commenced the expansion portion
        of
        its new business model in furtherance of its goal of becoming a leading brand
        management company with a broad and diversified portfolio of quality consumer
        brands. Between October 2004 and September 2005, the Company acquired three
        additional brands as described below:
  ***Badgley
        Mischka*** .
        In
        October 2004, the Company acquired the principal assets of B.E.M. Enterprise,
        Ltd., the holding company for the Badgley Mischka designer business, from
        its
        parent company, Escada U.S.A. The purchased assets included the Badgley Mischka
        trademark, two existing licenses and the rights to operate the existing Badgley
        Mischka retail store located on Rodeo Drive in Beverly Hills, California.
        The
        purchase price for the transaction was $950,000, which the Company paid with
        its
        issuance of 214,981 shares of the common stock of the Company. With the purchase
        of Badgley Mischka, the Company added the luxury channel to the channels
        in
        which products bearing its brands were distributed and the designers Mark
        Badgley and James Mischka as employees of the Company.
  4
 ***Joe
        Boxer*** .
        In July
        2005, the Company acquired the principal assets of Joe Boxer Company, LLC
        and
        three of its affiliated companies. The purchased assets included the Joe
        Boxer
        trademark, the Kmart License, and a number of international license
        agreements. The acquisition of the Joe Boxer brand added the mass tier to
        the
        channels within which licensed products bearing the Company’s brands are
        distributed, as well as men’s and boys’ items to the mix of products being
        offered. The aggregate purchase price paid was $88.9 million, including $40.8
        million in cash, 4.35 million shares of the common stock of the Company,
        valued
        at $36.2 million, and an assumption of a debt payable to Kmart in the amount
        of
        approximately $10.8 million. As part of the acquisition, the Company also
        acquired the services of three employees: William Sweedler, who now serves
        as
        the Company’s executive vice president, a member of its board of directors, and
        president of its Joe Boxer division, Andrew Tarshis, who joined as senior
        vice
        president and associate counsel of the Company, and the brand’s creative
        director.
  ***Rampage*** .
        In
        September 2005, the Company acquired the principal assets of Rampage Licensing,
        LLC, including the Rampage trademark and 12 wholesale licenses for a variety
        of
        apparel, accessories, fragrance, swimwear, outerwear and handbags, including
        one
        with Charlotte Russe Holdings, Inc., which entity operates over 70 mall-based
        retail stores bearing the Rampage name. The aggregate purchase price for
        the
        acquisition was $47.4 million, including $26.2 million in cash and 2,171,336
        shares of the common stock of the Company, which were valued at approximately
        $20.15 million. Pursuant to the transaction, the Company granted the license
        for
        the core sportswear category to one of the sellers (and founder of Rampage),
        who
        formed a new entity to become the core sportswear licensee.
  **Change
        in Bright Star’s business practice**
  In
        addition to licensing and marketing its brands, the Company continues to
        operate
        Bright Star. In January 2005, Bright Star ceased acting as the indirect supplier
        or conduit of goods for its customers and began acting solely as agent on
        their
        behalf. Thus, while Bright Star continues to give design direction and arrange
        for the manufacture and distribution by third parties of men's footwear for
        its
        discount and specialty retailer customer base, it does so now only as agent,
        thereby eliminating the risks associated with ownership of the goods. As
        a
        consequence, the related revenues are now presented as net commission revenue
        as
        opposed to sales revenues for products with related cost of goods, as was
        presented prior to January 1, 2005.
  **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 product categories, including, apparel,
        footwear, accessories and other fashion products, home furnishings,
        beauty and fragrance. The Company seeks licensees with the ability to
        produce and sell quality products in their licensed categories and the
        demonstrated ability to meet and exceed minimum sales thresholds and royalty
        payments to the Company.
  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 licensee to pay to the Company certain minimum amounts for the
        advertising and marketing of the respective licensed brand . As
        of
        December 31, 2005, the Company had over 50 royalty-producing licenses with
        respect to its five brands.
  The
        Company believes that the coordination of the brand is presentation across
        product categories is crucial to maintaining the strength and integrity of
        its
        brands. Accordingly, the Company t ypically
        m aintains
        the right in its licenses to preview and approve all product, packaging and
        presentation of the licensed brand. Typically, 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 to coordinate the licensed products across the
        categories to ensure 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. The Company also obtains and reviews information
        as to
        the licensees’ sales and forecasts, so as to permit the Company to determine at
        various times during each quarter whether its licensees’ business and revenues
        are consistent with the Company projections for revenue and advertising
        expenditures for each brand.
  The
        Company’s licenses are either directly with a single exclusive retailer for a
        wide range of products or with several individual entities each for a specific
        category of products. The Company also has a limited number of, and expects
        as
        it grows internationally that it will have more, geographic or territorial
        licenses, which focus primarily on the permitted territory and cover both
        a wide
        retail distribution and multiple product categories.
  In
        the
        Current Year, the Company’s two largest revenue producing licenses are the
        Kohl's License and the Kmart License:
  5
 **Kohl’s
        License**
  In
        December 2004, the Company entered into the Kohl’s License, which was
        subsequently amended in February 2005 (the “ ***Kohl’s
        License*** ”).
        Pursuant to the Kohl’s License, the Company granted Kohl's the exclusive right
        to design, manufacture, sell and distribute a broad range of products under
        the
        Candie’s trademark, including women's, juniors' and children's apparel,
        accessories (except prescription eyewear), beauty and personal care products,
        home accessories and electronics. Kohl's was also granted the non-exclusive
        right to sell footwear and handbags bearing the Candie’s brand through December
        31, 2006, which rights become exclusive to Kohl's on January 1, 2007. The
        initial term of the Kohl’s License expires on January 29, 2011, subject to
        Kohl's option to renew it for up to three additional terms of five years,
        each
        contingent on Kohl's meeting specified performance and minimum sale standards.
        The agreement also contains certain minimum royalties that Kohl's is obligated
        to pay the Company. The revenue generated from this contract totaled 14.5%
        of
        the Company’s total overall revenue in the Current Year. Kohl's is also
        obligated to pay the Company an advertising royalty equal to 1% of net sales
        each contract year.
  In
        connection with the Kohl’s License, the Company amended the Candie’s/Madden
        Footwear License, which had an original termination date of December 31,
        2009,
        and its existing handbag license agreement with LaRue Distributors, Inc.
        (“ ***LaRue*** ”),
        which
        had an original termination date of December 31, 2007, to accelerate their
        termination dates to December 31, 2006 in order to provide Kohl’s with the
        exclusive rights to footwear and handbags commencing as of January 1, 2007.
        In
        connection with these amendments, the Company has agreed to make certain
        payments to Steve Madden and LaRue in the event that Kohl’s fails to use Steve
        Madden as a supplier of its Candie’s shoes and/or purchases less than designated
        amounts of Candie’s footwear from Steve Madden through January 2011 or fails to
        use LaRue as a supplier of its Candie’s handbags and/or purchases less than
        designated amounts of Candie’s handbags from LaRue through December 2010. Kohl’s
        continues to use Steve Madden and La Rue as their suppliers in the respective
        categories of footwear and handbags and therefore there are no contingencies
        as
        of December 31, 2005.
  The
        only
        product category with respect to which Kohl’s will not have exclusive rights to
        the Candie’s brand as of January 1, 2007 is prescription eyewear, which is sold
        predominantly in doctors’ offices and has been licensed to Viva since 1998.
  **Kmart
        License**
  As
        part
        of the Joe Boxer brand acquisition, the Company acquired the Kmart License.
          Pursuant to this license, which commenced in August 2001, Kmart (now
        Sears Holding Corp.) was granted the exclusive right to manufacture, market
        and
        sell through Kmart stores located in the U.S., its territories and Puerto
        Rico a
        broad range of products under the Joe Boxer trademark, including men’s, women’s
        and children’s underwear, apparel, apparel-related accessories, footwear and
        home products.  The initial term of the Kmart license expires on December
        31, 2007, subject to renewal.   The Kmart License provides for guaranteed
        minimum royalty payments of $19 million each year for the calendar years
        2006
        and 2007. The revenue generated from this contract totaled 27.9% of the
        Company’s overall revenue in the Current Year.
  **Marketing**
  The
        Company believes that advertising to promote and enhance its brands is a
        critical part of maximizing the brands’ equity. A majority of the Company’s
        license agreements require the Company to advertise its respective brands
        in
        exchange for the licensees’ payment of an advertising royalty. In certain cases,
        the Company’s licensees will decide to supplement the marketing of the Company’s
        brands by performing additional advertising, either through trade or cooperative
        sources or, in the case of Kohl’s, by supplementing the Company’s media buy with
        additional rotations, which results in materially higher than contractually
        obligated marketing spending and product exposure.
  The
        Company believes that its innovative advertising campaigns featuring celebrities
        and performers in the music and entertainment industry have resulted in
        increased consumer awareness of its brands and sales of products sold
        thereunder. Because of the Company’s well-developed relationships with
        celebrities, performers, agents, magazine publishers and the media, the Company
        has been able to leverage advertising dollars into successful public relations
        campaigns that reach tens of millions of consumers. Over the past few years,
        the
        Company has had successful marketing partnerships for its various brands
        with
        celebrities in the entertainment and music industries such as Destiny’s Child,
        the Olsen twins, Hilary Duff, Kelly Clarkson, Ashlee Simpson, Liv Tyler,
        Nicole
        Richie, Petra Nemcova and the stars of the popular reality television show *Laguna
        Beach.* In
        addition, the Company’s luxury Badgley Mischka designs have been represented at
        glamorous Hollywood events by celebrities such as Angelina Jolie, Catherine
        Zeta
        Jones, Kate Winslet and Halle Berry. The Company believes that these
        spokespeople help represent the distinctive and powerful image of the brands
        to
        the consumer and drive higher sales and licensing revenue. Joe Boxer, on
        the
        other hand, is known not for its celebrity endorsements, but rather for its
        irreverent advertisements and provocative brand events and promotions that
        have
        featured the iconic smiley face and “dancing guy,” among other humorous themes.
        The Company supports this brand with targeted programs designed to capitalize
        on
        the brand’s history while keeping it edgy.
  The
        Company has organized its marketing team in a manner that it believes best
        promotes the ability to develop innovative and creative marketing and provide
        brand support, and which structure can be leveraged for future acquisitions.
        Typically, each brand is staffed with a brand manager and fashion and product
        development director, who work closely with the creative and graphic groups
        in
        the advertising department. Although each brand’s creative direction and image
        is developed independently, the entire creative team meets together on a
        regular
        basis to share ideas that might work across brand lines. Licensees are then
        provided information both through group meetings and individual sessions,
        as
        well as through access to secure intranet sites, where creative ideas, brand
        marketing campaigns and graphics are accessible and easy to download and
        use in
        an authorized manner.
  6
 The
        Company’s advertising expenditures for each of its brands are dedicated largely
        to creating and developing concepts, reaching appropriate arrangements with
        key
        celebrities, getting product placement in a maximum number of locations targeted
        to reach consumers, developing sweepstakes and media contests, running Internet
        advertisements and promoting public relations events, often featuring personal
        appearances and concerts, and other types of events. The Company’s
        advertisements have appeared in fashion magazines such as Cosmopolitan, InStyle,
        Seventeen and Glamour, popular lifestyle and entertainment magazines such
        as Us,
        In Touch and Teen People, and in newspapers and on outdoor billboards. The
        Company also uses television commercials to promote its brands, partnering
        with
        its licensees to create and air commercials that will generate excitement
        for
        its brands with consumers.
  **Design
        direction**
  In
        addition to its advertising and marketing campaigns, the Company also supports
        its brands by providing its licensees with design direction and trend guidance
        and by coordinating the brand across licensees and/or product categories.
        The
        Company’s design direction personnel have extensive experience in understanding,
        interpreting and determining the most current trends and then helping its
        licensees to translate these concepts into stylish products that appeal to
        their
        target markets and maximize sales. Typically, the Company’s design direction
        team will supply the licensees with a trend guide, including colors, fabrics,
        silhouettes and an overall style sensibility, for each product season and
        then
        work individually with each licensee to ensure that products bearing the
        Company’s brands are consistent with these overall themes and are being
        presented in a manner that is cohesive throughout and across each product
        category. It is with these trends and themes in mind that the Company then
        develops each season’s advertising and marketing campaigns, using them to
        capture the essence of the specific brand so as to present the brand in a
        manner
        best suited to achieve its maximum positive exposure. The Company employs
        Mark
        Badgley and James Mischka, the designers who created the Badgley Mischka
        brand,
        who continue to design the couture creations for the brand in conjunction
        with
        the licensee for such products.
  **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 current advertising campaigns. The Company also makes available
        free
        of charge on its website periodic reports filed with the Securities and Exchange
        Commission under applicable law as soon as reasonably practicable after it
        files
        such material. In addition, the Company has established an intranet with
        approved vendors and service providers who can access additional materials
        and
        down load them through a secure network. It also maintains, in some cases
        through its licensees, sites for each of the Company’s brands, www.candies.com , www.bongo.com , www.badgleymischka.com , www.joeboxer.com and www.rampage.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 those 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 the apparel industry. For example,
        while Candie’s may compete with LEI in the mid-tier jeanswear business, Joe
        Boxer competes with Hanes, Calvin Klein and Jockey with respect to underwear
        in
        the mass tier, and Badgley Mischka competes with Vera Wang in the couture
        bridal
        category. These competitors have the ability to compete with the Company’s
        licensees in terms of fashion, quality, price and/or advertising.
  The
        Company’s degree of success is dependent on the image of its brands to the
        consumer and its licensees’ ability to design, manufacture and sell products
        bearing its brands. Companies such as Cherokee Inc., Mossimo and Martha Stewart
        Living Omnimedia Inc. have, and other companies owning established trademarks
        may also decide, to enter into similar licensing arrangements with retailers.
        Similarly, the retailers to which the Company may want to license these brands
        may decide themselves to purchase brands instead of entering into license
        agreements with the Company, especially agreements with guaranteed royalties.
  **Trademark
        registrations**
  IP
        Holdings, LLC (“ ***IP
        Holdings”)*** ,
        one of
        the Company’s wholly owned subsidiaries, owns the Candie’s, Bongo, Joe Boxer and
        Rampage trademarks, and Badgley
        Mischka Licensing LLC (“ ***Badgley
        Mischka Licensing*** ”),
        another of its wholly-owned subsidiaries, owns the Badgley Mischka brand,
        each in
        connection with numerous categories of goods. These trademarks are registered
        or
        pending registration with the United States Patent and Trademark Office in
        both
        block letter and logo formats, as well as 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 furnishings and electronics.
        The Company intends to renew these registrations as appropriate prior to
        expiration. In addition, from time to time, IP Holdings and Badgley Mischka
        Licensing register their trademarks in other countries and regions, including
        Canada, Europe, South and Central America and Asia.
  7
 The
        Company monitors on an ongoing basis unauthorized filings of its trademarks,
        and
        it relies primarily upon a combination of trademark, know-how, trade secrets
        and
        contractual restrictions to protect its intellectual property rights both
        domestically and internationally.
  **Employees**
  As
        of
        March 10, 2006, the Company had a total of 39 employees, 28 in the licensing
        and
        corporate area, six at Bright Star and five at the Badgley Mischka division.
        Of
        these 39 employees, seven are executives, two are designers and the remainder
        are middle management, marketing, brand, design and administrative personnel.
        None of the Company’s employees is represented by a labor union. The Company
        considers its relations with its employees to be satisfactory. ****
  **Item
        1.A. Risk Factors**
  We
        operate in a changing environment that involves numerous known and unknown
        risks
        and uncertainties that could materially adversely affect our operations.
        The
        following highlights some of the factors that have affected, and in the future
        could affect, our operations:
  *Until
        recently we incurred losses on a consistent basis and we may not be able
        to
        sustain profitability in the future.*
  Although
        in connection with our new business model we have recorded net income of
        $15.9
        million for the Current Year (including a non-cash tax benefit of $5.0 million)
        and $241,000 for the 11-month Prior Year, prior to our transition to a licensing
        company, we consistently sustained net losses, including, in the fiscal years
        ended January 31, 2004, 2003 and 2002, net losses of $11.3 million, $3.9
        million
        and $2.3 million, respectively. We cannot guarantee that we will continue
        to be
        profitable in the future.
  *Our
        current business model is new and our operating history as a licensing and
        brand
        management company is limited, which makes it difficult to evaluate our current
        business and future prospects.*
 
 We
        began
        our transition in 2003 from a procurer of manufacturing, seller and marketer
        of
        footwear and jeanswear products to a licensing company that owns, licenses
        and
        manages its own consumer brands, and only completed our elimination of our
        retail and manufacturing operations in mid-2004. We have, therefore, only
        operated solely as a licensing and brand management company for one year,
        making
        it difficult to evaluate our ability to successfully manage and grow our
        business long-term. Furthermore, our business model depends on a number of
        factors for its continued success, including the continued market acceptance
        of
        our brands, the production of quality products by our licensees and the
        expansion of our brand portfolio through the growth of our existing brands
        and
        the acquisition of additional brands. While we have sought to diversify our
        brand portfolio and thereby protect our company from the failure of any one
        brand or market segment, and believe that we will be able to grow organically
        through the development of our existing brands, through the acquisition of
        new
        brands, and by expanding internationally, we cannot guarantee the continued
        success of our business.
  *The
        failure of our licensees to adequately produce, market and sell products
        bearing
        our brand names in their license categories could result in a decline in
        our
        results of operations.*
  We
        are no
        longer directly engaged in the sale of branded products and, consequently,
        our
        revenues are now almost entirely dependent on royalty payments made to us
        under
        our licensing agreements. Although the licensing agreements usually require
        the
        advance payment to us of a portion of the licensing fees and provide for
        guaranteed minimum royalty payments to us, the failure by our licensees to
        satisfy their obligations under these agreements or their inability to operate
        successfully or at all, would result in the early termination of such
        agreements, thereby eliminating some or all 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 and thus also decrease our potential revenues.
        Moreover, the failure by licensees of several of our material agreements
        to meet
        their financial obligations to us could jeopardize our ability to meet the
        debt
        service coverage ratio required in connection with the asset-backed notes
        issued
        by our subsidiary, IP Holdings, which would give the note holders the right
        to
        foreclose on the Candie’s, Bongo, Joe Boxer and Rampage trademarks and other
        related intellectual property assets securing such debt.
  *Our
        business is dependent on continued market acceptance of our Candie’s, Bongo,
        Badgley Mischka, Joe Boxer and Rampage trademarks and the products of our
        licensees bearing these brands.*
  8
 We
        are
        dependent on licenses of our trademarks to third party manufacturers and
        marketers of products bearing those marks and on the ultimate sale of such
        products by our licensees for substantially all of our revenues. Although
        our
        licensees guarantee minimum net sales and minimum guaranteed royalties to
        us, a
        failure of our trademarks or of products utilizing our trademarks to achieve
        or
        maintain market acceptance could reduce our licensing revenues, thereby
        negatively impacting our cash flow. Such failure could also cause the
        devaluation of our trademarks, which are our primary assets, making it more
        difficult for us to renew our current licenses upon their expiration or enter
        into new or additional licenses for our trademarks. Continued market acceptance
        of our trademarks and our licensees’ products, as well as market acceptance of
        any future products bearing our trademarks, is subject to a high degree of
        uncertainty, made more so by constantly changing consumer tastes and
        preferences. Maintaining market acceptance for our licensees’ products and
        creating it for new products and categories of products bearing our marks
        will
        require our continuing and substantial marketing and product development
        efforts, which may from time to time, also include our expenditure of
        significant additional funds, to keep pace with changing consumer demands.
        Additional marketing efforts and expenditures may not, however, result in
        either
        increased market acceptance of, or additional licenses for, our trademarks
        or
        increased market acceptance, or sales, of our licensees’ products.
  *A
        substantial portion of our licensing revenues are concentrated with two
        retailers such that the loss of either such licensee could decrease our revenue
        and impair our cash flows.*
  Our
        two
        largest licenses, together representing 42.5% of our total revenue, are each
        a
        single retailer license. The Kohl’s License currently gives Kohl’s the exclusive
        U.S. license with respect to the Candie’s trademark for a wide variety of
        categories of products, including women’s junior and children’s apparel,
        accessories (except shoes and handbags, which are currently licensed to it
        on a
        non-exclusive basis but which will become part of its exclusive license in
        January 2007, and prescription eyewear), beauty and personal care products,
        home
        accessories and electronics for an initial term expiring in January 2011.
        Our
        license agreement with Sears grants the exclusive U.S. license of the Joe
        Boxer
        trademark for men’s, women’s and children’s apparel, apparel-related
        accessories, footwear and home products for an initial term expiring in December
        2007. Because we are dependent on these two licensees for a significant portion
        of our licensing revenue, if either Kohl’s or Kmart (which came out of
        bankruptcy in May 2003 and is currently owned by Sears Holding Corp.) were
        to
        have financial difficulties affecting its ability to make guaranteed payments
        or
        cease to operate before the expiration of its license agreement, or if the
        licensee decides not to renew the existing agreement with us, our revenue
        and
        cash flows could be reduced substantially. Moreover, since Kmart’s bankruptcy in
        2002, Kmart has not approached the sales levels of Joe Boxer products needed
        to
        trigger royalties payments in excess of its guaranteed minimums, and, if
        it does
        not renew its license at the end of 2007, we could suffer disruption in our
        revenue stream for the Joe Boxer brand until we enter into one or more
        replacement licenses.
  *If
        we
        are unable to identify and successfully acquire additional trademarks, our
        growth will be limited, and, even if they are acquired, we may not realize
        planned benefits due to integration or licensing difficulties.*
  A
        key
        component of our growth strategy is the acquisition of additional trademarks
        in
        product categories and/or channels that are complementary to, and provide
        us
        further diversification with respect to, those of our existing trademark
        portfolio. If competitors pursue our licensing model, acquisitions could
        become
        more expensive and suitable acquisition candidates more difficult to find.
        In
        addition, even if we are successful in acquiring 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,
        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 have a detrimental effect on our results of operations
        and/or the value of our equity. These risks include, among others:
  ·
            unanticipated
                costs;  ·
            negative
                effects on reported results of operations from acquisition related
                charges
                and amortization of acquired intangibles;  ·
            diversion
                of management’s attention from other business
                concerns;  ·
            the
                challenges of maintaining focus on, and continuing to execute, core
                strategies and business plans as our brand and license portfolio
                grows and
                becomes more diversified;  ·
            adverse
                effects on existing licensing relationships;
                and  ·
            risks
                of entering new 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.  Our
        ability to grow through the acquisition of additional trademarks will also
        be
        dependent on the availability of capital to complete the necessary acquisition
        arrangements. We intend to finance our brand acquisitions through some
        combination of our available cash resources, bank financing, the issuance
        of
        equity, and/or additional debt securities. Acquiring additional trademarks
        could
        have a significant effect on our financial position, and could cause substantial
        fluctuations in our quarterly and yearly operating results. Also, acquisitions
        could result in the recording of significant goodwill and intangible assets
        on
        our Company’s financial statements, the amortization or impairment of which
        would reduce our reported earnings in subsequent years.
  *Our
        existing and future debt obligations could impair our liquidity and financial
        condition, and, in the event we are unable to meet our debt obligation, we
        could
        lose title to our trademarks.*
  9
 As
        of
        December 31, 2005, we had total consolidated long-term debt of approximately
        $99.1 million and had a working capital deficit of $4.4 million. At December
        31,
        2005, we had approximately $88.8 million principal outstanding on seven-year
        asset backed notes issued by our subsidiary, IP Holdings. The payment of
        the
        principal and interest on the notes is made from amounts received by IP Holdings
        under license agreements with the various licensees of its intellectual property
        assets, all of which assets also serve as security under the notes. In addition,
        in connection with our acquisition, in April 2002, of the other half of Unzipped
        , which made it one of our wholly owned subsidiaries, we issued to Sweet,
        an
        $11.0 million principal amount senior subordinated note (the “ ***Sweet
        Note*** ”).
        The
        principal amount of the Sweet Note was reduced to approximately $2.9 million
        at
        December 31, 2005 as a result of certain shortfalls in the net income of
        Unzipped previously guaranteed by Sweet in the agreement under which, until
        August 2004, it served as Unzipped’s manager. We are involved in litigation with
        Sweet and certain of its affiliates with respect to these shortfalls and
        other
        matters pertaining to Unzipped. We may also incur additional debt in the
        future
        to fund a portion of our capital requirements and to fund 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; and  ·
            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.  ·
            place
                us at a comparative disadvantage as to our competitors who have less
                debt.  While
        we
        believe that by virtue of the 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 as regards to that
        indebtedness. A debt default could significantly diminish the market value
        and
        marketability of our common stock and could result in the acceleration of
        the
        payment obligations under all or a portion of our consolidated indebtedness.
        In
        the case of IP Holdings’ asset backed notes, it would also enable the holders of
        such notes to foreclose on the assets securing such notes, including the
        Candie’s, Bongo, Joe Boxer and Rampage trademarks.
  *Our
        licensees are subject to risks and uncertainties of foreign manufacturing
        that
        could interrupt their operations or increase their operating costs, thereby
        impacting their ability to deliver goods to the market, reduce or delay their
        sales and decrease our potential royalty revenues.*
  Substantially
        all of the products sold by our licensees are manufactured overseas. There
        are
        substantial risks associated with foreign manufacturing, including changes
        in
        laws relating to quotas, and the payment of tariffs and duties, fluctuations
        in
        foreign currency exchange rates, shipping delays and international political,
        regulatory and economic developments, any of which could increase our licensees’
operating costs, making their licensing arrangements with us less attractive
        to
        them. 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, could be reduced as a result of
        the
        licensees’ inability to deliver or their delay in delivering finished products
        to their customers.
  *Because
        of the intense competition within our licensees’ markets and the strength of
        some of the competitors, we and our licensees may not be able to continue
        to
        compete successfully.*
  Currently,
        most of our trademark licenses are for products in the apparel, footwear
        and
        fashion industries. These industries are extremely competitive in the United
        States and our licensees face intense and substantial competition with respect
        to their product lines bearing our brands. In general, competitive factors
        include quality, price, style, name recognition and service. In addition,
        the
        presence in the marketplace of various fads and the limited availability
        of
        shelf space can affect competition for our licensees’ products. Many of the
        competitors of our licensees 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.
  *Our
        failure to protect our proprietary rights could compromise our competitive
        position and decrease the value of our brands.*
  10
 We
        own
        federal 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 rely
        primarily upon a combination of trademark, know-how, trade secrets and
        contractual restrictions to protect our intellectual property rights. We
        believe
        that such measures afford only limited protection and, accordingly, there
        can be
        no assurance that the actions taken by us to establish and protect 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. Despite our efforts to protect 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 the sales of our licensees
        and
        thus our revenues. 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
        could result in significant expense to us, and divert the efforts of our
        management personnel, whether or not such litigation 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, we would be prevented from using
        them,
        which could cause a termination of our licensing arrangements, and thus our
        revenue stream, with respect to those trademarks. It could also result in
        a
        judgment or monetary damages being levied against us.
  *We
        are dependent upon our president and other key executives. If we lose the
        services of these individual, we may not be able to fully implement our business
        plan and future growth strategy, which would harm ours 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 in December 31, 2007, as well as employment
        agreements with other of our key executives, there is no guarantee that we
        will
        not lose their services. To the extent that any of their services become
        unavailable to us, we will be required to hire other qualified executives,
        and
        we may not be successful in finding or hiring adequate replacements. This
        could
        impede our ability to fully implement our business plan and future growth
        strategy, which would harm our business and prospects. As we grow, our success
        will also be dependent upon our ability to hire and retain additional qualified
        marketing and product development personnel to raise consumer awareness of
        the
        brand names we acquire and help our licensees maintain the freshness of their
        product lines and meet market trend expectations. We may not be able to hire
        or
        retain such necessary personnel.
  *We
        are currently in litigation that could negatively impact our financial result.*
  We
        are
        currently a plaintiff and cross-defendant in a litigation pending in California
        state court involving our wholly-owned subsidiary, Unzipped, and a defendant
        in
        a litigation pending in federal district court in New York involving a former
        supplier. Even if we prevail on all counts in these actions, the costs of
        these
        litigations have been and are expected to continue to be high. They are not
        only
        expensive but time consuming to pursue and defend, thereby diverting our
        available cash and personnel resources from other business affairs. Moreover,
        if
        we are ultimately required to pay the monetary damages sought by the
        cross-complainants in the California action and the plaintiff in the New
        York
        action, or if it is adjudicated that our contractual rights concerning Unzipped
        are invalid, our operating results and profitability could be substantially
        reduced.
  *We
        have a material amount of goodwill and other intangible assets, including
        our
        trademarks, recorded on our balance sheet. If, as a result of changes in
        market
        conditions and declines in the estimated fair value of these assets,, we
        are in
        the future required to write down a portion of this goodwill and other
        intangible assets, such write down would, as applicable, either decrease
        our
        profitability or increase our net loss.*
  As
        of
        December 31, 2005, goodwill represented approximately $33 million, or 15%
        of our
        total assets, and other intangible assets represented approximately $139.3
        million, or 64% of our total assets. Goodwill is the amount by which the
        costs
        of an acquisition accounted for using the purchase method exceed the fair
        value
        of the net assets acquired. We adopted Statement of Financial Accounting
        Standard No. 142, or SFAS No. 142, entitled “Goodwill and Other Intangible
        Assets” in its entirety, on February 1, 2002. Under SFAS No. 142, goodwill and
        indefinite lived intangible assets, including some of our trademarks, are
        no
        longer amortized, but instead are subject to impairment evaluation based
        on the
        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
        decrease our net income and those decreases could be material.
  *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 are likely
        to
        experience in the future, 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 the licensees’
markets generally 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.
  11
 *Future
        sales of shares of our common stock may cause the prevailing market price
        of our
        shares to decrease.*
  We
        issued
        a substantial number of shares of common stock that are eligible for resale
        under Rule 144 of the 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 existing stockholders. In addition,
        future public sales of shares of our common stock could impair our ability
        to
        raise capital by offering equity securities.
  *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 adverse outcomes
        resulting from these examinations to determine the adequacy of our provision
        for
        income taxes. We cannot guarantee that the outcomes from these continuous
        examinations will not harm our operating results and financial
        conditions.
  *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 existing 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 authorizes
        75,000,000 shares of common stock to be issued. Based on our outstanding
        capitalization at December 31, 2005, after assuming the exercise of all
        outstanding options and warrants, there are still a total of 31,069,000 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. And, 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
        control or management of our company, 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.
  
  **Item
        1B. Unresolved Staff Comments**
  None
  12
   **Item
        2. Properties**
  The
        Company currently occupies approximately 14,359 square feet of office space
        on
        the 4 th floor at
        1450 Broadway, New York, New York, 10018, pursuant to a lease that expires
        on
        June 2, 2007. The current lease for this space has an annual rental of $373,332,
        or $31,111 per month.
  During
        the Current Year, the Company also paid rent in the amount of $276,000 on
        the
        Badgley Mischka retail store in Beverly Hills, CA, which is operated for
        the
        Company under a license agreement. The Company’s current lease for this store
        has a monthly rent of $23,000 and expires on November 6, 2006.
  Bright
        Star currently occupies approximately 2,269 square feet of office space located
        at 111 Howard Boulevard, Suite 206, Mt. Arlington, NJ 07856, pursuant to
        a lease
        that expires on March 31, 2007. The current lease for this space has an annual
        rental of $38,573 or $3,214 per month.
  
  **Item
        3.** **Legal
        Proceedings**
  **Unzipped
        litigation**
  On
        August
        5, 2004, the Company, along with its subsidiaries, Unzipped, Caruso & Co.
        and IP Holdings (collectively, “ ***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 Production International, Inc, (“ ***Azteca*** ”)
        and
        Apparel Distribution Services, LLC (“ ***ADS*** ”),
        respectively; and a principal of these entities and former member of the
        Company’s Board of Directors, Hubert Guez (collectively, “ ***Defendants*** ”).
        Plaintiffs amended their complaint on November 22, 2004. In the amended
        complaint, Plaintiffs allege that Defendants fraudulently induced them to
        purchase Sweet's 50% interest in Unzipped for an inflated price, that Sweet
        and
        Azteca committed material breaches of the Sweet Agreements, and that Mr.
        Guez
        materially breached his fiduciary obligations to the Company while serving
        as a
        member of its Board of Directors. Also, Plaintiffs allege that Defendants
        have
        imported, distributed and sold goods bearing the Company’s Bongo trademarks in
        violation of federal and California law. Plaintiffs seek damages in excess
        of
        $50 million. Defendants filed a motion to dismiss certain of the claims asserted
        by the Plaintiffs in the amended complaint, which was denied by the Court
        in its
        entirety on February 7, 2005.
  On
        March
        10, 2005, Sweet, Azteca and ADS (collectively, “ ***Cross-Complainants*** ”),
        filed
        an answer to Plaintiffs' amended complaint and a cross-complaint against
        Plaintiffs and the Company’s chief executive officer, Neil Cole (collectively,
“ ***Cross-Defendants*** ”),
        seeking compensatory, punitive and exemplary damages and litigation costs,
        as
        well as the establishment of a constructive trust for their benefit. The
        Cross-Complainants alleged that some or all of the Cross-Defendants breached
        the
        Sweet Agreements; that IP Holdings and Mr. Cole interfered with Sweet's
        performance under the Sweet Management Agreement with Unzipped, and that
        the
        Company, Caruso & Co., IP Holdings and Mr. Cole interfered with
        Cross-Complainants' relationships with Unzipped and caused Unzipped to breach
        its agreements with Azteca and ADS. Cross-Complainants also alleged that
        some or
        all of the Company, Caruso & Co. and Mr. Cole fraudulently induced Sweet to
        sell its 50% interest in Unzipped to the Company for a deflated price and
        accept
        the 8% the Sweet Note in the principal amount of $11 million that the Company
        issued to it in connection therewith the Sweet Note .
  The
        Company had previously entered into a management agreement with Sweet wherein
        Sweet guaranteed that the net income of Unzipped, as defined, would be no
        less
        than $1.7 million for each year during the term (the “ ***Guarantee*** ”).
        In
        the event that the Guarantee was not met, Sweet was obligated to pay the
        difference between the actual net income, as defined, and the Guarantee,
        such
        difference referred to as the “ ***Shortfall
        Payment*** ”.
        The
        cross-complaint alleged that the Company breached its obligations to Sweet
        arising under the Sweet Note by, among other things, understating Unzipped's
        earnings for Fiscal 2004 and the first three quarters of its fiscal year
        ended
        January 31, 2005 for the purpose of causing Unzipped to fall short of the
        Guarantee for these periods, and improperly offsetting the Shortfall Payment
        against the Sweet Note. Lastly, the cross-complaint alleged that the
        understatements in Unzipped's earnings and offsets against the Sweet Note
        were
        incorporated into the Company’s public filings for the periods identified above,
        causing it to overstate materially its earnings and understate its liabilities
        for such periods with the effect of improperly inflating the public trading
        price of the Company’s common stock.
  Cross-Defendants
        filed a motion to dismiss certain of the claims asserted in the cross-complaint,
        and, on June 28, 2005, the Court granted Cross-defendants' motion in part.
        On
        July 22, 2005, Cross-Complainants amended their cross-complaint, omitting
        their
        previously asserted claim that some or all of the Company, Caruso & Co. and
        Mr. Cole fraudulently induced Sweet to sell its 50% interest in Unzipped
        for a
        deflated price and accept the Sweet Note. Although the amended cross-complaint
        no longer seeks relief for this purported fraud, the substance of the
        allegations remained largely unchanged.
  Cross-Defendants
        filed a motion to dismiss certain of the claims asserted in the amended
        cross-complaint, and, on October 25, 2005, the Court granted Cross-Defendants’
motion in part, dismissing all claims asserted against Mr. Cole along with
        the
        Cross-Complainants' sole remaining fraud claim. The remaining Cross-Defendants
        deny Cross-Complainants' allegations and intend to vigorously defend against
        the
        amended cross-complaint.
  13
 In
        a
        related litigation, on November 5, 2004, Unzipped commenced a lawsuit in
        the
        Supreme Court of New York, New York County, against Unzipped's former president
        of sales, Gary Bader, alleging that Mr. Bader breached certain fiduciary
        duties
        owed to Unzipped as its president of sales, unfairly competed with Unzipped
        and
        tortuously interfered with Unzipped's contractual relationships with its
        employees. On October 5, 2005, Unzipped amended its complaint to assert
        identical claims against Bader's company, Sportswear Mercenaries, Ltd.
        (“ ***SMI*** ”).
        On
        October 14, 2005, Bader and SMI filed an answer containing counterclaims
        to
        Unzipped's amended complaint, and a third-party complaint against the Company
        and Mr. Cole, seeking unspecified damages in excess of $4 million. On December
        2, 2005, the Company, together with Unzipped and Mr. Cole, filed motions
        seeking
        the dismissal of all claims asserted against them by Bader and SMI, and these
        motions are currently pending. In these motions, the Company, Mr. Cole and
        Unzipped have denied the claims asserted against them, and intend to vigorously
        defend against all such claims.
  **Redwood
        litigation**
  In
        January 2002, Redwood Shoe Corporation, one of the Company’s former footwear
        buying agents, filed a complaint in the United States District Court for
        the
        Southern District of New York, alleging that the Company breached various
        contractual obligations to Redwood and seeking to recover damages in excess
        of
        $20 million plus its litigation costs. The Company filed a motion to dismiss
        certain counts of the complaint based upon Redwood's failure to state a claim,
        in response to which Redwood has filed an amended complaint. The Company
        also
        moved to dismiss certain parts of the amended complaint. The magistrate assigned
        to the matter granted, in part, the Company’s motion to dismiss. By Order dated
        November 28, 2005, the District Court adopted the Magistrate's ruling in
        its
        entirety, thereby accepting the Company’s position that it never agreed to
        purchase a minimum quantity of footwear from Redwood and dismissing
        approximately $20 million of Redwood's asserted claims. On December 14, 2005,
        the Company filed an answer to Redwood’s four remaining claims and asserted 13
        counterclaims against Redwood and Redwood's affiliate, Mark Tucker, Inc.
        (“ ***MTI*** ”).
        On
        the same date, it filed a motion to have MTI joined with Redwood as a defendant
        in the action, which motion MTI has advised the District Court that it will
        not
        oppose. The Company intends to vigorously defend the lawsuit, and to vigorously
        prosecute the claims it has asserted against Redwood and MTI. At December
        31,
        2005, the payable to Redwood totaled approximately $1.8 million, which is
        subject to any claims, offsets or other deductions the Company may assert
        against Redwood, and was reflected in the Company’s consolidated financial
        statements under “Accounts payable, subject to litigation.”
  **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 its financial position or future liquidity. Except
        as
        set forth herein, the Company knows of no material legal proceedings, pending
        or
        threatened, or judgments entered, against any director or officer of the
        Company
        in his capacity as such.
  **Item
        4. Submission of Matters to a Vote of Security Holders**
  None.
  14
   PART
        II
 **Item
        5.**  **Market
        for Registrant's Common Equity, Related Stockholder Matters and Issue Purchases
        of Equity Securities**
 
 The
        Company’s common stock, $0.001 par value per share, its only class of common
        equity, has been quoted on the Nasdaq National Market under the symbol “ICON”
since it changed its name from Candies, Inc. to Iconix Brand Group, Inc.
        on July
        1, 2005. Prior to that time it was quoted on the Nasdaq National Market under
        the symbol “CAND” commencing as of January 22, 1990. 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 the Nasdaq National Market:
  
 **High**
              **Low**Twelve
                  Months Ended December 31, 2005Fourth
                  Quarter
              $10.64
              $7.66Third
                  Quarter
              10.21
              6.30Second
                  Quarter
              6.98
              4.16First
                  Quarter
              5.50
              4.25Eleven
                  Months Ended December 31, 2004Fourth
                  Quarter
              $
                  6.34
              $4.20Third
                  Quarter
              4.95
              2.46Second
                  Quarter
              3.04
              2.15First
                  Quarter
              2.88
              2.00
 
 As
        of
        March 1, 2006 there were approximately 2,475 holders of record of the Company’s
        Common Stock.
 
 The
        Company has never declared or paid any cash dividends on its common stock
        since
        its inception. It anticipates that for the foreseeable future, earnings,
        if any,
        will be retained for use in its business or for other corporate purposes
        and
        that no cash dividends will be paid in the foreseeable future. Payment of
        cash
        dividends, if any, will be at the discretion of the Company’s Board of Directors
        and will depend upon the Company’s financial condition, operating results,
        capital requirements, contractual restrictions, restrictions imposed by
        applicable law and other factors its Board of Directors deems relevant. The
        Company’s ability to pay dividends on its common stock may also be prohibited by
        its 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. In the Current Year and the
        11-month Prior Year, no shares were repurchased in the open market.
 
 See ”Item
        12”
- “Securities Ownership of Certain Beneficial Owners and Management-Equity
        Compensation Plans” for certain information concerning securities issued under
        the Company’s equity compensation plans.
 
 
 15
   **Item
        6.**  **Selected
        Financial Data**
 **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
              11-Months
              Fiscal
                  YearEnded
                  December 31,
              Ended
                  December 31,
              Ended
                  January 31,2005
              2004
              2004
              2003
              2002Operating
                  Data *:Net
                  Sales
              $
                  -
              $58,427
              $123,160
              $149,543
              $94,500Licensing
                  and commission revenue
              30,156
              10,553
              8,217
              7,240
              6,902Net
                  Revenues
              30,156
              68,980
              131,377
              156,783
              101,402Operating
                  income (loss)
              14,810(1)
              2,736(1)
              (8,164)(1)
              (961)(1)
              (1,545)(1)Interest
                  expense - net
              3,977
              2,495
              3,118
              3,373
              1,175Net
                  income (loss)
              15,943
              241
              (11,340)
              (3,945)
              (2,282)Earnings
                  (loss) per share:Basic
              $0.51
              $0.01
              $(0.45)
              $(0.17)
              $(0.12)Diluted
              $0.46
              0.01
              (0.45)
              (0.17)
              (0.12)Weighted
                  average number of commonshares
                  outstanding:Basic
              31,284
              26,851
              25,181
              23,681
              19,647Diluted
              34,773
              28,706
              25,181
              23,681
              19,647
 
 
 At
                  December 31,
              At
                  January 31,2005
              2004
              2004
              2003
              2002Balance
                  Sheet Data *:Current
                  assets
              $22,345
              $9,627
              $25,655
              $51,816
              $22,730Working
                  capital (deficit)
              (4,388)
              (5,984)
              (5,302)
              5,895
              (3,783)Total
                  assets
              217,244
              60,160
              74,845
              103,437
              50,670Long-term
                  debt, long-term portion
              85,414
              19,925
              25,020
              28,505
              638Total
                  stockholders' equity
              100,896
              24,258
              18,868
              29,011
              23,519
 
 *
              As
                  of May 1, 2002, the operating results of Unzipped, the Company’s Bongo
                  jeanswear business, have been consolidated. Thus, operating results
                  commencing with Fiscal 2003 are not comparable to prior years.
                  Additionally, beginning in May 2003, the Company changed its business
                  model to a licensing model. See “Item 1 - Transition to brand management
                  company". As a result, its Current Year, the 11-month Prior Year
                  and
                  Fiscal 2004 results are not comparable with prior
                  years.
 
 (1)
            Includes
                special charges of $1,466 in the Current Year, $295 in the 11-month
                Prior
                Year, $4,629 in Fiscal 2004, $3,566 in Fiscal 2003, and $1,791 in
                Fiscal
                2002. See Notes 7 and 11 of the Notes to Consolidated Financial
                Statements. (2)
            In
                the third quarter ended September 30, 2005, the Company made two
                acquisitions. See Notes4
                and 5 of Notes to Consolidated Financial
                Statements. (3)
              In
                  the Current Year, the Company recognized a net non-cash tax benefit
                  of
                  $5.0 million by reducing the valuation allowance on the deferred
                  tax asset
                  related to the Company’s Net Operating Loss carryforwards
                  (**NOL**).
 (4)
        Including in the operating income in the 11-month Prior Year was a $7.6 million
        adjustment for the Shortfall Payment of $6.9 million with $685,000 recorded
        as a
        reserve pending the outcome of its litigation with the Company relating to
        Unzipped. See Notes 2 and 8 of Notes to Consolidated Financial Statements.
        For
        Fiscal 2004 the adjustment for the Shortfall Payment was $1.6 million.
 16
   **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 trademarks and its ability to market and license trademarks 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
        1. Risk Factors” above and elsewhere in this report and in the Company’s other
        SEC filings should be carefully considered.
  Words
        such as “may,” “should,” “will,” “could,” “estimate,” “predict,” “potential,”
“continue,” “anticipate,” “believe,” “plan,” “expect,” “future” and “intend” or
        the negative of these terms or other comparable expressions are intended
        to
        identify forward-looking statements. Readers are cautioned not to place undue
        reliance on these forward looking statements, which speak only as of the
        date
        the statement was made.
  
 **General
        Introduction**
 
 In
        December 2004, the Board of Directors of the Company approved a change in
        the
        Company’s fiscal year end from January 31 to December 31, effective for the
        period ending December 31, 2004. As a result, the Company’s prior reporting
        year, while it commenced on February 1, 2004, ended on December 31, 2004
        and was
        thus reported as an 11-month year (the ***“11-month
        Prior Year”*** ).
        The
        12-month period preceding the 11-month Prior Year was the Company’s fiscal 2004
        ( ***“Fiscal
        2004”*** ).
        The
        12-month period following the 11-month Prior Year is the Company’s fiscal year
        ended December 31, 2005 (the ***“Current
        Year”*** ).
  In
        2003, the
        Company began to implement a shift in its business model designed to transform
        it from a manufacturer and marketer of footwear and jeanswear products to
        a
        brand management company focused on licensing and marketing its portfolio
        of
        consumer brands, by licensing its footwear operations pursuant to two licenses:
        the Bongo/KCP Footwear License and the Candie’s/Steve Madden Footwear License.
        Thereafter, in June 2004, the Company also licensed its Bongo jeanswear
        operations previously conducted through its wholly-owned subsidiary, Unzipped, pursuant
        to
        the Bongo Jeanswear License, effective August 1, 2004. As a result, by the
        end
        of 2004, the Company had licensed out the footwear and the Bongo jeanswear
        operations. It had also eliminated its legacy retail and manufacturing
        operations and as a result of the foregoing, by the end of Fiscal 2004, the
        Company had reduced its workforce from over 200 to under 40. In addition,
        between October 2004 and July 2005, the Company acquired three new brands:
        Badgley Mischka, Joe Boxer and Rampage. As a result of these changes to the
        operations of the Company, the Company is now a brand management company
        that
        focuses on licensing and marketing a diverse portfolio of owned consumer
        brands
        and no longer has any inventory.
  Beginning
        January 2005, the Company also changed its business practices with respect
        to
        Bright Star, a subsidiary of the Company, which resulted in a change in revenue
        recognition for Fiscal 2005. Bright Star now acts solely as an agent, so
        that
        only net commission revenue is recognized commencing January 1, 2005. Commencing
        with the Company’s 2002 acquisition of the remaining interest in Unzipped and
        until August 2004 when the Unzipped jeans wear business was transitioned
        to a
        license, the Company’s operations were comprised of two reportable segments: its
        licensing/commission/footwear segment, which included Candie’s footwear, Bongo
        footwear, private label footwear, Bright Star’s operations, retail store
        operations and licensing operations, and its apparel segment, which was
        comprised of Unzipped’s Bongo jeanswear operations. The activities associated
        with the Company’s former footwear business were licensed in May 2003, and the
        Company’s activities associated with Unzipped’s apparel segment were licensed
        effective August 2004, leaving a single reporting segment for licensing and
        commission revenue.
  As
        a
        result of the Company's transition to a licensing business, and to a lesser
        extent, its change in fiscal year end during the 11-month Prior Year, the
        Company's operating results for the periods after Fiscal 2004 are not and
        are
        not expected to be comparable to prior years. Further, a s
        a
        result of the Company’s recent acquisitions and to a lesser extent the change in
        its Bright Star revenue, the Company’s operating results for the Current Year
        are not comparable to prior years.
 
 17
 **Critical
        Accounting Policies:**
 
 During
        the Current Year, the Company adopted certain new accounting standards issued
        by
        the Financial Accounting Standards Board ( ***“FASB”*** ),
        as
        described below and summarized in Note 1 of the Notes to Consolidated Financial
        Statements. The adoption of these new accounting standards did not have a
        significant impact on the Company’s financial position or results of operations
        in the Current Year.
 
 Several
        of the Company’s accounting policies involve management judgments and estimates
        that could be significant. The policies with the greatest potential effect
        on
        the Company’s consolidated results of operations and financial position include
        the estimate of reserves to provide for the collectibility of accounts
        receivable. The Company estimates the net collectibility considering historical,
        current and anticipated trends related to deductions taken by customers and
        markdowns provided to retail customers to effectively flow goods through
        the
        retail channels, and the possibility of non-collection due to the financial
        position of it’s licensees’ customers. With its new licensing model, the Company
        has eliminated its inventory risk and substantially reduced its operating
        risks,
        and can now forecast revenues and plan expenditures based upon guaranteed
        royalty minimums.
 
 The
        preparation of the consolidated financial statements in conformity with
        generally accepted accounting principles 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 new licensing model, the Company has entered into various
        trademark license agreements that provide revenues based on minimum royalties
        and additional revenues based on a percentage of defined sales. Minimum royalty
        revenue is recognized on a straight-line basis over each period, as defined,
        in
        each license agreement. Royalties exceeding the defined minimum amounts are
        recognized as income during the period corresponding to the licensee’s
        sales.
 
 In
        June
        2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets,"
        which changed the accounting for goodwill from an amortization method to
        an
        impairment-only approach. Upon the Company’s adoption of SFAS No. 142 on
        February 1, 2002, the Company ceased amortizing goodwill. As prescribed under
        SFAS No. 142, the Company had goodwill tested for impairment during the Current
        Year, the 11-month Prior Year, and Fiscal 2004, and no impairments were
        necessary.
 
 The
        Candie’s and Bongo trademarks had previously been amortized on a straight-line
        basis over their estimated useful lives of approximately 20 years. Effective
        July 1, 2005, the Company changed for accounting purposes, the estimated
        useful
        lives of the Candie’s and Bongo trademarks to be an indefinite life.
        Accordingly, the recorded value of these trademarks will no longer be amortized,
        but instead will be tested for impairment on an annual basis. In arriving
        at the
        conclusion to use an indefinite life management considered among other things,
        the Company’s new licensing business model which has expanded the extent of
        potential use of these brand names in future years. In connection with the
        Candies license signed with Kohl’s in late
        2004 the Candie's name, which has been in the US market since the 1970’s, has
        been expanded to over 18 product categories in almost 700 Kohl’s retail
        locations. Similarly, the Bongo brand has expanded from a predominantly
        jeanswear brand to a broad variety of product groups and multiple licenses
        in
        the U.S. and internationally. Brand recognition for both of these brands
        is very
        high, has been generally stable for an extended period of time, and the Company
        expects this consumer recognition and acceptance to remain stable or grow
        in the
        future based on anticipated broader distribution and product line expansion.
        The
        impact of this change in estimate for the Current Year was a reduction in
        amortization expense relating to the Candie’s and Bongo trademarks totaling
        $595,000 or $0.02 per fully diluted earning per share. As of December 31,
        2005,
        the net book value of the Candie’s and Bongo trademarks totaled $14.2
        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
        July 1, 2005, the Company had a change in estimate of the useful lives of
        both
        the Candie’s and Bongo trademarks to indefinite life.
  The
        Company accounts for income taxes in accordance with Statement of Financial
        Accounting Standards No. 109, (“SFAS 109”) “Accounting for Income Taxes.” Under
        SFAS No. 109, deferred tax assets and liabilities are determined based on
        differences between the financial reporting and tax basis of assets and
        liabilities and are measured using the enacted tax rates and laws that will
        be
        in effect when the differences are expected to reverse. A valuation allowance
        is
        established when necessary to reduce deferred tax assets to the amount expected
        to be realized. In determining the need for a valuation allowance, management
        reviews both positive and negative evidence pursuant to the requirements
        of SFAS
        No. 109, including current and historical results of operations, the annual
        limitation on utilization of net operating loss carry forwards pursuant to
        Internal Revenue Code section 382, future income projections and the overall
        prospects of the Company’s business. Based upon management’s assessment of all
        available evidence, including the Company’s completed transition into a
        licensing business, estimates of future profitability based on projected
        royalty
        revenues from its licensees, and the overall prospects of the Company’s
        business, management concluded in the Current Year that it is more likely
        than
        not that the net deferred income tax asset recorded as of December 31, 2005
        will
        be realized.
 
 
 18
 Other
        significant accounting policies are summarized in Note 1 of the Notes to
        Consolidated Financial Statements.
 
 **Summary
        of Operating Results:**
 
 The
        Company had net income of $15.9 million for the Current Year as compared
        to a
        net income of $241,000 for the 11-month Prior Year. In the Current Year,
        there
        were $1.5 million of special charges and $4.0 million of net interest expense,
        as compared to $295,000 of special charges and $2.5 million of net interest
        expense in the 11-month Prior Year
 
 The
        Company’s operating income was $14.8 million in the Current Year, compared to an
        operating income of $2.7 million in the 11-month Prior Year.
 
 **Current
        Year compared to 11-month Prior Year**
 
 *Revenues.* Consolidated net revenue decreased in the Current Year by $38.8 million to
        $30.2
        million, from $69.0 million in the 11-Month Prior Year due to the Company’s
        change in its business model from one based upon sales generated from its
        former
        footwear and jeanswear operations to one based upon royalties generated by
        licensing and brand management activity.
 
 The
        licensing business drove an increase of $19.4 million in l icensing
        revenue to $28.0 million for the Current Year, up from $8.6 million in the
        11-month Prior Year. The increase in licensing income resulted from a
        combination of the acquisition of the Joe Boxer brand in 2005, which
        g enerated
        $9.0 million in revenue, the acquisition of Rampage in September 2005, which
        generated $2.7 million in revenue, and the launch of the Company's Candie's
        brand in Kohl's, which generated $4.1 million in revenue.
 
 Due
        to a
        change in revenue recognition resulting from its change of business practice
        beginning January 2005, Bright Star recorded only the net commission earned
        on
        sales in the Current Year and will continue to do so in the future. As a
        result,
        there was $2.2 million in commission revenue and no sales recorded in the
        Current Year for Bright Star, as compared to $2.0 million in commission revenue
        and $19.9 million in sales (excluding commission revenue) in the 11-month
        Prior
        Year. Further, as a result of the Company licensing its jeans wear business
        in
        August 2004, there were no reportable jeanswear sales in the Current Year
        as
        compared to $38.5 million in the 11-month Prior Year.
  *Gross
        Profit.* Consolidated gross profit was $30.2 million in the Current Year as compared
        to
        $20.8 million in the 11-month Prior Year, an increase of $9.4 million. In
        the
        Current Year, there was no reportable gross profit from Unzipped’s jeans wear
        operations, as compared to $10.2 million of gross profit in the 11-month
        Prior
        Year. Included in the gross profit for Unzipped in the 11-month Prior Year
        was a
        $7.6 million adjustment for the Shortfall Payment of $6.9 million, with $685,000
        of such adjustment recorded as a reserve pending the outcome of the Company’s
        litigation with the former manager, supplier and distributor of Unzipped.
        See
        Notes 2 and 11 of Notes to Consolidated Financial Statements. The gross profit
        for Unzipped in the 11-month Prior Year, before any adjustment for Shortfall
        payments, reflected the liquidation of the remaining Bongo inventory in
        connection with the transition of the jeans wear business to a licensing
        arrangement. Bright Star’s gross
        profit increased to $2.2 million in the Current Year from $2.0 million in
        the
        11-month Prior Year.
  *Operating
        Expenses.* Consolidated selling, general and administrative ( ***“SG&A”*** )
        expenses totaled $13.9 million in the Current Year compared to $17.7 million
        in
        the 11-month Prior Year, a decrease of $3.8 million. The Company's SG&A
        expenses related to licensing increased by $5.4 million to $13.8 million
        in the
        Current Year compared to $8.4 million in the 11-month Prior Year. This increase
        resulted primarily from the Company's recent acquisitions of the Joe Boxer,
        Rampage and Badgley Mischka brands. SG&A expenses related to Bright Star
        were $965,000 in the Current Year compared to $900,000 in the 11-month Prior
        Year. Included in the Current Year’s SG&A was $454,000 amortization of
        deferred financing cost, compared to $205,000 in the 11-month Prior Year.
        Also
        included in the Current Year’s SG&A expense was $37,500 for Unzipped’s net
        loss compared to $9.3 million in SG&A expense in the 11-month Prior Year,
        which were related to the Company’s transition of the jeanswear business into a
        licensing business. See Notes 2 and 11 of Notes to Consolidated Financial
        Statements.
 
 For
        the
        Current Year and the 11-month Prior Year, the Company’s special charges included
        $1.5 million and $533,000, respectively, incurred by the Company relating
        to
        litigation involving Unzipped. The 11-month Prior Year’s special charges were
        reduced by special income resulting from the Company’s termination of certain
        long term debt payments totaling $238,000.
 
 *Operating
        Income (Loss)* .
        As a
        result of the foregoing, the Company’s net operating income was $14.8 million in
        the Current Year, or 49% of total revenue, as compared to $2.7 million in
        the
        11-month Prior Year, or 4% of total revenue.
 
 19
 *Net
        Interest
        Expense* .
        Net
        Interest expense increased by approximately $1.5 million in the Current Year
        to
        $4.0 million, compared to $2.5 million in the 11-month Prior Year. This increase
        was due primarily to an increase in the Company’s debt through financing
        arrangements in connection with the acquisitions of Joe Boxer and Rampage.
        See
        Notes 4 and 5 of Consolidated Financial Statements. The interest expense
        related
        to the asset backed notes issued by IP Holdings, was $4.1 million in the
        Current
        Year compared to $1.4 million in the 11-month Prior Year. In addition, $151,000
        in interest expense was included in the Current Year from the Sweet Note
        as
        compared to $644,000 in the 11-month Prior Year. This decrease was due to
        a
        lower average outstanding balance on the Sweet Note, resulting from the offset
        of Shortfall Payments. See Notes 2 and 11 of Notes to the Consolidated Financial
        Statements. Also included in interest expense in the 11-month Prior Year
        was
        $434,000 from Unzipped's jeanswear operations, with no comparable amount
        in the
        Current Year. A total of $293,000 in interest income for the Current Year
        partially offset the increase in interest expense, compared to $24,000 in
        the
        11-month Prior Year.
  *Gain
        on Sales
        of Securities* .
        In the
        Current Year, the gross realized gain on sales of securities available for
        sale
        totaled $75,000. There was no such gain in the 11-month Prior Year.
 
 *Provision
        (Benefit) for Income Taxes.* In the
        Current Year, a net non-cash tax benefit of $5.0 million was recognized by
        reducing the deferred tax assets valuation allowance based on the Company’s
        projection of future taxable income and the expectation that realizing this
        portion of the related deferred tax assets is more likely than not offset
        by a
        reduction in the deferred tax asset established in the purchase accounting
        for
        the Joe Boxer acquisition. Management
        prepared projections that indicate that a portion of the Company’s net operating
        loss carryforwards ( ***“NOL’s”*** )
        would
        be utilized prior to their expiration. However, the Company does not believe
        that the future realization of all of these future tax benefits indicated
        by its
        projections is sufficiently assured to allow their full recognition in the
        consolidated financial statements. In particular, projections of operating
        results over an extended period are inherently imprecise . There
        was no tax expense on income reported for the 11-month Prior Year due to
        a
        reduction in the deferred tax valuation allowance that offset the income
        tax
        provision. At December 31, 2005, the Company had a net deferred tax asset
        of
        approximately $11.5 million compared to $3.6 million at December 31, 2004,
        which
        management believes will be recoverable from anticipated future profits.
        At
        December 31, 2005, the net deferred tax asset, totaling $11.5 million,
        represents the amount that more likely than not of recoverability based on
        information currently available. See Note 15 of Notes to Consolidated Financial
        Statements.
 
 At
        December 31, 2005 the Company had available Federal NOL’s of approximately $66.5
        million for income tax purposes, which expire in the years 2006 through 2025.
        Because of "ownership changes" (as defined in Section 382 of the Internal
        Revenue Code) occurring in previous fiscal years, the utilization of
        approximately $4.4 million of the NOL’s is limited to $602,000 per year and
        expires in 2006 through 2007. The remaining $62.1 million is not subject
        to such
        limitation and expires in the years 2009 through 2025. As of December 31,
        2005
        the Company had available state and city NOL’s totaling between $59.4 million
        and $99.4 million, substantially all of which expire in the years 2020 through
        2025. Included in the Company’s NOL’s is $7.0 million as of December 31, 2005
        from the exercises of stock options. The benefit of the utilization of this
        NOL
        will be recorded as a credit to additional paid in capital if and when the
        related deferred tax asset is recorded.
  *Net
        income* (loss).
        The Company recorded net income of $15.9 million in the Current Year, compared
        to net income of $241,000 in the 11-month Prior Year, as a result of the
        factors
        discussed above.
 
 **11-month
        Prior Year compared to Fiscal 2004**
 
 ** *Revenues.* During
        the 11-month Prior Year, consolidated net sales decreased from Fiscal 2004
        by
        $64.7 million to $58.4 million. There were no wholesale and retail women’s
        footwear sales in the 11-month Prior Year because the Company licensed its
        footwear operations in May 2003, compared to $38.9 million in Fiscal 2004.
        Unzipped’s net sales decreased by $26.2 million from $64.7 million in Fiscal
        2004 to $38.5 million in the 11-month Prior Year. This decrease resulted
        primarily from transitioning of the jeans wear business from an operating
        business to a licensing arrangement The Company entered into the Bongo Jeanswear
        License effective August 1, 2004, which TKO subsequently assigned to its
        affiliate, BAI. Bright
        Star’s revenues increased $771,000 to $21.9 million in the 11-month Prior Year
        as compared to $21.1 million in Fiscal 2004.
  Licensing
        income increased $2.0 million to $8.6 million for the 11-month Prior Year
        from
        $6.6 million in Fiscal 2004. The
        increase was due primarily to revenue generated by new licenses as the Company
        transitioned from an operations business to a licensing business.
 
 *Gross
        Profit.* Consolidated gross profit decreased by $8.0 million, from $28.8 million in
        Fiscal 2004, to $20.8 million in the 11-month Prior Year. There was no gross
        profit from wholesale and retail women’s footwear in the 11-month Prior Year as
        compared to $8.4 million Fiscal 2004. Unzipped’s gross profit in the 11-month
        Prior Year was $10.2 million as compared to $11.3 million in Fiscal 2004.
        Unzipped's gross profit in the 11-month Prior Year included a $7.6 million
        adjustment for the Shortfall Payment of $6.9 million with $685,000 recorded
        as a
        reserve pending the outcome of its litigation with the Company. See Notes
        2 and
        8 of Notes to Consolidated Financial Statements. Unzipped’s Fiscal 2004’s gross
        profit included an adjustment for the Shortfall Payment of $1.6 million.
        Unzipped’s gross profit in the 11-month Prior Year before the adjustment for the
        Shortfall Payment reflected the liquidation of the remaining Bongo inventory
        in
        connection with the transition of the jeans wear business to a licensing
        arrangement. Gross
        profit from Bright Star men’s private label footwear sales decreased to $2.0
        million in the 11-month Prior Year from $2.1 million in Fiscal 2004. As a
        percent of net sales, Bright Star’s gross profit decreased from 9.7% in Fiscal
        2004 to 9.1% in the 11-month Prior Year, resulting from its continuing
        concentration of sales to Wal-Mart, which are at comparatively lower
        margins.
  20
 *Operating
        Expenses.* During
        the 11-month Prior Year, consolidated selling, general and administrative
        expenses decreased by $14.6 million to $17.7 million, down from $32.3 million
        in
        Fiscal 2004. The Company's selling, general and administrative expense related
        to activities other than Unzipped decreased by $14.7 million to $8.4 million
        in
        the 11-month Prior Year as compared to $23.1 million in Fiscal 2004. The
        decrease resulted from the Company's closing its wholesale and retail women's
        footwear operations and transitioning to a licensing business beginning in
        the
        third quarter of Fiscal 2004. Selling, general and administrative expenses
        for
        Bright Star were $900,000 in the 11-month Prior Year, a $100,000 decrease
        from
        $1.0 million in Fiscal 2004. Unzipped's selling, general and administrative
        expenses increased $84,000 in the 11-month Prior Year to $9.3 million as
        compared to $9.2 million in Fiscal 2004. This increase was due primarily
        to
        additional costs associated with the transition of the jeans wear business
        to a
        license as well as costs incurred relating to Unzipped litigation. See Note
        2 of
        Notes to Consolidated Financial Statements.
 
 For
        the
        11-month Prior Year, the Company’s special charges included $434,000 of legal
        fees incurred by the Company relating to litigation involving Unzipped and
        $99,000 of legal professional fees related to transferring Unzipped wholesales
        business into a licensing business in the fiscal quarter ended April 30,
        2004,
        partially offset by $238,000 of special income resulting from the Company’s
        termination of certain long term debt payments.
 
 For
        Fiscal 2004, the Company’s special charges included $3.1 million for disposal of
        certain assets and retail store lease termination costs, $743,000 related
        to
        severance pay for certain terminated employees, and $165,000 to terminate
        the
        Company’s factoring contract, all resulting from the closing of its wholesale
        women’s footwear operations and retail stores. Additionally, there were $583,000
        of legal costs related to legal matters in Fiscal 2004 and $82,500 paid to
        Sweet
        related to certain contractual obligations resulting from the Unzipped purchase.
  *Operating
        Income (Loss)* .
        The
        Company’s net operating income was $2.7 million in the 11-month Prior Year as
        compared to a net operating loss of $8.2 million for Fiscal 2004, as a result
        of
        the foregoing.
 
 *Net
        Interest
        Expense* .
        Net
        Interest expense decreased by approximately $600,000 in the 11-month Prior
        Year
        to $2.5 million, compared to $3.1 million in Fiscal 2004. Included in interest
        expense in the 11-month Prior Year was $434,000 from Unzipped’s revolving credit
        facilities, as compared to $651,000 in Fiscal 2004, a decrease of $217,000.
        The
        Unzipped interest expense decrease resulted from lower average outstanding
        borrowing as Unzipped transitioned out of the operating jeanswear business
        to a
        license and, to a lesser extent, from lower average interest rates then were
        available in Fiscal 2004. There was no interest expense under the revolving
        credit facility in the 11-month Prior Year because there were no operations
        relating to footwear, compared to $239,000 in Fiscal 2004. Also included
        in
        interest expense in the 11-month Prior Year was $644,000 relating to the
        Sweet
        Note issued in connection with the Unzipped acquisition, as compared to $761,000
        in Fiscal 2004. Interest expense in the 11-month Prior Year associated with
        the
        asset backed notes issued by IP Holdings, a subsidiary of the Company, was
        $1.4
        million as compared to $1.5 million in Fiscal 2004.
 
 *Income
        Tax Expense.* In the
        11-month Prior Year n o
        tax
        expense was recorded. In
        Fiscal
        2004, the Company recorded $58,000 of income tax provision, consisting of
        statutory minimum taxes. At December 31, 2004, the Company has a net deferred
        tax asset of approximately $3.6 million that management believes will be
        recoverable from profits anticipated to be generated over the next few years.
        The valuation allowance of $25.1 million represents amounts that cannot be
        assured of recoverability. See Note 15 of Notes to Consolidated Financial
        Statements.
  *Net
        income* (loss).
        As a result of the foregoing, the Company recorded net income of $241,000
        in the
        11-month Prior Year, compared to a net loss of $11.3 million for Fiscal
        2004.
 
 **Liquidity
        and Capital Resources**
 
 *Working
        Capital* .
        There
        was a working capital (current assets less current liabilities) deficit of
        $4.4
        million in the Current Year compared to a $6.0 million deficit at December
        31,
        2004. The improvement resulted primarily from working capital generated from
        the
        Company’s licensing business. Further, the Company has $13.7 million in current
        maturities of long-term notes in the upcoming year, compared to $2.4 million
        at
        December 31, 2004. The Company has limited ability to secure additional
        indebtedness with our existing assets due to certain provisions of the existing
        secured notes. Included in the current liabilities as of December 31, 2005
        and
        2004 were $4.9 million in payables that are subject to litigation. See “Item 3 -
        Legal Proceedings”.
 
 The
        Company continues to rely primarily upon cash generated from licensing and
        commissions earned. Net cash provided from these operating activities totaled
        $12.1 million in the Current Year, compared to net cash used of $279,000
        in the
        11-month Prior Year and $2.2 million cash provided in Fiscal 2004. Cash
        generated from licensing were primarily from licensees in connection with
        acquisitions of Joe Boxer and Rampage as well as the licensing arrangement
        with
        Kohl’s. The Company believes that such cash from operations will be sufficient
        to satisfy its anticipated working capital requirements for the foreseeable
        future.
 
 21
 *Investing
        Activities* .
        The
        Company’s cash used in investing activities in the Current Year totaled $68.5
        million compared to $421,000 used for the 11-month Prior Year and $248,000
        for
        Fiscal 2004. Capital expenditures were $731,000 for the Current Year compared
        to
        $30,000 for the 11-month Prior Year and $248,000 used in Fiscal 2004. The
        Current Year’s capital expenditures were primarily in connection with the
        acquisition of office equipment and the performance of leasehold improvements
        relating to the Company’s relocation of its headquarters and the construction of
        a new showroom in New York City. In the fiscal quarter ended September 30,
        2005,
        the Company invested $40.8 million and $26.2 million of cash provided from
        bond
        financing arrangements in connection with the acquisition of Joe Boxer and
        Rampage, respectively. In the 11-month Prior Year, $372,000 of cash was used
        for
        the acquisition of Badgley Mischka.
  *Financing
        Activities.* The
        Company’s cash provided by financing activities in the Current Year totaled
        $63.7 million compared to $1.3 million used in financing activities during
        the
        11-month Prior Year and $1.5 million in Fiscal 2004. Of the $63.7 million
        in net
        cash provided by financing activities, approximately $85.5 million was provided
        from the net proceeds of the issuance of long-term asset -backed notes, $3.9
        million from factored accounts receivable and approximately $1.6 million
        in
        proceeds from the exercise of stock options contributed to cash provided
        by
        financing activities. This was offset by $17.1 million used for principal
        payments related to the asset-backed notes, approximately $2.5 million used
        to
        pay-down the loan from a related party, $2.1 million placed in a non-current
        reserve account, $3.6 million placed in a current reserve account (both reserve
        accounts are required by the lender in connection to the asset-backed notes),
        and $2.0 million used to pay the costs associated with the issuance of the
        long
        term debt (see Bond Financing below).
 
 *Long-Term
        Debt* .
        The
        Company’s long-term debt, including current maturities, totaled $99.1 million as
        of December 31, 2005, as compared to $22.5 million as of December 31, 2004.
        The
        long-term debt is comprised of an asset-backed securitization (see Bond
        Financing) which totaled $88.8 million as of December 31, 2005 and $19.5
        million
        as at December 31 2004, a loan due to a licensee (see the Kmart Note below)
        totaling $7.4 million as of December 31, 2005 and $0 as of December 31, 2004
        and
        a note in the original amount of $11 million to the previous manager of
        Unzipped’s jeanswear business (see Sweet Note below) which has been reduced to
        $2.9 million as of December 31, 2005 and was reduced to $3.0 million as of
        December 31, 2004.
 
 *Bond
        Financing.* In
        August
        2002, IP Holdings issued in a private placement, the first $20 million of
        asset-backed notes secured by intellectual property assets (trade names,
        trademarks, license agreements and payments and proceeds with respect thereto)
        of IP Holdings, which notes have been increased since that time to total
        $103.0
        million of which $12.0 million was redeemed without penalty and $2.2 million
        of
        principal payments have been made, resulting in a total of $88.8 million
        as of
        December 31, 2005. (referred to collectively as the ***“IPH
        Asset-backed Notes”*** ).
 
 The
        notes
        issued in August 2002 had a 7-year term with a fixed interest rate of 7.93%
        with
        quarterly principal and interest payments of approximately $859,000. After
        funding a liquidity reserve account in the amount of $2.9 million, the net
        proceeds of $16.2 million, were used by the Company to reduce amounts due
        by the
        Company under its then-existing revolving credit facilities. In April 2004,
        IP
        Holdings issued an additional $3.6 million in subordinated asset-backed notes
        secured by its intellectual property assets. The additional borrowing had
        a
        maturity date of August 2009, with a floating interest rate of LIBOR + 4.45%
        and
        quarterly principal and interest payments and $500,000 of interest prepaid
        at
        closing. The net proceeds of $2.9 million were used by the Company for general
        working capital purposes. As of July 22, 2005, the total principal on these
        notes was approximately $17.5 million, which were refinanced in connection
        with
        an acquisition that was consummated in the Current Year. See Notes 4 and
        5 of
        Notes to Consolidated Financial Statements.
 
 On
        July
        22, 2005, the Company acquired the Joe Boxer brand from Joe Boxer Company,
        LLC
        and its affiliates, and on September 16, 2005, the Company acquired the Rampage
        brand from Rampage Licensing, LLC. See Notes 4 and 5 of Notes to Consolidated
        Financial Statements. The financing for the acquisitions was accomplished
        through two private placements by IP Holdings of asset-backed notes for a
        combined total of $103 million secured by the intellectual property assets
        (including the Joe Boxer assets and the Rampage assets) owned by IP Holdings
        The
        proceeds of the notes were used as follows: approximately $17.5 million was
        used
        to refinance previously issued notes, $40.0 million was paid to the sellers
        of
        Joe Boxer, approximately $25.8 million was paid to the sellers of Rampage,
        $1.7
        million was placed in a reserve account as required by the lender, approximately
        $1.8 million was used to pay costs associated with the debt issuance,
        approximately $200,000 was paid to legal professionals associated with the
        acquisitions, approximately $4.0 million was available to the Company for
        working capital purposes, and $12 million was deposited in an escrow account
        for
        the benefit of the holder of the note, to be used by IP Holdings solely for
        the
        purchase of certain intellectual property assets prior to November 15, 2005.
        IP
        Holdings redeemed $12 million of the notes as such purchase did not occur
        prior
        to November 15, 2005. Costs associated with the debt issuances of approximately
        $1.8 million have been deferred and are being amortized over the seven- year
        life of the notes.
 
 Interest
        rates and terms on the notes are as follows: $63 million principal amount
        of the
        note bears interest at a fixed interest rate of 8.45% with a seven year term,
        $28 million principal amount of the note bears interest at a fixed rate of
        8.10%
        with a seven year term. Prior to November 2005, $12 million principal amount
        of
        the note bore interest at a floating interest rate of LIBOR + 0.7% for so
        long
        as there is $12 million on deposit in the escrow account. IP Holdings redeemed
        the $12 million of the note in November, 2005. Neither the Company nor any
        of
        its subsidiaries (other than IP Holdings) is obligated to make any payment
        with
        respect to IP Holding’s 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).
 
 22
 *The
        Kmart Note* .
        In
        connection with the acquisition of Joe Boxer in July 2005, the Company assumed
        a
        promissory note, dated August 21, 2001 in the amount of $10.8 million that
        originated with the execution of the Kmart License by the former owners of
        Joe
        Boxer.   The note provides for interest at 5.12% and is payable in
        three (3) equal annual installments, on a self-liquidating basis, on the
        last
        day of each year commencing on December 31, 2005 and continuing through December
        31, 2007.  Payments due under the note may be off-set against any royalties
        owed under the Kmart License.  As of December 31, 2005, the outstanding
        balance of the note was $7.4 million. The note may be pre-paid without penalty.
  *Sweet
        Note* . 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. Prior to August 5, 2004,
        Unzipped was managed by Sweet pursuant to the Sweet Management Agreement,
        pursuant to which Sweet was obligated to manage the operations of Unzipped
        in
        return for, commencing in Fiscal 2004, a management fee based upon certain
        specified percentages of net income that Unzipped would achieve during the
        three-year term. In addition, Sweet guaranteed that the net income, as defined,
        of Unzipped commencing in Fiscal 2004 would be no less than $1.7 million
        for
        each year during the term. In the event that the Guarantee was not met, under
        the Sweet Management Agreement, Sweet was obligated to pay to the Company
        the
        difference between the actual net income of Unzipped, as defined, and the
        Guarantee. The Shortfall Payment could be offset against the amounts due
        under
        the Sweet Note at the option of either Sweet or the Company. As of December
        31,
        2005, as a result of the offset of the Shortfall Payment, the balance of
        the
        Sweet Note was reduced to $2.9 million and was reflected in “Long-term debt”.
        This bears interest at 8%. As of December 31, 2004 the balance was $3.0
        million.
 
 *Revolving
        Credit Facilities.* On
        February 25, 2003, Unzipped entered into a credit facility with GECCS
        ( ***“Unzipped
        Credit Facility”*** ).
        Borrowings under the Unzipped Credit Facility were limited by advance rates
        against eligible accounts receivable and inventory balances, as defined.
        Under
        the Unzipped Credit Facility, Unzipped could also arrange for letters of
        credit
        in an amount up to $5 million. The borrowings bore interest at a rate of
        2.25%
        per annum in excess of the 30 day Commercial Paper rate or 3%, whichever
        is
        greater. The Unzipped Credit Facility was terminated on October 31,
        2004.
 
 *Other.* The
        Company believes that it will be able to satisfy its ongoing cash requirements
        for the foreseeable future, primarily with cash flow from operations. However,
        if the Company’s plans change or its assumptions prove to be incorrect, it could
        be required to obtain additional capital that may not be available to it
        on
        acceptable terms, if at all. In addition, as part of its business growth
        strategy, the Company intends, in addition to growing through the organic
        development of its brands and expanding internationally, to grow through
        acquisitions of additional brands. The Company anticipates that it may fund
        any
        such acquisitions through the issuance of equity or debt securities.
 
 The
        following is a summary of contractual cash obligations for the periods indicated
        that existed as of December 31, 2005, and is based on information appearing
        in
        the Notes to Consolidated Financial Statements (amounts in
        thousands):
 
 Contractual
                  Obligations
              Total
              2006
              2007
                  -2008
              2009-2010
              After
                  2010Kmart
                  Note
              $7,377
              $3,596
              $3,781
              $
                  -
              $
                  -Sweet
                  Note
              2,936
              -
              -
              -
              2,936Asset-backed
                  Note
              88,806
              10,109
              21,409
              24,945
              32,343Operating
                  leases
              701
              411
              290
              -
              -Employment
                  contracts
              4,275
              2,000
              2,275
              -
              -Total
                  Contractual Cash obligations
              $104,095
              $16,116
              $27,755
              $24,945
              $35,279
 
 
 *Matters
        Pertaining to Unzipped* .
        - For
        the Current Year, Unzipped had a net loss (as defined, for the purpose of
        determining if the Guarantee had been met) of $296,000, as compared to a
        net
        loss (as defined, for the purpose of determining if the Guarantee had been
        met)
        of $6.4 million in the 11-month Prior Year. Consequently for the Current
        Year
        there was a Shortfall Payment of $438,000, as compared to an adjusted Shortfall
        Payment of $7.6 million, net of a $685,000 reserve , in the 11-month Prior
        Year.
        The adjusted Shortfall Payments had been recorded in the consolidated income
        statements as a reduction of Unzipped’s cost of sales (since the majority of
        Unzipped’s operations were with entities under common ownership with Sweet,
        including all of the purchases of inventory) and on the balance sheet as
        a
        reduction of the Sweet Note based upon the right to offset in the Sweet
        Management Agreement. After adjusting for the Shortfall Payments, Unzipped
        reported a net loss of $38,000 for the Current Year and net income of $461,000
        in the 11-month Prior Year. Due to the immaterial nature of the related amounts,
        the net loss of $37,500 from Unzipped has been included in the selling, general
        and administrative expense in the Company’s Consolidated Statements of
        Operations for the Current Year.
 
 
 23
 **Seasonality**
 
 The
        majority of the products manufactured and sold under the Company’s brands and
        licenses are for apparel, accessories and footwear, which sales vary as a
        result
        of holidays, weather, and the timing of product shipments. Accordingly, a
        portion of the Company 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.
 
 **Effects
        of Inflation**
 
 The
        Company does not believe that the relatively moderate rates of inflation
        experienced over the past few years in the United States, where it primarily
        competes, have had a significant effect on revenues or
        profitability.
 
 
 **New
        Accounting Standards**
 
 In
        May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
        Corrections, a replacement of Accounting Principles Board ("APB") Opinion
        No. 20 and FASB Statement No. 3." SFAS No. 154 requires
        retrospective application to prior periods' financial statements of a voluntary
        change in accounting principle unless it is impracticable. APB Opinion
        No. 20, "Accounting Changes," previously required that most voluntary
        changes in accounting principle be recognized by including in net income
        of the
        period of the change the cumulative effect of changing to the new accounting
        principle. SFAS No. 154 became effective for our Company on January 1,
        2006. The Company believes that the adoption of SFAS No. 154 will not have
        a material impact on its consolidated financial statements.
 
 In
        November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” which clarifies
        the accounting for abnormal amounts of idle facility expense, freight, handling
        costs, and wasted material (spoilage) by requiring these items to be recognized
        as current-period charges. SFAS No. 151 is effective for inventory costs
        incurred during fiscal years beginning after June 15, 2005, with earlier
        application permitted. The adoption of SFAS No. 151 will have no significant
        impact on our future results of operations or our financial position.
 
 In
        December 2004, the FASB issued SFAS No. 153, “Exchanges of Monetary Assets,”
which addresses the measurement of exchanges of nonmonetary assets and
        eliminates the exception from fair value measurement for non monetary exchanges
        of similar productive assets and replaces it with an exception for exchanges
        that do not have commercial substance. SFAS No. 153 is effective for nonmonetary
        asset exchanges occurring in fiscal periods beginning after June 15, 2005,
        with
        earlier application permitted. The adoption of SFAS No. 153 is expected to
        have
        no significant impact on our future results of operations or our financial
        position.
 
 In
        December 2004, the FASB issued FAS No. 123(R), "Share-Based Payment," an
        amendment of FASB Statements 123 and 95. FAS No, 123(R) replaced FAS No.
        123,
        "Accounting for Stock-Based Compensation," and supersedes APB Opinion No.
        25,
        "Accounting for Stock Issued to Employees." This statement required companies
        to
        recognize the fair value of stock options and other stock-based compensation
        to
        employees beginning with fiscal periods beginning after June 15, 2005. In
        April
        2005, the Securities and Exchange Commission approved a new rule for public
        companies which delays the adoption of this standard for an additional nine
        months. This means that the Company is required to implement FAS No, 123(R)
        in
        the quarter beginning January 1, 2006. The Company currently measures
        stock-based compensation in accordance with APB Opinion No. 25, as discussed
        above. The impact on the Company's financial condition and results of operations
        of adopting FAS No. 123(R) will depend on the number and terms of stock options
        granted in future years under the modified prospective method, the amount
        of
        which can not currently be estimated by management.
 
 
 **Item
        7A. Quantitative and Qualitative Disclosure About Market
        Risk**
 
 The
        Company limits exposure to foreign currency fluctuations by requiring all
        revenue to be paid in in United States dollars. The Company’s primary interest
        rate exposure related to its variable rate debt. As of December 31, 2005,
        the
        Company has no debts with variable rates.
    24
 
 **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 in Part IV, Item 15 of this report.
  **Item
        9.**  **Changes
        in and Disagreements with Accountants on Accounting and Financial
        Disclosure**
 Not
        applicable.
 
 **Item
        9A. Controls and Procedures**
 
 (a)
        Evaluation of disclosure controls and procedures.
 
 The
        Company, under the supervision and with the participation of its management,
        including its principal executive officer and principal financial officer,
        evaluated the effectiveness of the design and operation of its disclosure
        controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of
        the
        Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the
        period covered by this report. Based on this evaluation, the principal executive
        officer and principal financial officer concluded that the Company’s
        disclosure controls and procedures (as defined in Exchange Act Rule 13a-15d
        and 15d-15(e)) were effective at the reasonable assurance level at December
        31,
        2005.
 
 (b)
        Changes in internal control and financial reporting.
 
 The
        principal executive officer and principal financial officer also conducted
        an
        evaluation of internal control over financial reporting, as defined in Exchange
        Act Rule 13a-15(f) and 15d-15(f) (“Internal Control”), to determine whether
        any changes in Internal Control occurred during the quarter ended December
        31,
        2005 that have materially affected or which are reasonably likely to materially
        affect Internal Control. Based on that evaluation, there has been no such
        change
        during the quarter ended December 31, 2005.
 
 (c)
        Management’s report on internal control over financial reporting.
   25
 **MANAGEMENT'S
          REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**
   March
          20,
          2006
   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, 2005. 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, independent auditors of our financial statements, has
          reported
          on management's assertion with respect to the effectiveness of our internal
          control over financial reporting as of December 31, 2005.
  
 
  26
   REPORT
          OF
          INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board
          of
          Directors and Stockholders
 Iconix
          Brand Group, Inc.
 New
          York,
          New York
 
 We
          have
          audited management's assessment, included in the accompanying Management's
          Report on Internal Control Over Financial Reporting, that Iconix Brand
          Group,
          Inc. maintained effective internal control over financial reporting as
          of
          December 31, 2005, based on the criteria established in Internal Control
          -
          Integrated Framework issued by the Committee of Sponsoring Organizations
          of the
          Treadway Commission (COSO). The Company's management is responsible for
          maintaining effective internal control over financial reporting and for
          its
          assessment of the effectiveness of internal control over financial reporting.
          Our responsibility is to express an opinion on management's assessment
          and an
          opinion on the effectiveness of the Company's internal control over financial
          reporting based on our audit.
 
 We
          conducted our audit in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether effective
          internal control over financial reporting was maintained in all material
          respects. Our audit included obtaining an understanding of internal control
          over
          financial reporting, evaluating management's assessment, testing and evaluating
          the design and operating effectiveness of internal control, and performing
          such
          other procedures as we considered necessary in the circumstances. We believe
          that our audit provides a reasonable basis for our opinion.
 
 A
          company's internal control over financial reporting is a process designed
          to
          provide reasonable assurance regarding the reliability of financial reporting
          and the preparation of financial statements for external purposes in accordance
          with generally accepted accounting principles. A company's internal control
          over
          financial reporting includes those policies and procedures that (1) pertain
          to
          the maintenance of records that, in reasonable detail, accurately and fairly
          reflect the transactions and dispositions of the assets of the company;
          (2)
          provide reasonable assurance that transactions are recorded as necessary
          to
          permit preparation of financial statements in accordance with generally
          accepted
          accounting principles, and that receipts and expenditures of the company
          are
          being made only in accordance with authorizations of management and directors
          of
          the company; and (3) provide reasonable assurance regarding prevention
          or timely
          detection of unauthorized acquisition, use, or disposition of the company's
          assets that could have a material effect on the financial
          statements.
 
 Because
          of its inherent limitations, internal control over financial reporting
          may not
          prevent or detect misstatements. Also, projections of any evaluation of
          effectiveness to future periods are subject to the risk that controls may
          become
          inadequate because of changes in conditions, or that the degree of compliance
          with the policies or procedures may deteriorate.
 
 In
          our
          opinion, management's assessment that Iconix Brand Group, Inc. maintained
          effective internal control over financial reporting as of December 31,
          2005, is
          fairly stated, in all material respects, based on the criteria established
          in
          Internal Control - Integrated Framework issued by the Committee of Sponsoring
          Organizations of the Treadway Commission (COSO). Also in our opinion, the
          Company maintained, in all material respects, effective internal control
          over
          financial reporting as of December 31, 2005, based on the criteria established
          in Internal Control - Integrated Framework issued by the Committee of Sponsoring
          Organizations of the Treadway Commission (COSO).
 
 We
          have
          also audited, in accordance with the standards of the Public Company Accounting
          Oversight Board (United States), the consolidated balance sheets of Iconix
          Brand
          Group, Inc. as of December 31, 2005 and 2004 and the related consolidated
          statements of operations, stockholders' equity, and cash flows for the
          year
          ended December 31, 2005, the 11-month period ended December 31, 2004 and
          the
          year ended January 31, 2004 and our report dated March 20, 2006 expressed
          an
          unqualified opinion.
 
 
 /s/
          BDO
          Seidman, LLP
 
 New
          York,
          New York
 March
          20,
          2006
 27
 **Item
        9B. Other Information**
 
 See
        Part
        III - “Item 10. Directors and Executive Officers of the Registrant - Directors
        Compensation” for certain changes in the Company’s compensation arrangements
        with its directors effective on March 16, 2006.
 
    
 **PART
        III**
  **Item
        10. Directors and Executive Officers of the Registrant**
  The
        Company’s executive officers and directors and their respective ages and
        positions are as follows:
  **Name**
              **Age**
              **Position(s)**Neil
                  Cole
              49
              Chairman
                  of the Board, President and Chief Executive OfficerWilliam
                  Sweedler
              39
              Executive
                  Vice President and DirectorDavid
                  Conn
              38
              Executive
                  Vice PresidentWarren
                  Clamen
              41
              Chief
                  Financial OfficerDeborah
                  Sorell Stehr
              43
              Senior
                  Vice President, Secretary and General CounselAndrew
                  Tarshis
              40
              Senior
                  Vice President, Business Affairs and Associate CounselBarry
                  Emanuel
              64
              DirectorSteven
                  Mendelow
              63
              DirectorMichael
                  Caruso
              57
              DirectorMichael
                  Groveman
              44
              DirectorDrew
                  Cohen
              37
              Director
  ***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., from which the Company acquired the Candie’s trademark in 1993,
        from its inception in April 1986 until it was merged with and into the Company
        in August 1998. Mr. Cole received a B.S in Politics from the University of
        Florida in 1978 and his J.D. from Hofstra law school in 1982. 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.
  ***William
        Sweedler*** has
        served as the Company’s Executive Vice President and a member of its Board of
        Directors, as well as President of its Joe Boxer division, since joining
        the
        Company in July 2005 in connection with its acquisition of the Joe Boxer
        brand.
        From March 2001 until joining the Company in July 2005, Mr. Sweedler served
        as
        Chief Executive Officer of Windsong Allegiance Group, LLC, and prior thereto,
        from its inception in 1995 until March 2001, as President of Windsong, Inc.,
        both of which were apparel import companies that he co-founded. Mr. Sweedler
        received a B.S. in finance and investments from Babson College in 1989.
  ***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 the
        online
        advertising, sales promotion and customer retention on the internet. During
        his
        tenure there, Columbia House 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 Fall 1995 to June 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 a Bachelor of Arts Degree in 1990 from Boston
        University.
  ***Warren
        Clamen*** has
        served as the Company’s Chief Financial Officer since joining the Company in
        March 2005. From June 2001 until March 2005, Mr. Clamen served as Vice President
        of Finance for Columbia House, and from December 1998 to June 2001, he was
        Vice
        President of Finance of Marvel Entertainment, Inc., one of the world’s largest
        public licensing companies. Prior to that time, Mr. Clamen served as the
        Director, International Management for Biochem Pharma Inc., a public company
        located in Montreal, Canada that has its shares traded on NASDAQ, and as
        a
        Senior Manager at Richter, Usher and Vineberg, an accounting firm also located
        in Montreal, Canada. Mr. Clamen is a certified public accountant and a chartered
        accountant. He received a bachelor of commerce degree in 1986 and a graduate
        diploma in public accounting in 1988, each from McGill University in
        Montreal.
  ***Deborah
        Sorell Stehr*** has
        served as the Company’s Senior Vice President since November 1999, as its
        Secretary since June 1999 and as its General Counsel since joining the Company
        in December 1998. Prior to her November 1999 promotion, she also served as
        the
        Company’s Vice President. She also sits on the boards 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 with sales of approximately $2.0 billion, where Ms.
        Sorell
        Stehr was primarily responsible for overseeing legal affairs relating to
        domestic and international contracts, intellectual property, licensing, general
        corporate matters, litigation and claims. Prior to joining Nine West Group,
        Ms.
        Sorell Stehr practiced law for nine years at private law firms in New York
        City
        and Chicago in the areas of corporate law and commercial litigation. Ms.
        Sorell
        Stehr received her A.B. in politics from Princeton University in 1984 and
        her
        J.D. from the Northwestern University School of Law in 1987.
  28
 ***Andrew
        Tarshis*** has
        served as the Company’s Senior Vice President, Business Affairs and Associate
        Counsel since joining the Company in July 2005 in connection with its
        acquisition of the Joe Boxer brand. 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 a Bachelor of
        Arts
        degree in 1988 from the University of Michigan, Ann Arbor and a Juris Doctor
        degree in 1992 from the University of Connecticut School of Law.
  ***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 in 1962 from the University of
        Rhode
        Island.
  ***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 1983. Mr. Mendelow
        was a director of New Retail Concepts, Inc. from 1992 until its merger with
        the
        Company in 1998. He is a board member of Soldiers For The Truth, a trustee
        of
        The Washington Institute for Near East Studies and actively involved with
        the
        Starlight Starbright Children’s Foundation. He received a BS in Business
        Administration from Bucknell University in 1964 and was elected to Delta
        Mu
        Delta, the national Economics Honor Society .
  ***Michael
        Caruso*** has
        served on the Company’s Board of Directors since November 2003. He has over 30
        years of experience in branded apparel manufacturing, sales, marketing and
        licensing. He co-founded Michael Caruso & Company in 1978 and created the
        Bongo brand name in 1982. He headed Michael Caruso & Company, which sold
        Bongo branded jeans and apparel, from its inception until it was acquired
        by the
        Company in 1998. Mr. Caruso also serves as a member of the board of directors
        for each of St. Johns Medical Center, Charture Institute and the Jackson
        Hole
        Land Trust and manages a diversified portfolio of family investments. Mr.
        Caruso
        received BBA from the University of Texas at Austin in 1970.
  ***Michael
        Groveman*** has
        served on the Company’s Board of Directors since April 2004. He has been the
        Chief Executive Officer of Bill Blass Ltd., a leader in sophisticated fashion,
        with over 40 licenses for products ranging from accessories and eyewear to
        furniture, since 1990, where he is responsible for creating and executing
        its
        strategic direction and vision. Prior to joining Bill Blass, he was a Manager
        in
        the accounting firm of Ferro, Berdon and Company in New York. Mr. Groveman
        received a B.A. in accounting from Long Island University C.W. Post in
        1987.
  ***Drew
        Cohen*** has
        served on the Company’s Board of Directors since April 2004. He is the General
        Manager of Music Theatre International, which represents the dramatic performing
        rights of classic properties such as “West Side Story,” and “Fiddler on the
        Roof,” and licenses over 50,000 performances a year around the world. Before
        joining Music Theater 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 B.S. in from Tufts University
        in 1990, his J.D. from Fordham Law School in 1993, and an M.B.A. from Harvard
        Business School in 2001.
  All
        directors of the Company hold office until the next annual meeting of
        stockholders or until their successors are elected and qualified. All officers
        of the Company serve at the discretion of the Company’s Board of Directors.
  **Committees
        of the Board of Directors**
  The
        Company’s bylaws authorize its Board of Directors to appoint one or more
        committees, each consisting of one or more directors. The Company’s Board of
        Directors currently has two standing committees: an audit committee and a
        nominating/governance committee, each of which has adopted written charters
        that
        are available on the Company’s website.
  **Audit
        committee**
  The
        Company’s audit committee is responsible for appointing, replacing, overseeing
        and compensating the work of a firm to serve as the registered independent
        public accounting firm to audit the Company’s financial statements; discussing
        the scope and results of the audit with the independent registered public
        accounting firm and reviewing with management and the independent registered
        public accounting firm the Company’s interim and year-end operating results;
        considering the adequacy of the Company’s internal accounting controls and audit
        procedures; and approving (or, as permitted, pre-approving) all audit and
        non-audit services to be performed by the independent registered public
        accounting firm.
  The
        members of the Company’s audit committee are Messrs. Mendelow, Groveman and
        Cohen, and Mr. Mendelow currently serves as its chairperson. Each member
        of the
        audit committee is an “independent director” under the marketplace rules of the
        NASD applicable to companies whose securities are listed on the Nasdaq National
        Market. The Company’s Board of Directors has also determined that Mr. Mendelow
        is the “audit committee financial expert,” as that term is defined under
        applicable SEC rules and NASD Marketplace Rules, serving on its audit
        committee.
  29
 **Nominating/governance
        committee**
  The
        Company’s nominating/governance committee’s responsibilities include reviewing
        and recommending approval of the compensation of the Company’s executive
        officers, administering its stock option plans, reviewing and making
        recommendations to the Board with respect to incentive compensation and equity
        plans, evaluating the chief executive officer’s performance in light of
        corporate objectives, setting the chief executive officer’s compensation based
        on the achievement of corporate objectives, identifying, evaluating and
        recommending nominees to serve on the Board and committees of the Board,
        conducting searches for appropriate directors, evaluating the performance
        of the
        Board and of individual directors, reviewing developments in corporate
        governance practices and evaluating the adequacy of the Company’s corporate
        governance practices and reporting and making recommendations to the Board
        concerning corporate governance matters.
  The
        members of the Company’s nominating/governance committee are Messrs. Mendelow,
        Groveman, Cohen and Emanuel, and Mr. Cohen currently serves as its chairperson.
  **Compliance
        with Section 16(a) of the Securities Exchange Act of 1934**
  Section
        16(a) of Securities Exchange Act of 1934 requires the Company’s officers and
        directors, and persons who beneficially own more than 10% of a registered
        class
        of the Company’s equity securities, to file reports of ownership and changes in
        ownership with the SEC. Officers, directors and greater than 10% owners are
        required by certain SEC regulations to furnish the Company with copies of
        all
        Section 16(a) forms they file.
  Based
        solely on the Company's review of the copies of such forms received by it,
        the
        Company believes that during Current Year, there was compliance with the
        filing
        requirements applicable to its officers, directors and 10% common stockholders,
        except that with respect to Mr. Emanuel, an error was corrected as to his
        ownership of shares, which error had been reflected on previously-filed Form
        4s,
        and a Form 5 was filed to reflect certain gifts of stock made by Mr. Cole
        in
        prior fiscal years.
  **Corporate
        governance policies**
  The
        Company has adopted a written code of business conduct that applies to its
        officers, directors and employees, responsive to Section 406 of the
        Sarbanes-Oxley Act of 2002 and the rules of the Securities and Exchange
        commission. In addition, the Company has established an ethics web site at www.ethicspoint.com .
        To
        assist individuals in upholding the code of conduct and to facilitate reporting,
        the Company has also established an on-line anonymous and confidential reporting
        mechanism that is hosted at www.ethicspoint.com and an
        anonymous and confidential telephone hotline at 800-963-5864. Copies of the
        Company’s code of business conduct are available at www.ethicspoint.com or,
        without charge, upon written request directed to the Company’s corporate
        secretary at Iconix Brand Group, Inc., 1450 Broadway, New York, NY
        10018.
  **Item
        11.**  **Executive
        Compensation**
  The
        following table sets forth all compensation paid or accrued by the Company
        for
        the Current Year, the 11-month Prior Year and Fiscal 2004, to or for the
        chief
        executive officer and four other highest paid persons that served as executive
        officers of the Company during the Current Year whose salaries for the Current
        Year exceeded $100,000 (collectively, the "Named Persons"):
 
 Summary
                  Compensation TableLong-TermCompensationAnnual
                  Compensation
              
              AwardsOther
              SecuritiesFiscal
              Salary
              Bonus
                  (1)
              Annual
                  Com-
              Underlying
              All
                  OtherYear
              
              
              pensation
              Options
              CompensationsNeil
                  Cole
              Current
                  Year
              $750,000
              $100,000
              $        
                  -
              1,000,000
              $
                  57,058(2)Chairman,
                  President &
              11-month
                  Prior Year
              458,333
              100,000
              -
              -
              136,518(2)Chief
                  Executive Officer
              Fiscal
                  2004
              487,500
              -
              -
              62,700William
                  Sweedler
              Current
                  Year
              $182,188
              -
              -
              1,425,000(3)
              -David
                  Conn
              Current
                  Year
              221,625
              50,000
              -
              225,000
              -Executive
                  Vice President
              11-month
                  Prior Year
              125,000
              -
              -
              200,000
              -Fiscal
                  2004
              -
              -
              -
              -
              -Warren
                  Clamen
              Current
                  Year
              197,440
              -
              -
              250,000
              -Deborah
                  Sorell Stehr
              Current
                  Year
              227,000
              25,000
              -
              160,000
              -Senior
                  Vice President &
              11-month
                  Prior Year
              220,780
              -
              -
              40,000
              -General
                  Counsel
              Fiscal
                  2004
              227,440
              -
              -
              60,000
  30
 (1)
            Represents
                bonuses accrued under employment
                agreements. (2)
            Represents
                Company paid premiums on a life insurance policy for the benefit
                of the
                beneficiaries of Mr. Cole. (3)
            As
                part of the Joe Boxer acquisition, the Company entered into an employment
                agreement with William Sweedler as Executive Vice President of the
                Company
                and President of the Joe Boxer division. As part of his compensation,
                on
                July 22, 2005, he was granted 1,425,000 stock options of which 225,000
                vested immediately, and 1,200,000 will vest upon achievement by the
                Joe
                Boxer division of certain revenues
                levels. 
 **Option
        Grants in the Current Year**
  The
        following table provides information with respect to individual stock options
        granted during the Current Year to each of the Named Persons who received
        options during the Current Year:
 Number
                  ofSecurities
              %
                  of Total
              
              
              Potential
                  Realizable ValueUnderlying
              Options
                  Granted
              Exercise
              
              at
                  Assumed Annual RatesOptions
              to
                  Employees
              Price
              Expiration
              of
                  Stock Price AppreciationName
              Granted(#)
              in
                  Fiscal Year
              ($/share)
              Date
              for
                  Option Term (6)5%($)
              10%($)Neil
                  Cole
              800,000(1)
              16.3%
              $4.62
              03/29/15
              2,324,395
              5,890,472200,000(1)
              4.1%
              $10.00
              12/28/05
              1,257,789
              3,187,485William
                  Sweedler
              1,425,000(2)
              29.0%
              $8.81
              07/22/15
              7,895,300
              20,008,241David
                  Conn
              50,000(3)
              1.0%
              $4.82
              5/28/2015
              151,564
              384,09250,000(3)
              1.0%
              $6.40
              6/14/2015
              201,246
              509,99825,000(3)
              0.5%
              $10.00
              12/28/2015
              157,224
              398,436100,000(3)
              2.0%
              $10.19
              12/29/2015
              640,844
              1,624,024Warren
                  Clamen
              200,000(4)
              5.0%
              $5.06
              3/9/2015
              636,441
              1,612,86750,000(4)
              1.0%
              $10.00
              12/28/2015
              314,447
              796,871Deborah
                  Sorell Stehr
              50,000(5)
              1.0%
              $4.82
              5/24/2015
              151,564
              384,09260,000(5)
              1.2%
              $8.03
              10/28/2015
              303,001
              767,86550,000(5)
              1.0%
              $10.00
              12/28/2015
              314,447
              796,871
 
 (1)
            Mr.
                Cole’s 800,000 options vested immediately at March 29, 2005 and 200,000
                vested on December 28,2005.  (2)
            As
                part of the Joe Boxer acquisition, the Company entered into an employment
                agreement with William Sweedler as Executive Vice President of the
                Company
                and President of the Joe Boxer division. As part of his compensation,
                on
                July 22, 2005, he was granted 1,425,000 stock options of which 225,000
                vested immediately, and 1,200,000 will vest upon achievement by the
                Joe
                Boxer division of certain revenues
                levels.  (3)
            Mr.
                Conn’s 50,000 options expiring at May 28, 2015 vested on May 28, 2005,
                25,000 expiring at December 28, 2015 vested on December 28, 2005,
                and
                100,000 expiring at December 29, 2015 vested on December 29, 2005.
                Mr.
                Conn’s 50,000 options expiring at June 14, 2015 would vest on January
                1,
                2007, but the Company accelerated the vesting on December 19,
                2005.  (4)
            Mr.
                Clamen’s options vest 100,000 on March 9, 2005, 100,000 on June 1, 2005,
                and 50,000 on December 28, 2005  (5)
            Mr.
                Stehr’s options vest 50,000 on May 14, 2005, 60,000 on October 28, 2005,
                and 50,000 on December 28, 2005  (6)
            The
                potential realizable value columns of the table illustrate values
                that
                might be realized upon exercise of the options immediately prior
                to their
                expiration, assuming the Company's Common Stock appreciates at the
                compounded rates specified over the term of the options. These amounts
                do
                not take into account provisions of options providing for termination
                of
                the option following termination of employment or non-transferability
                of
                the options and do not make any provision for taxes associated with
                exercise. Because actual gains will depend upon, among other things,
                future performance of the Common Stock, there can be no assurance
                that the
                amounts reflected in this table will be
                achieved. 
 The
        following table sets forth information as of December 31, 2005, with respect
        to
        exercised and unexercised stock options held by the Named Persons.
 
 31
   Aggregated
        Options Exercises in the Current Year and Year-End Option Values
 
 Number
                  of Securities
              
              Value
                  of UnexercisedShares
                  Acquired
              
              
              
              Underlying
                  Unexercised
              
              In-The-Money
                  OptionsOn
              
              Value
              
              Options
                  at December 31, 2005(#)
              
              at
                  December 31, 2005($) (1)Name
              
              Exercise
                  (#)
              
              Realized
                  ($)
              
              Exercisable
              
              Unexercisable
              
              Exercisable
              
              UnexercisableNeil
                Cole
              
              
              -
              
              
              -
              
              
              3,885,875
              
              
              -
              
              
              26,070,118
              
              
              -William
                Sweedler
              
              
              -
              
              
              -
              
              
              225,000
              
              
              1,200,000
              
              
              310,500
              
              
              1,656,000David
                Conn
              
              
              -
              
              
              -
              
              
              425,000
              
              
              -
              
              
              1,992,750
              
              
              -Warren
                Clamen
              
              
              -
              
              
              -
              
              
              250,000
              
              
              -
              
              
              1,035,500
              
              
              -Deborah
                  Sorell Stehr
              
              
              50,000
              
              
              175,155
              
              
              300,000
              
              
              -
              
              
              1,494,800
              
              
              -
 
 (1)
            An
                option is “in-the-money” if the year-end closing market price per share of
                the Company’s Common Stock exceeds the exercise price of such options. The
                closing market price on December 31, 2005 was
                $10.19. 
 **Employment
        Contracts and Termination and Change-in-Control
        Arrangements**
  On
        March
        29, 2005, the Company entered into an employment agreement with Neil Cole
        to
        serve as the Company’s President and Chief Executive Officer for a term expiring
        on December 31, 2007, at an annual base salary of $500,000 in 2005, $550,000
        in
        2006 and $600,000 in 2007. In addition, Mr. Cole’s employment agreement provided
        for the Company to pay him additional salary of $250,000 in four equal
        installments upon the signing of the employment agreement, April 1, 2005,
        July 1
        2005 and October 3, 2005, all of which have been paid. Under the employment
        agreement, for each year in which the Company meets at least 100% of targeted
        earnings before interest, taxes, depreciation and amortization of fixed assets
        and intangible assets, or EBITDA, as determined by its Board of Directors,
        Mr.
        Cole is also entitled to a bonus: $100,000 for 2005, $150,000 for 2006 and
        $200,000 for 2007. Mr. Cole received this bonus for 2005. In addition, Mr.
        Cole
        will receive a bonus equal to 5% of the amount, if any, by which the Company’s
        actual EBITDA, for a fiscal year, exceeds the greater of (a) the targeted
        EBITDA
        for that year, and (b) the highest amount of actual EBITDA a previously achieved
        during the term of his employment agreement, provided that prior negative
        EBITDA
        amounts will reduce the actual EBITDA in the year for which the determination
        is
        made in determining whether and by how much the amounts set forth in (a)
        and (b)
        were exceeded. Mr. Cole is also entitled to customary benefits, including
        participation in management incentive and benefit plans, reimbursement for
        automobile expenses, reasonable travel and entertainment expenses and a life
        insurance policy benefiting his designated beneficiaries in the amount of
        $5,000,000. The employment agreement provides that Mr. Cole will receive
        an
        amount equal to three times his annual compensation, plus accelerated vesting
        or
        payment of deferred compensation, options, stock appreciation rights and
        any
        other benefits payable to Mr. Cole, in the event that within twelve months
        of a
“change in control” Mr. Cole is terminated by the Company without “cause” or if
        he terminates his agreement for “good reason,” as all such terms are defined in
        the employment agreement. Pursuant to the agreement, Mr. Cole was also granted
        immediately exercisable options under one of the Company’s stock option plans to
        purchase 800,000 shares of its common stock at $4.62 per share. The agreement
        further provides that, if the Company is sold and immediately thereafter
        Mr.
        Cole is no longer employed by the Company or its successor in the capacity
        in
        which he was employed prior to the sale, he will be entitled to a payment
        equal
        to 5% of the sale price in the event that sale price is at least $5.00 per
        share
        or the equivalent thereof with respect to an asset sale. Mr. Cole has also
        agreed not to compete with the Company for a period of twelve months after
        any
        sale resulting in such payment to him.
 
 The
        Company entered into an employment agreement, effective July 22, 2005, with
        William Sweedler pursuant to which he has agreed to serve as an Executive
        Vice
        President of the Company. His employment agreement also provides for him
        to
        serve as President of the Company’s Joe Boxer division until July 22, 2009,
        subject to earlier termination as specified in the agreement. The employment
        agreement provides for Mr. Sweedler to receive an annual base salary of $400,000
        and additional salary of $50,000 for the first year of his employment term,
        an
        annual base salary of $450,000 during the second year of his employment term,
        $500,000 for the third year and $550,000 for the fourth year of his employment
        term. In addition, the agreement provides for Mr. Sweedler to receive percentage
        of revenue based royalty bonuses if the annual revenues generated by the
        Company’s Joe Boxer division exceed certain specified amounts for the periods
        indicated in his employment agreement. The employment agreement provides
        that
        Mr. Sweedler will receive an amount equal to $100 less than three times his
        annual compensation in the event that within twelve months of a “change of
        control,” as defined in the employment agreement, Mr. Sweedler is terminated by
        the Company without “cause” or if Mr. Sweedler terminates his agreement for
“good reason” (with one exception), as such terms are defined in the employment
        agreement. Pursuant to the employment agreement, Mr. Sweedler was also granted
        a
        ten-year option to purchase 1,425,000 shares of the Company’s common stock at
        $8.81 per share, of which 225,000 shares vested immediately and 1.2 million
        shares will vest only if the Joe Boxer division meets certain revenue
        goals.
 
 On
        April
        17, 2004, the Company entered into an employment agreement, subsequently
        amended
        on December 29, 2005, with David Conn, which provides for him to serve as
        an
        Executive Vice President of the Company 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, a guaranteed bonus of $25,000 each year of his employment,
        and a car allowance. He was also granted immediately exercisable 10-year
        options
        under exercisable for the purchase of 100,000 shares of the Company’s common
        stock at $10.19 per share. In addition, his employment agreement with the
        Company provides that, if, within twelve months of a “change in control,” Mr.
        Conn’s employment is terminated by the Company without “cause,” as such terms
        are defined in his employment agreement, the Company is obligated to make
        a
        lump-sum severance payment to him equal to $100 less than three times his
        “annualized includable compensation for the base period” (as defined in Section
        280G of the Internal Revenue Code of 1986), subject to certain limitations
        for
        any “excess parachute payment.” His agreement with the Company also contains
        certain non compete and non solicitation provisions.
 
 32
 The
        Company entered into an employment agreement effective March 9, 2005 with
        Warren
        Clamen pursuant to which Mr. Clamen is employed as the Company’s Chief Financial
        Officer. The employment agreement provides that Mr. Clamen will be employed
        by
        the Company for a two-year term, subject to earlier termination as specified
        in
        the agreement. The employment agreement provides for Mr. Clamen to receive
        a
        base annual salary of $225,000 per year for the first year of the agreement
        and
        no less than $240,000 for the second year of the agreement, plus certain
        fringe
        benefits. In addition, he is eligible to participate in any executive bonus
        program that the Company has in effect during the term of his employment
        agreement. Upon the commencement of his employment agreement, the Company
        granted Mr. Clamen 10-year options to purchase 200,000 shares of the Company’s
        common stock at $5.06 per share, subject to earlier termination under certain
        conditions if Mr. Clamen ceases to be employed by the Company, half of which
        options vested immediately and the other half vested as of June 1, 2005.
        His
        employment agreement also provides for Mr. Clamen to receive certain severance
        payments if the Company terminates the agreement other than for “cause” as
        defined in the agreement.
 
 On
        October 28, 2005, the Company entered into a new employment agreement with
        Deborah Sorell Stehr, which provides for her to serve as the Company’s Senior
        Vice President, General Counsel and Secretary that expires on December 31,
        2007
        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 October 28, 2005
        through December 31, 2006, at the annualized rate of $215,000 until January
        1,
        2006, and, for the balance of the period, not less than an annualized rate
        of
        $220,000, (b) during the period from January 1, 2007 through December 31,
        2007,
        at an annual rate of not less than $230,000. Ms. Stehr was also granted ten-year
        immediately exercisable options to purchase 60,000 shares of the Company’s
        common stock at $8.03 per share. Under the agreement, Ms. Stehr is also eligible
        for a bonus consistent with other executive officers and to customary benefits,
        including participation in management incentive and benefit plans, a monthly
        car
        allowance of $1,500 and reasonable travel and entertainment expenses. The
        agreement provides that Ms. Stehr will receive an amount equal to $100 less
        than
        three times her annual compensation, plus accelerated vesting or payment
        of
        deferred compensation, options, stock appreciation rights and any other benefits
        payable to Ms. Stehr, in the event that within twelve months of a “change of
        control,” Ms. Stehr’s employment is terminated by the Company without “cause” or
        Ms. Stehr terminates her employment agreement with the Company for “good
        reason,” as all such terms are defined in the agreement.
  On
        July
        22, 2005, the Company entered into an employment agreement with Andrew Tarshis,
        which provides for him to serve as the Company’s Senior Vice President, Business
        Affairs, and Associate Counsel for a two-year term that expires on July 22,
        2007
        and provides for him to receive a base salary as follows: (a) during the
        first
        year of the term at the annualized rate of $225,000, and during the second
        year
        of the term at an annualized rate of $240,000. Mr. Tarshis was also granted
        ten-year options to purchase 110,000 shares of the Company’s common stock at
        $8.81 per share. Under the agreement, Mr. Tarshis is also eligible for a
        bonus
        consistent with other executive officers and to customary benefits, including
        participation in management incentive and benefit plans, a monthly car allowance
        of $1,500 and reasonable travel and entertainment expenses. The agreement
        provides that if Mr. Tarshis is terminated due to a “change in control”, as
        defined in the agreement, he will receive his compensation through the end
        of
        the term, but in no event less than one times his annual compensation at
        the
        time of the termination.
 
 **Director
        compensation**
  During
        the Current Year, the Company’s non-employee directors each received a grant of
        common stock under the Company’s Non-Employee Director Stock Incentive Plan (the ***“Stock
        Plan”*** )
        worth
        $20,000, in compensation for their services as directors. Additionally, the
        Company’s non-employee directors who were members of the Company’s audit
        committee or nominating/governance committee during the Current Year received
        $1,000 for each committee meeting attended. In addition, for the Current
        Year,
        the chairpersons of those committees each received a fee of $5,000 for serving
        as such chairpersons. Effective March 16, 2006, the Board terminated the
        Stock
        Plan, and increased annual compensation for each non-employee director to
        $25,000 per year, with the fee for each committee meeting raised to $1,500.
        The
        compensation to the chairs of the respective committees did not change. In
        addition, the eligible directors waived the stock grant they would otherwise
        have received on March 1, 2006. The Company’s directors, who are also employees,
        do not receive any additional compensation for their services as
        directors.
  Under
        each of the Company’s 2002 Stock Option Plan, 2001 Stock Option Plan, 2000 Stock
        Option Plan and 1997 Stock Option Plan, non-employee directors are eligible
        to
        be granted non-qualified stock options.
  The
        Company's Board of Directors, or the Stock Option Committee of the 2002 Plan,
        2001 Plan, 2000 Plan or the 1997 Plan, if one is appointed, has discretion
        to
        determine the number of shares subject to each non-qualified option (subject
        to
        the number of shares available for grant under the 2002 Plan, 2001 Plan,
        2000
        Plan or the 1997 Plan, as applicable), the exercise price thereof (provided
        such
        price is not less than the par value of the underlying shares of the Company's
        Common Stock under the 2000 Plan or not less than the fair value of Common
        Stock
        under the 1997 Plan, 2001 Plan and 2002 Plan), the term thereof (but not
        in
        excess of 10 years from the date of grant, subject to earlier termination
        in
        certain circumstances), and the manner in which the option becomes exercisable
        (amounts, intervals and other conditions). During the Current Year, Barry
        Emanuel, Steven Mendelow, Michael Groveman, and Drew Cohen each received
        stock
        options for the purchase of 50,000 shares of common stock at an exercise
        price
        of $8.58 per share under the Company’s 2002 stock option plan. In addition,
        Barry Emanuel and Steven Mendelow each received stock options for the purchase
        of 20,250 shares of common stock at an exercise price of $7.17 and $4.62
        per
        share, respectively, under the Company’s 2002 stock option plan. These options
        are all immediately exercisable.
  33
 **Compensation
        committee interlocks and insider participation**
  During
        the Current Year, none of the Company’s executive officers served on the board
        of directors or the compensation committee of any other entity that has officers
        that serve on the Company’s board of Directors or on its nominating /governance
        committee, which is the committee of the Company’s board whose responsibilities
        include those relating to compensation. In addition, none of the members
        of the
        Company’s nominating/governance committee was formerly, or during Current Year,
        one of the Company’s officers or employed by the Company.
  
 **Item
        12.**  **Security
        Ownership of Certain Beneficial Owners and Management** **** **and
        Related Stockholder Matters**
  The
        following table presents information regarding beneficial ownership of the
        Company’s common stock as of March 15, 2006 by each of the Company’s directors,
        each of the Company’s “named executive officers,” all of the Company’s executive
        officers and directors, as a group, and each person known by the Company
        to
        beneficially hold five percent or more of the Company’s common stock, based on
        information obtained from such persons.
 
 Unless
        indicated below, to the Company’s 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 the Company’s common stock
        subject to options, warrants or convertible securities that are exercisable
        or
        convertible within 60 days as of March 7, 2006 are deemed to be beneficially
        owned by the person holding such securities and to be outstanding for purposes
        of determining such holder’s percentage ownership. The same securities may be
        beneficially owned by more than one person.
 
 Percentage
        ownership of the Company’s common stock is based on the 35,648,616 shares of
        common stock outstanding as of March 1, 2006. The address for each beneficial
        owner, unless otherwise noted, is c/o Iconix Brand Group, Inc. at 1450 Broadway,
        New York, New York 10018.
 *Name
                  and address of beneficial owner*
              **Number
                  of shares**
                **of
                  common stock****beneficially
                  owned**
              **Percentage
                  of Company’s outstanding common stock****beneficially
                  owned**Neil
                  Cole
              4,721,075
                  (1)
              11.9William
                  Sweedler
              1,300,679
                  (2)
              3.6David
                  Conn
              425,000
                  (3)
              1.2Warren
                  Clamen
              250,000
                  (3)
              *Deborah
                  Sorell Stehr
              300,000
                  (4)
              *Michael
                  Caruso
              2,386,887
                  (5)
              6.7Claudio
                  Trust dated February 2, 1990
                PO
                  Box 11360
                Jackson,
                  WY 83002
              2,381,737
                  (6)
              6.7Drew
                  Cohen
              116,702
                  (7)
              *Barry
                  Emanuel
              426,673
                  (8)
              1.2Michael
                  Groveman
              116,702
                  (7)
              *Steven
                  Mendelow
              380,988
                  (9)
              1.1Remey
                  W. Trafelet
                Trafelet
                  & Company, LLC
                900
                  Third Avenue - 5thFloor
                New
                  York, NY 10022
              2,898,800
                  (10)
              8.1All
                  directors and executive officers
                as
                  a group (11 persons)
              10,584,706
                  (11)
              25.3
 ___________________
 *  Less
        than
        1%
  (1)
            Includes
                3,885,875 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 15,194 shares held in Mr. Cole’s account under the Company’s
                401(k) savings plan over which he has no current voting or investment
                power.  34
 (2)
            Includes
                225, 000 shares of common stock issuable upon exercise of options.
                Also
                includes 12,000 shares held by a charitable foundation as to which
                shares
                Mr. Sweedler has voting rights but no pecuniary
                interest.  (3)
            Represents
                shares of common stock issuable upon exercise of
                options.  (4)
            Represents
                shares of common stock issuable upon exercise of options. Does not
                include
                9,985 shares held in Ms. Sorell Stehr’s account under the Company’s 401(k)
                savings plan over which she has no current voting or investment
                power.  (5)
            Includes
                2,381,737 shares of common stock held by the Claudio Trust dated
                February
                2, 1990.  (6)
            Michael
                Caruso serves as the trustee of this trust [and exercises voting
                and
                investment control over its securities.  (7)
            Includes
                110,000 shares of common stock issuable upon exercise of
                options.  (8)
            Includes
                405,250 shares of common stock issuable upon exercise of
                options.  (9)
            Includes
                295,250 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.  (10)
            According
                to a Schedule 13G filed by Trafelet & Company, LLC, represents shares
                of common stock held by Trafelet & Company, LLC, of which Remey W.
                Trafelet is the managing member and has shared voting and investment
                control over the securities.  (11)
            Includes
                6,146,375 shares of common stock issuable upon exercise of
                options.  
 **Equity
        Compensation Plans**
 
 The
        following table provides certain information with respect to all of the
        Company’s equity compensation plans in effect as of December 31, 2005.
 Number
                  of securities remainingNumber
                  of securities to be
              Weighted-average
              available
                  for issuance underissued
                  upon exercise of
              exercise
                  price of
              equity
                  compensation plansoutstanding
                  options, warrants
              outstanding
                  options,
              (excluding
                  securities reflectedand
                  rights
              warrants
                  and rights
              in
                  column (a))Plan
                  Category
              (a)
              (b)
              (c)Equity
                  compensation plansApproved
                  by security holders:
              6,830,524
              $4.26
              212,598Equity
                  compensation plans notApproved
                  by security holders (1):
              2,742,768(1)(3)
              $7.14
              25,000(2)Total
              9,573,292
              $5.09
              237,598
 
 (1)
            Represents
                the aggregate number of shares of common stock issuable upon exercise
                of
                individual arrangements with option and warrant holders, including
                1,392,750 options issued under the terms of the Company’s 2001 Stock
                Option Plan. These options and warrants are up to three years in
                duration,
                expire at various dates between January 14, 2005 and December 22,
                2013,
                contain anti-dilution provisions providing for adjustments of the
                exercise
                price under certain circumstances and have termination provisions
                similar
                to options granted under stockholder approved plans. See Notes 1
                and 9 of
                Notes to Consolidated Financial Statements for a description of the
                Company’s Stock Option Plans. (2)
            Represents
                shares eligible for issuance upon the exercise of options that may
                be
                granted under the Company’s 2001 Stock Option
                Plan. (3)
            Includes
                1,200,000 options which were issued as part of the Joe Boxer acquisition,
                in which the Company entered into an employment agreement with William
                Sweedler as Executive Vice President of the Company and President
                of the
                Joe Boxer division. As part of his compensation he was granted these
                1,200,000 options which will vest upon achievement by the Joe Boxer
                division of certain revenues levels. 
 **Item
        13.**  **Certain
        Relationships and Related 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 Current Year, the Company received
        $1.3 million in royalties from Kenneth Cole Productions.
  The
        Candie’s Foundation, a charitable foundation founded by Neil Cole for the
        purpose of raising national awareness about the consequences of teenage
        pregnancy, owed the Company $193,000 at December 31, 2005. The Candie’s
        Foundation paid-off the entire borrowing from the Company in February 2006
        although additional advances will be made as and when necessary. Mr. Cole’s
        wife, Elizabeth Cole, was employed by the The Candie’s Foundation at an
        annualized salary of $80,000 until May 2005. She continues to perform services
        for the foundation but without compensation.
   35
 **Item
        14. Principal Accountant 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 the Current Year
        and
        the 11-month Prior Year and the review of the financial statements included
        in
        the Company's Forms 10-Q for the Current Year and the 11-month Prior Year
        totaled approximately $394,000, and $168,700, respectively.
   **Audit-Related
        Fees** . 
        There were approximately $114,000 and $30,000 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
        the Current Year and the 11-month Prior Year, respectively, and that are
        not
        disclosed in the paragraph captions "Audit Fees" above. The majority of the
        audit-related fees were related to the audit of the financial statements
        of IP
        Holdings and Candie’s Foundation.
   **Tax
        Fees** .
        The
        aggregate fees billed by BDO Seidman, LLP for professional services rendered
        for
        tax compliance, for the Current Year and the 11-month Prior Year , were
        approximately $62,000, and $64,000, respectively. The aggregate fees billed
        by
        BDO Seidman, LLP for professional services rendered for tax advice and tax
        planning, for the Current Year and the 11-month Prior Year, were $3,000 and
        $2,090, respectively.
   **All
        Other Fees** .
        There
        were no fees billed by BDO Seidman, LLP for products and services, other
        than
        the services described in the paragraphs captions "Audit Fees", "Audit-Related
        Fees", and "Tax Fees" above for the Current Year and the 11-Month Prior
        Year.
  The
        Audit
        Committee has established its pre-approval policies and procedures, pursuant
        to
        which the Audit Committee approved the foregoing audit services provided
        by BDO
        Seidman, LLP in Current Year. Consistent with the Audit Committee's
        responsibility for engaging the Company's independent auditors, all audit
        and
        permitted non-audit services require pre-approval by the Audit Committee.
        The
        full Audit Committee approves proposed services and fee estimates for these
        services. The Audit Committee chairperson or their designee has been designated
        by the Audit Committee to approve any services arising during the year that
        were
        not pre-approved by the Audit Committee. Services approved by the Audit
        Committee chairperson are communicated to the full Audit Committee at its
        next
        regular meeting and the Audit Committee reviews services and fees for the
        fiscal
        year at each such meeting. Pursuant to these procedures, the Audit Committee
        approved all the foregoing audit services and permissible non-audit services
        provided by BDO Seidman, LLP.
 
 
 
 36
   **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, 2005 and 2004
  -
        Consolidated Statements of Operations for the year ended December 31, 2005,
        the
        11-months ended December 31, 2004 and the year ended January 31,
        2004
  -
        Consolidated Statements of Stockholders' Equity for the ended December 31,
        2005,
        the 11-months ended December 31, 2004 and the year ended January 31,
        2004
  -
        Consolidated Statements of Cash Flows for the year ended December 31, 2005,
        the
        11-months ended December 31, 2004 and the year ended January 31,
        2004
  -
        Notes
        to consolidated Financial Statements
  2.
        The
        following financial statement schedules are included in this Annual
        Report:
  -
        Report
        of Independent Registered Public Accounting Firm on Financial Statement
        Schedule
 -
        Schedule for the year ended December 31, 2005, the 11 months ended December
        31,
        2004 and the year ended January 31, 2004
 -
        Schedule II Valuation and qualifying accounts
  All
        other
        schedules for which provision is made in the applicable accounting regulation
        of
        the Securities and Exchange Commission are not required under the related
        instructions or are inapplicable and therefore have been omitted.
  3.
        See
        the Index to Exhibits for a list of exhibits filed as part of this Annual
        Report.
  (b)  See
        Item
        (a) 3 above.
  (c)  See
        Item
        (a) 2 above.
   37
   **SIGNATURES**
  Pursuant
        to the requirements of Section 13 or 159(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.By:
              
              /s/
                  Neil Cole**Neil
                  Cole,**
                **Chairman
                  of the Board, President and Chief Executive
                  Officer**
 Dated:
        March 21, 2006
 
 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, Chief Executive Officer and Treasurer (Principal
                  Executive
                  Officer)
              
              March
                  21, 2006/s/
                  Warren Clamen
                **Warren
                  Clamen**
              
              Chief
                  Financial Officer (Principal Financial and Accounting
                  Officer)
              
              March
                  21, 2006/s/William
                  Sweedler
                **William
                  Sweedler**
              
              Executive
                  Vice President and Director
              
              March
                  21, 2006/s/
                  Michael Caruso
                **Michael
                  Caruso**
              
              Director
              
              March
                  21, 2006/s/
                  Drew Cohen
                **Drew
                  Cohen**
              
              Director
              
              March
                  21, 2006/s/
                  Barry Emanuel
                **Barry
                  Emanuel**
              
              Director
              
              March
                  21, 2006/s/
                  Michael Groveman
                **Michael
                  Groveman**
              
              Director
              
              March
                  21, 2006/s/
                  Steven Mendelow
                **Steven
                  Mendelow**
              
              Director
              
              March
                  21, 2006
    38
  Index
        to Exhibits
 Exhibit
 
 Numbers   Description
 
 2.1
              Asset
                  Purchase Agreement dated October 20, 2004 by and among B.E.M. Enterprise,
                  Ltd., Escada (USA) Inc., the Company and Badgley Mischa 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)
 3.1  Certificate
        of Incorporation (4)
 3.2  Restated
        and Amended By-Laws (5)
 4.1
              Rights
                  Agreement dated January 26, 2000 between the Company and Continental
                  Stock
                  Transfer and Trust Company (6)
 4.2
              Second
                  Amended and Restated Indenture dated as of July 1, 2005 by and
                  among IP
                  Holdings LLC, as issuer, and Wilmington Trust Company, as Trustee
                  (2)
 4.3
              Third
                  Amended and Restated Indenture dated as of September 1, 2005 by
                  and among
                  IP Holdings LLC, as issuer, and Wilmington Trust Company, as Trustee
                  (3)
 10.1  Trademark
        Purchase Agreement between the Company and New Retail Concepts, Inc.
        (7)
 10.2  1989
        Stock Option Plan of the Company (8)*
 10.3  1997
        Stock Option Plan of the Company (9)*
 10.4  2000
        Stock Option Plan of the Company (10)*
 10.5  2001
        Stock Option Plan of the Company (11)*
 10.6  2002
        Stock Option Plan of the Company (12)*
 10.7  Non-Employee
        Director Stock Incentive Plan (13)*
 10.8  Candie's,
        Inc. 401(K) Savings Plan (14)
 10.9  Employment
        Agreement between Neil Cole and the Company dated March 29, 2005
        (15)(*)
 10.10  Employment
        Agreement between the Company and William Sweedler* (16)
 10.11  Employment
        Agreement between Deborah Sorell Stehr and the Company dated October 28,
        2005
        (23)*
 10.12  Employment
        Agreement between Warren Clamen and the Company. (17)*
 10.13  Employment
        Agreement between the Company and David Conn (18)*
 10.14  Employment
        Agreement between the Company and Andrew Tarshis* (16)
 10.15  Option
        Agreement of Neil Cole dated November 29, 1999 (14)*
 10.16  Common
        Stock Purchase Warrant issued to UCC Consulting Corporation (4)
 10.17  Limited
        Liability Company Operating Agreement of Unzipped Apparel LLC (19)
 10.18
              Equity
                  Acquisition Agreement between Michael Caruso & Co., Inc., the Company
                  and Sweet Sportswear, LLC dated as of April 23, 2002.
                  (20)
 10.19  8%
        Senior
        Subordinated Note due 2012 of Candie's, Inc. payable to Sweet Sportswear,
        LLC.
        (20)
 10.20
              Collateral
                  Pledge Agreement dated October 18, 2002 between Candie's, Inc.,
                  Michael
                  Caruso & Co., and Sweet Sportswear LLC.
                  (20)
 10.21  Agreement
        for Sale of Unzipped Interest to TKO Apparel, Inc. (18)
 10.23  Stock
        Purchase Agreement between the Company and certain designees of TKO Apparel,
        Inc. (18)
 10.23
              Letter
                  Agreement dated October 29, 2004 among UCC Funding Corporation,
                  Content
                  Holdings, Inc., the Company and Badgley Mischa Licensing LLC (1)
 10.24
              Amendment
                  to Employment Agreement between the Company and David Conn
                  (21)*
 10.25  Form
        of
        Option Agreement under the Company’s 1997 Stock Option Plan (22)*
 10.26  Form
        of
        Option Agreement under the Company’s 2000 Stock Option Plan (22) *
 10.27  Form
        of
        Option Agreement under the Company’s 2001 Stock Option Plan (22)*
 10.28  Form
        of
        Option Agreement under the Company’s 2002 Stock Option Plan. (22)*
 10.29  Option
        Agreement dated July 22, 2005 between the Company and William Sweedler*
        (16)
 10.30  Lease
        with respect to the Company’s executive offices (23)
 10.31  Promissory
        Note issued by Joe Boxer Licensing, LLC in favor of Kmart Corporation
        (23)
 21  Subsidiaries
        of the Company. (23)
 23  Consent
        of BDO Seidman, LLP. (23)
 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. (23)
 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. (23)
 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
                  (23)
 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
                  (23)
 
 39
 (1)
              Filed
                  as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
                  quarter ended October 31, 2004 and incorporated herein by
                  reference.
 (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 Quarterly Report on Form 10-Q for the
                  quarter ended June 30, 2005 and incorporated by reference
                  herein.
 (5)
              Filed
                  as an exhibit to the Company’s Annual Report as Form 10-K for the year
                  ended January 31, 2000, and incorporated by reference
                  herein.
 (6)
              Filed
                  as an exhibit to the Company’s Current Report on Form 8-K dated January
                  26, 2000 and incorporated by reference
                  herein.
 (7)
              Filed
                  as an exhibit to the Company’s Registration Statement on Form S-1 (File
                  33-53878) and incorporated by reference
                  herein.
 (8)
              Filed
                  as an exhibit to the Company’s Registration Statement on Form S-18 (File
                  33-32277-NY) and incorporated by reference
                  herein.
 (9)
              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.
 (10)
              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.
 (11)
              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.
 (12)
              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.
 (13)
              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.
 (14)
              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.
 (15)
              Filed
                  as an exhibit to the Company’s Annual Report on Form 10-K for the period
                  ended December 31, 2004 and incorporated by reference
                  herein.
 (16)
              Filed
                  as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
                  quarter ended September 30, 2005 and incorporated by reference
                  herein.
 (17)
              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.
 (18)
              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.
 (19)
              Filed
                  as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
                  quarter ended October 31, 1998 and incorporated by reference
                  herein.
 (20)
              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.
 (21)
              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.
 (22)
              Filed
                  as an exhibit to the Company’s Annual Report on Form 10-K for the period
                  ended December 31, 2004 and incorporated by reference
                  herein.
 (23)
              Filed
                  herewith.
 
 *
        Denotes
        management compensation plan or arrangement.
 
 
 40
 
    
 
 **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, 2005**
 
 **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-3Consolidated
                  Balance Sheets - December 31, 2005 and 2004
              F-4Consolidated
                    Statements of Operations for the year ended December 31, 2005,11-months ended December 31, 2004 and year ended January
                    31,
                    2004
              F-5Consolidated
                    Statements of Stockholders' Equity for the year ended December
                    31, 2005,the 11-months ended December 31, 2004 and the year
                    ended  January 31, 2004
              F-6Consolidated
                  Statements of Cash Flows for the year ended December 31, 2005,
                  11-months
                  ended December 31, 2004 and the year ended  January 31,
                  2004
              F-7Notes
                  to Consolidated Financial Statements
              F-8
 
  
 
 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
                  StatementSchedule
                  for the year ended December 31, 2005, the 11-months ended December
                  31,
                  2004 and the year ended January 31, 2004
              S-1Schedule
                  II Valuation and qualifying accounts
              S-2
 
  
  
  
  All
        other
        schedules for which provision is made in the applicable accounting regulation
        of
        the Securities and Exchange Commission are not required under the related
        instructions or are inapplicable and therefore have been omitted.
  
 
 F
            -
            2
    **Report
        of Independent Registered Public Accounting Firm**
 
 
 Board
        of
        Directors and Stockholders
 Iconix
        Brand Group, Inc.
 New
        York,
        New York
 
 
 We
        have
        audited the accompanying consolidated balance sheets of Iconix Brand Group,
        Inc.
        as of December 31, 2005 and 2004 and the related consolidated statements
        of
        operations, stockholders’ equity, and cash flows for the year ended December 31,
        2005, the 11 months ended December 31, 2004, and the year ended January 31,
        2004. These financial statements are the responsibility of the Company’s
        management. Our responsibility is to express an opinion on these financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit also includes examining,
        on a test basis, evidence supporting the amounts and disclosures in the
        financial statements, assessing the accounting principles used and significant
        estimates made by management, as well as evaluating the overall financial
        statement presentation. We believe that our audits provide a reasonable basis
        for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Iconix Brand Group, Inc.
        at
        December 31, 2005 and 2004, and the results of its operations and its cash
        flows
        for the year ended December 31, 2005, the 11 months ended December 31, 2004,
        and
        the year ended January 31, 2004, in conformity with accounting principles
        generally accepted in the United States of America.
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of Iconix Brand Group,
        Inc.'s
        internal control over financial reporting as of December 31, 2005, based
        on
        criteria established in Internal Control - Integrated Framework issued by
        the
        Committee of Sponsoring Organizations of the Treadway Commission (COSO) and
        our
        report dated March 20, 2006 expressed an unqualified opinion
        thereon.
 
 
 
 /s/BDO
        Seidman, LLP
 
 
 March
        20,
        2006
 New
        York,
        New York
 F
            -
            3
   **Iconix
        Brand Group, Inc. and Subsidiaries**
 **Consolidated
        Balance Sheets**
 **(in
        thousands, except par value)**
 
 **December
                  31,****2005**
              **2004****Assets**Current
                  Assets:Cash
                  (including restricted cash of $4,094 in 2005 and $530 in
                  2004)
              $11,687
              $
                  798Marketable
                  securities
              553
              -Accounts
                  receivable, net of reserve of $260 in 2005 and $0 in 2004
              3,532
              2,239Due
                  from factor, net of allowances of $0 in 2005 and $1,856 in
                  2004
              -
              3,865Due
                  from affiliate
              193
              227Inventories,
                  net of reserve of $0 in 2005 and $2,252 in 2004
              -
              279Deferred
                  income taxes
              3,716
              1,549Prepaid
                  advertising and other
              2,664
              670Total
                  Current Assets
              22,345
              9,627Property
                  and equipment, at cost:Furniture,
                  fixtures and equipment
              2,027
              1,638Less:
                  Accumulated depreciation and amortization
              (1,175)
              (1,292)852
              346Other
                  Assets:Restricted
                  cash
              4,982
              2,900Goodwill
              32,835
              25,241Other
                  intangibles, net
              139,281
              16,591Deferred
                  financing costs, net
              3,597
              2,149Long
                  term deferred income taxes
              11,978
              2,073Other
              1,374
              1,233194,047
              50,187Total
                  Assets
              $
                  217,244
              $
                  60,160**Liabilities
                  and Stockholders' Equity**Current
                  liabilities:Accounts
                  payable and accrued expenses
              $3,360
              $
                  4,284Accounts
                  payable, subject to litigation
              4,886
              4,886Deferred
                  revenue
              4,782
              1,413Due
                  to related party
              -
              2,465Current portion of long-term debt
              13,705
              2,563Total
                  current liabilities
              26,733
              15,611Deferred
                  revenue
              -
              366Deferred
                  income taxes
              4,201
              -Long-term
                  debt, less current maturities
              85,414
              19,925Contingencies
                  and commitments
              -
              -Stockholders'
                  Equity:Common
                  stock, $.001 par value-shares authorized 75,000;shares
                  issued 35,540 and 28,293 respectively
              36
              29Additional
                  paid-in capital
              136,842
              76,154Retained
                  deficit
              (35,315)
              (51,258)Less:
                  Treasury stock - 198 shares at cost
              (667)
              (667)Total
                  stockholders’ equity
              100,896
              24,258Total
                  Liabilities and Stockholders' Equity
              $
                  217,244
              $
                  60,160
 
 *See
        accompanying notes to consolidated financial
        statements.*
   
 F
            -
            4
 **Iconix
        Brand Group, Inc. and Subsidiaries**
 **Consolidated
        Statements of Operations**
 **(in
        thousands, except earnings per share data)**
 
 Year
              
              11
                  Months
              
              YearEnded
              
              Ended
              
              Ended12/31/2005
              
              12/31/2004
              
              1/31/2004Net
                  sales
              
              $
              -
              
              $
              58,427
              
              $
              123,160Licensing
                  and commission revenue
              
              
              30,156
              
              
              10,553
              
              
              8,217Net
                  revenue
              
              
              30,156
              
              
              68,980
              
              
              131,377Cost
                  of goods sold (net of recoveries pursuant to anAgreement
                  of $7,566 and $1,626 in the 11 monthsended
                  12/31/2004 and the year ended1/31/2004,
                  respectively)
              
              
              -
              
              
              48,229
              
              
              102,604Gross
                  profit
              
              
              30,156
              
              
              20,751
              
              
              28,773Selling,
                  general and administrative expenses(net
                  ofrecovery
                  pursuant to an agreement of $438 in 2005)
              
              
              13,880
              
              
              17,720
              
              
              32,308Special
                  charges
              
              
              1,466
              
              
              295
              
              
              4,629Operating
                  income (loss)
              
              
              14,810
              
              
              2,736
              
              
              (8,164
              )Other
                  expenses:Interest
                  expense - net of $295, $24, and $36 ofinterest
                  income in the year ended 12/31/2005,11
                  months ended 12/31/2004, and the year ended12/31/2004,
                  respectively.
              
              
              3,977
              
              
              2,495
              
              
              3,118Gain
                  on sales of securities
              
              
              (75
              )
              
              -
              
              
              -3,902
              
              
              2,495
              
              
              3,118Income
                  (loss) before income taxes
              
              
              10,908
              
              
              241
              
              
              (11,282
              )Provision
                  (benefit) for income taxes
              
              
              (5,035
              )
              
              -
              
              
              58Net
                  income (loss)
              
              $
              15,943
              
              $
              241
              
              $
              (11,340
              )Earnings
                  (loss) per share:Basic
              
              $
              0.51
              
              $
              0.01
              
              $
              (0.45
              )Diluted
              
              $
              0.46
              
              $
              0.01
              
              $
              (0.45
              )Weighted
                  average number of common shares outstanding:Basic
              
              
              31,284
              
              
              26,851
              
              
              25,181Diluted
              
              
              34,773
              
              
              28,706
              
              
              25,181
 
 
 
 
 *See
        accompanying notes to consolidated financial statements.*
 F
            -
            5
   **Iconix
        Brand Group, Inc. and Subsidiaries**
 **Consolidated
        Statements of Stockholders’ Equity**
 **(in
        thousands)**
 
  AdditionalCommon
                  Stock
              Paid
                  - in
              Retained
              TreasuryShares
              Amount
              Capital
              Deficit
              Stock
              TotalBalance
                  at February 1, 2003
              24,992
              $
                  25
              $
                  69,812
              $
                  (40,159)
              $
                  (667)
              $
                  29,011Issuance
                  of common stock to benefit plan
              20
              -
              22
              -
              -
              22Exercise
                  of stock options
              851
              1
              1,022
              -
              -
              1,023Re-grant
                  of stock options
              -
              -
              93
              -
              -
              93Issuance
                  of common stock to directors
              52
              -
              59
              -
              -
              59Net
                  loss
              -
              -
              -
              (11,340)
              -
              (11,340)Balance
                  at January 31, 2004
              25,915
              26
              71,008
              (51,499)
              (667)
              18,868Issuance
                  of common stock to designees ofTKO
                  Apparel, Inc.
              1,000
              1
              2,184
              -
              -
              2,185Issuance
                  of common stock to B.E.MEnterprises,
                  Ltd for asset acquisition
              215
              1
              949
              -
              -
              950Issuance
                  of stock options to a non-employeerelated
                  to the above asset acquisition
              -
              -
              133
              -
              -
              133Issuance
                  of common stock to a non-employee
              10
              -
              25
              -
              --
              25Exercise
                  of stock options
              1,109
              1
              1,745
              -
              --
              1,746Issuance
                  of common stock to directors
              44
              -
              110
              -
              --
              110Net
                  income
              -
              -
              -
              241
              --
              241Balance
                  at December 31, 2004
              28,293
              29
              76,154
              (51,258)
              (667)
              24,258Issuance
                  of common stock related toacquisition
                  of Joe Boxer ®
              4,350
              4
              36,232
              -
              -
              36,236Issuance
                  of common stock related toacquisition
                  of Rampage ®
              2,171
              2
              20,148
              -
              -
              20,150Warrants
                  granted to non-employeesrelated
                  to acquisitions
              -
              -
              2,441
              -
              -
              2,441Options
                  granted to a non-employee
              -
              -
              173
              -
              -
              173Exercise
                  of stock options
              709
              1
              1,584
              -
              -
              1,585Issuance
                  of common stock to directors
              17
              -
              110
              -
              -
              110Net
                  income
              -
              -
              -
              15,943
              -
              15,943Balance
                  at December 31, 2005
              35,540
              $
                  36
              $
                  136,842
              $
                  (35,315)
              $
                  (667)
              $
                  100,896
 
 
 *See
        accompanying notes to consolidated financial statements.*
 F
            -
            6
   **Iconix
        Brand Group, Inc. and Subsidiaries**
 **Consolidated
        Statements of Cash Flows (in thousands)**
 Year
                  Ended
              11
                  Months Ended
              Year
                  EndedDecember
                  31,
              December
                  31,
              January
                  31,2005
              2004
              2004Cash
                  flows (used in) provided by operating activities:Net
                  income (loss)
              $
                  15,943
              $
                  241
              $
                  (11,340)Adjustments
                  to reconcile net income (loss) to net cash provided by operating
                  activities:Depreciation
                  of property and equipment
              130
              236
              863Amortization
                  of intangibles
              1,733
              1,901
              1,873Gain
                  on sale of marketable securities
              (75)
              -
              -Bad
                  debt expense
              260
              -
              792Issuance
                  of common stock to non-employee directors
              110
              110
              59Stock
                  option compensation non - employees
              173
              25
              -Recovery
                  on receivable
              -
              (53)
              -Reduction
                  of settlement payment
              -
              (238)
              -Write-off
                  of impaired assets
              95
              -
              1,567Shortfall
                  Payment against Guarantee
              (438)
              (7,566)
              (1,626)Shortfall
                  Payment reserve
              -
              685
              -Accrued
                  interest on long-term debt
              (134)
              500
              -Deferred
                  income tax benefit
              (5,132)
              -
              -Changes
                  in operating assets and liabilities, net of business
                  acquisition:Accounts
                  receivable
              (1,553)
              1,046
              4,388Due
                  from affiliate
              34
              103
              (56)Inventories
              279
              7,160
              11,577Prepaid
                  advertising and other
              (1,994)
              688
              (246)Refundable
                  and prepaid taxes
              -
              -
              29Other
                  assets
              (7)
              (1,168)
              115Deferred
                  revenue
              3,003
              (1,277)
              3,056Due
                  to related parties
              -
              (2,342)
              (3,861)Accounts
                  payable and accrued expenses
              (310)
              (330)
              (5,040)Net
                  cash provided by (used in) operating activities
              12,117
              (279)
              2,150Cash
                  flows used in investing activities:Purchases
                  of property and equipment
              (731)
              (30)
              (248)Proceeds
                  from the sale of equity securities of other entities
              110
              -
              -Purchases
                  of equity securities of other entities
              (663)
              -
              -Acquisition
                  of Badgley Mischka
              -
              (372)
              -Acquisition
                  of Joe Boxer
              (40,755)
              -
              -Acquisition
                  of Rampage
              (26,159)
              -
              -Purchase
                  of trademarks
              (320)
              (19)
              -Net
                  cash used in investing activities
              (68,518)
              (421)
              (248)Cash
                  flows (used in) provided by financing activities:Revolving
                  notes payable - bank
              -
              (12,775)
              (8,802)Proceeds
                  from long -term debt
              85,489
              3,600
              -Proceeds
                  of loans from related parties
              (2,465)
              2,465
              -Proceeds
                  from exercise of stock options and warrants
              1,585
              1,746
              1,023Payment
                  of long-term debt
              (17,134)
              (2,630)
              (2,153)Proceeds
                  from common stock issuance
              -
              2,185
              -Prepaid
                  interest expense - long-term
              -
              (500)
              -Factored
                  accounts receivables and payable to factor, net
              3,865
              5,088
              9,013Restricted
                  cash - Current
              (3,564)
              (7)
              (523)Restricted
                  cash - Non Current
              (2,082)
              -
              -Deferred
                  financing costs
              (1,968)
              (475)
              (88)Net
                  cash (used in) provided by financing activities
              63,726
              (1,303)
              (1,530)Net
                  increase (decrease) in cash and cash equivalents
              7,325
              (2,003)
              372Cash
                  and cash equivalents, beginning of year
              268
              2,271
              1,899Cash
                  and cash equivalents, end of year
              $
                  7,593
              $
                  268
              $
                  2,271Balance
                  of restricted cash - Current
              4,094
              530
              523Total
                  cash and cash equivalents including restricted cash, end of
                  year
              $11,687
              $798
              $
                  2,794
 *See
        accompanying notes to consolidated financial statements.*
 F
            -
            7
   
 
 
 **Supplemental
        disclosure of cash flow information:**
 
 Year
                  Ended
              11
                  Months Ended
              Year
                  Ended12/31/2005
              12/31/2004
              1/31/2004Cash
                  paid during the year:Interest
              $3,298
              $2,636
              $2,412Income
                  tax benefits
              $-
              $-
              $(139)
 
 
 **Supplemental
        disclosures of non-cash investing and financing
        activities:**
 
 Year
                  Ended
              11
                  Months Ended
              Year
                  Ended12/31/2005
              12/31/2004
              1/31/2004Issuance
                  of common stock to benefit plan
              $
                  -
              -
              22Acquisitions:Common
                  stock issued
              $56,386
              $950
              $
                  -Options
                  issued - acquisition cost
              $
                  -
              $133
              $
                  -Warrants
                  issued - acquisition cost
              $2,441
              $
                  -
              $
                  -Liabilities
                  assumed
              $14,193
              $
                  -
              $
                  -
 
 
 
 *See
        accompanying notes to consolidated financial statements.*
 F
            -
            8
   **Iconix
        Brand Group, Inc and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **Information
        as of and for the Periods Ended December 31, 2005 and 2004**
 **(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 five brands, Candie’s®,
        Bongo®, Badgley Mischka®, Joe Boxer® and Rampage®, which it licenses to third
        parties for use in connection with a variety of apparel, and fashion products.
        The Company also arranges through its wholly-owned subsidiary Bright Star
        Footwear, Inc. ("Bright Star") for the manufacture of footwear products for
        mass
        market and discount retailers under the private label brand of the
        retailer.
 
 The
        Company's business strategy, as a licensing and marketing company, is to
        maximize the value of its intellectual property by entering into strategic
        licenses with partners who have been selected based upon the Company's belief
        that they will be able to produce and sell quality products in the categories
        of
        their specific expertise. This licensing strategy is designed to permit the
        Company to operate its licensing business with minimal working capital, no
        inventory, production or distribution costs or risks, and utilizing only
        a small
        group of core employees. Prior to May 2003, the Company was engaged in the
        wholesale business of footwear and jeanswear.
 
 On
        July
        1, 2005, the Company changed its corporate name to Iconix Brand Group, Inc.
        and
        its NASDAQ symbol to ICON.
 
 Beginning
        January 2005, the Company changed its business practices with respect to
        Bright
        Star, which resulted in a change in revenue recognition. Bright Star is now
        acting solely as an agent, accordingly, only net commission revenue is
        recognized.
 
 
 **1.
        Summary of Significant Accounting Policies**
 
 *Fiscal
        Year End*
 
 On
        December 7, 2004, the Company announced that beginning January 1, 2005, it
        had
        changed its fiscal year ending on January 31, to a calendar year beginning
        on
        January 1st and ending on December 31st. The change was designed to align
        the
        Company's financial reporting with that of its existing licensees. As a result,
        the current period was reported as the calendar year ended December 31, 2005
        (the “Current Year”). The prior year period ended on December 31, 2004 was
        reported as an 11- month period (the “11-month Prior Year”). For comparative
        purposes, unaudited condensed results of operations data for the period for
        the
        11 month period ended December 31, 2004 is presented in Note 18.
 
 As
        a
        result of the Company's transition to a licensing business, and to a lesser
        extent, its change in fiscal year end and the change in its Bright Star revenue
        reporting, the Company's operating results for the most current year are
        not
        comparable to prior periods, as applicable.
 
 *Principles
        of consolidation*
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiaries. All significant intercompany transactions and
        items
        have been eliminated in consolidation. The Company acquired the Joe Boxer
        brand
        on July 22, 2005 and the Rampage brand on September 16, 2005. All acquisitions
        have been accounted for using purchase price accounting. See Notes 4 and
        5.
 
 *Business
        Combinations*
 
 The
        purchase method of accounting requires that the total purchase price of an
        acquisition be allocated to the assets acquired and liabilities assumedbased
        on
        their fair values on the date of the business acquisition. Any excess of
        the
        purchase price over the estimated fair values of the net assets acquired
        is
        recorded as goodwill.
  For
        the
        period January 31, 2004 through December 31, 2005, the Company completed
        three
        acquisitions. Note 3, 4, and 5 to the financial statements contains a full
        discussion of the Company’s acquisitions. The acquisitions and the acquisition
        dates are as follows:
 
  F
            -
            9
 **Acquired
                  business**
              **Acquisition
                  date**Badgley
                  Mischka
              October
                  29, 2004Joe
                  Boxer
              July
                  22, 2005Rampage
              September
                  16, 2005
 
 *Use
        of Estimates*
 
 The
        preparation of the consolidated financial statements in conformity with
        accounting principles generally accepted in the United States requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the financial statements and the reported amounts of revenues
        and
        expenses during the reporting period. The Company reviews all significant
        estimates affecting the financial statements on a recurring basis and records
        the effect of any adjustments when necessary.
 
 Effective
        July 1, 2005 the Company had a change in estimate of the useful lives of
        both
        the Candie’s and Bongo trademarks to indefinite life. See *Goodwill
        and Other Intangibles* below *.*
 
 *Marketable
        Equity Securities*
 
 In
        November and December 2005, the Company invested $663 in equity securities
        of
        certain public companies that are categorized as available for sale. In December
        2005, the Company sold certain of these shares and $75 was recorded as realized
        gain in the Current Year. The aggregate fair value of these investments
        approximates their respective carrying value.
 
 *Concentration
        of Credit Risk*
 
 For
        the
        Current Year, two licensees accounted for 27.9% and 14.6% of the Company’s net
        revenue, respectively. On a comparable basis, no licensee exceeded 10% of
        the
        Company’s total net revenues in the 11-month Prior Year and 12 months ended
        January 31, 2004 (“Fiscal 2004”).
 
 *Deferred
        Financing Costs*
 
 The
        Company incurred costs (primarily professional fees and placement agent fees)
        in
        connection with bond financings that occurred during the Current Year and
        the
        11-month Prior Year bond financing. These costs have been deferred and are
        being
        amortized using the interest method over the life of the related debt (7
        years).
 
 *Property,
        Equipment and Depreciation*
 
 Property
        and equipment are stated at cost less accumulated depreciation and amortization.
        Depreciation and amortization are determined by the straight line and
        accelerated methods 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. In Current Year, the Company
        wrote
        off leasehold improvement of $91 in connection with an office relocation.
        During
        Fiscal 2004 computer software and leasehold improvements totaling $1.6 million
        were written off in connection with the closing of retail stores, which were
        reported as special charges. See Note 7. Other identifiable intangible assets
        are being amortized on a straight-line basis over the estimated useful life
        of
        the assets over periods ranging from 3-10 years.
 
 *Goodwill
        and Other Intangibles*
 
 F
            -
            10
 In
        June
        2001, the FASB issued Statement of Financial Accounting Standards No. 142
        (SFAS
        No. 142), “Goodwill and Other Intangible Assets,” which changes the accounting
        for goodwill and other intangible assets without determinable lives from
        an
        amortization method to an impairment-only approach. The Candie’s and Bongo
        trademarks had previously been amortized on a straight-line basis over their
        estimated useful lives of approximately 20 years. Effective July 1, 2005,
        the
        Company changed for accounting purposes, the estimated useful lives of the
        Candie’s and Bongo trademarks to be an indefinite life. Accordingly the recorded
        value of these trademarks will no longer be amortized, but instead will be
        tested for impairment on an annual basis. In arriving at the conclusion to
        use
        an indefinite life management considered among other things, the Company’s new
        licensing business model which has expanded the extent of potential use of
        these
        brand names in future years. This has been initially evidenced by the Candies
        licensing contract signed with Kohl’s Department Stores (“Kohl’s”,) in late 2004
        which has very rapidly expanded the Candies name to over 18 product categories
        in almost 700 Kohl’s retail locations. Further the Candie’s brand has been
        present in the US market since 1970s. Similarly, the Bongo brand has expanded
        from a predominantly jeanswear brand to a broad variety of product groups
        and
        multiple licenses in the U.S. and internationally. Brand recognition for
        both of
        these brands is very high, has been generally stable for an extended period
        of
        time, and the Company expects this consumer recognition and acceptance to
        remain
        stable or grow in the future based on anticipated broader distribution and
        product line expansion. The impact of this change in estimate for the Current
        Year was a reduction in amortization expense relating to the Candie’s and Bongo
        trademarks totaling $595 or $0.02 per fully diluted earnings per share. As
        of
        December 31, 2005 the net book value of the Candie’s and Bongo trademarks
        totaled $14.2 million.
 
 Under
        SFAS No. 142, beginning on February 1, 2002, amortization of goodwill
        ceased and the
        Company annually tests goodwill for impairment.
 
 The
        changes in the carrying amount of goodwill for the year ended December 31,
        2005,
        by segment and in total, are as follows:
 
 12
                  months
              11
                  months
              12
                  monthsEnded
              Ended
              Ended12/31/2005
              12/31/2004
              1/31/2004Beginning
                  Balance
              $
                  25,241
              $
                  25,241
              $
                  25,241Acquisition
                  of Joe Boxer (Note 4)
              1,932
              -
              -Acquisition
                  of Rampage (Note 5)
              5,662
              -
              -Ending
                  Balance
              $
                  32,835
              $
                  25,241
              $
                  25,241
 
 Goodwill
        was initially tested in the first quarter of Fiscal 2003 for impairment upon
        adoption of SFAS No. 142. There have been no impairments to the carrying
        amount
        of goodwill in any period. In the Current Year, because of the change in
        the
        business model, the Company operates as a single integrated business, and
        as
        such has one operating segment which is also used as the reporting unit for
        purposes of evaluating goodwill impairment. The fair value of the reporting
        unit
        is determined using discounted cash flow analysis and estimates of sales
        proceeds. The annual evaluation of goodwill is performed on October 1, the
        beginning of the Company’s fourth fiscal quarter.
 
 *Revenue
        Recognition*
 
 The
        Company has entered into various trade name license agreements that provide
        revenues based on minimum royalties and additional revenues based on a
        percentage of defined sales. Minimum royalty revenue is recognized on a
        straight-line basis over each period, as defined, in each license agreement.
        Royalties exceeding the defined minimum amounts are recognized as income
        during
        the period corresponding to the licensee’s sales.
 
 Beginning
        January 2005, the Company changed its business practices with respect to
        Bright
        Star Footwear, Inc (“Bright Star”), a subsidiary of the Company, which resulted
        in a change in revenue recognition for the Current Year. Bright Star now
        acts as
        an agent, therefore only net commission revenue is recognized commencing
        January
        1, 2005.
 
 Revenue
        is recognized upon shipment with related risk and title passing to the
        customers. Allowances for chargebacks, returns, and other charges are recorded
        at the sales date based on customer specific projections as well as historical
        rates of such allowances.
 
 *Significant
        Contracts*
 
 In
        December 2004, the Company entered into a license agreement with Kohl's,
        which
        was subsequently amended in February 2005 (the “Kohl’s License”). Pursuant to
        the Kohl’s License, the Company granted Kohl's the exclusive right to design,
        manufacture, sell and distribute a broad range of products under the Candie’s
        trademark, including women's, juniors' and children's apparel, accessories
        (except prescription eyewear), beauty and personal care products, home
        accessories and electronics. Kohl's was also granted the non-exclusive right
        to
        sell footwear and handbags bearing the Candie’s brand through December 31, 2006,
        which rights become exclusive to Kohl's on January 1, 2007. The initial term
        of
        the Kohl’s License expires on January 29, 2011, subject to Kohl's option to
        renew it for up to three additional terms of five years, each contingent
        on
        Kohl's meeting specified performance and minimum sale standards. The agreement
        also contains certain minimum royalties that Kohl's is obligated to pay the
        Company. Kohl's is also obligated to pay the Company an advertising royalty
        equal to of 1% of net sales under the Kohl’s License each contract
        year.
 
 F
            -
            11
 In
        connection with the Kohl’s License, the Company amended the license agreement
        with Steve Madden LLC (the “Candie’s/Madden Footwear License”), which had an
        original termination date of December 31, 2009, and its existing handbag
        license
        agreement with LaRue Distributors, Inc. (“LaRue”), which had an original
        termination date of December 31, 2007, to accelerate their termination dates
        to
        December 31, 2006 in order to provide Kohl’s with the exclusive rights to
        footwear and handbags commencing as of January 1, 2007. In connection with
        these
        amendments, the Company has agreed to make certain payments to Steve Madden
        and
        LaRue in the event that Kohl’s fails to use Steve Madden as a supplier of its
        Candie’s shoes and purchases less than designated amounts of Candie’s footwear
        goods from Steve Madden through January 2011 or fails to use LaRue as a supplier
        of its Candie’s handbags and purchases less than designated amounts of Candie’s
        handbag goods from LaRue through December 2010. Kohl’s continues to use Steve
        Madden and LaRue as their partners and therefore there are no liabilities
        under
        this provision as of December 31, 2005. The only product category with respect
        to which Kohl’s will not have exclusive rights to the Candie’s brand as of
        January 1, 2007, is prescription eyewear, which has been licensed to Viva
        International Group, Inc since 1998.
 
 As
        part
        of the Joe Boxer brand acquisition, the Company acquired its license agreement
        with respect to Kmart (the “Kmart License”). Pursuant to this license, which
        commenced in August 2001, Kmart (now Sears Holding Corp.) was granted the
        exclusive right to manufacture, market and sell through Kmart stores located
        in
        the United States, its territories and Puerto Rico a broad range of products
        under the Joe Boxer trademark, including men’s, women’s and children’s
        underwear, apparel, apparel-related accessories, footwear and home products.
        The
        initial term of the Kmart license expires on December 31, 2007. The Kmart
        license provides for guaranteed minimum royalty payments of $19 million each
        year for the calendar years 2006 and 2007.
 
 *Taxes
        on Income*
 
 The
        Company uses the asset and liability approach of accounting for income taxes
        and
        provides deferred income taxes for temporary differences that will result
        in
        taxable or deductible amounts in future years based on the reporting of certain
        costs in different periods for financial statement and income tax purposes.
        Valuation allowances are recorded when uncertainty regarding their realizability
        exists.
 
 *Stock-Based
        Compensation*
 
 Pursuant
        to a provision in SFAS No. 123(R), "Accounting for Stock-Based Compensation",
        the Company has 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 has 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 recognizes compensation expense for stock-based
        awards to employees for options granted at below-market prices, with the
        expense
        recognized over the vesting period of the options.
 
 In
        December 2005, the Company’s Board of Directors approved the accelerated vesting
        of all employee stock options previously granted under the Company’s various
        non-qualified stock option plans, which would have been unvested as of December
        31, 2005. As a result, all options granted as of December 31, 2005, except
        those
        based on performance became exercisable immediately. The number of shares,
        exercise prices and other terms of the options subject to the acceleration
        remain unchanged. The acceleration of such option vesting resulted in an
        additional $446 of compensation expense being reflected in pro-forma net
        income
        for the Current Year shown in the table below, an amount that would have
        otherwise been recorded as compensation expense in the years ending December
        31,
        2006 and 2007 had no impact on compensation recognition in 2005 as the options
        would have been unexpired. The purpose of accelerating the vesting of these
        options was to enable to Company to avoid recognizing stock based compensation
        expense associated with these options in future periods after the Company
        adopted SAFS No 123 (R).
 
 The
        stock-based employee compensation cost that would have been included in the
        determination of net income if the fair value based method had been applied
        to
        all awards, as well as the resulting pro forma net income and earnings per
        share
        using the fair value approach, are presented in the following table. The
        pro
        forma adjustments for compensation cost have not been offset by a related
        income
        tax benefit, consistent with the manner in which the Company currently records
        its provision for income taxes. These pro forma amounts may not be
        representative of future disclosures since the estimated fair value of stock
        options is amortized to expense over the vesting period, and additional options
        may be granted in future years. As of December 31, 2005, all employee options
        are vested so no compensation cost will be recognized for all existing options
        outstanding, except for performance based options granted to William Sweedler
        in
        connection to Joe Boxer acquisition. See Note 4. 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 9 of Notes
        to
        Consolidated Financial Statements.
 
 F
            -
            12
 Year
                  ended December 31,
              11
                  Months ended December 31,
              Year
                  ended January 31,2005
              2004
              2004Net
                  income (loss) - as reported
              $15,943
              $241
              $(11,340)Add:
                  Stock-based employee Compensation included in reported net
                  income
              -
              -
              -Deduct:
                  Stock-based employee compensation determined under the fair value
                  based
                  method
              (9,601)
              (1,458)
              (1,480)Pro
                  forma net income (loss)
              $6,342
              $(1,217)
              $(12,820)Basic
                  earnings (loss) per share:As
                  reported
              $0.51
              $(0.01)
              $(0.45)Pro
                  forma
              $0.20
              $(0.05)
              $(0.50)Diluted
                  earnings (loss) per share:As
                  reported
              $0.46
              $(0.01)
              $(0.45)Pro
                  forma
              $0.18
              $(0.05)
              $(0.50)
 
 *Fair
        Value of Financial Instruments*
 
 The
        carrying amounts reported in the consolidated balance sheets for cash and
        cash
        equivalents, available-for-sale 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
        (Loss) Per Share*
 
 Basic
        earnings (loss) per share includes no dilution and is computed by dividing
        net
        income available (loss attributable) to common shareholders by the weighted
        average number of common shares outstanding for the period. Diluted earnings
        per
        share reflect, in periods in which they have a dilutive effect, the effect
        of
        common shares issuable upon exercise of stock options. The difference between
        reported basic and diluted weighted-average common shares results from the
        assumption that all dilutive stock options outstanding were exercised and
        all
        convertible bonds have been converted into common stock. Diluted loss per
        share
        reflects, in periods in which they have a dilutive effect, the effect of
        common
        shares issuable upon exercise of stock options.
 
 *Advertising
        Campaign Costs*
 
 The
        Company records national advertising campaign costs as an expense concurrent
        with the first showing of the related advertising and other advertising costs
        when incurred. Advertising expenses for Current Year, the 11-month Prior
        Year,
        and Fiscal 2004 amounted to $2,937, $1,782, and $1,984, respectively.
 
 *New
        Accounting Standards*
 
 In
        May
        2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,
        a
        replacement of Accounting Principles Board ("APB") Opinion No. 20 and FASB
        Statement No. 3." SFAS No. 154 requires retrospective application to prior
        periods' financial statements of a voluntary change in accounting principle
        unless it is impracticable. APB Opinion No. 20, "Accounting Changes," previously
        required that most voluntary changes in accounting principle be recognized
        by
        including in net income of the period of the change the cumulative effect
        of
        changing to the new accounting principle. SFAS No. 154 became effective for
        our
        Company on January 1, 2006. The Company believes that the adoption of SFAS
        No.
        154 will not have a material impact on its consolidated financial
        statements.
 
 In
        December 2004, the FASB issued SFAS No. 153, “Exchanges of Monetary Assets,”
which addresses the measurement of exchanges of nonmonetary assets and
        eliminates the exception from fair value measurement for nonmonetary exchanges
        of similar productive assets and replaces it with an exception for exchanges
        that do not have commercial substance. SFAS No. 153 is effective for nonmonetary
        asset exchanges occurring in fiscal periods beginning after June 15, 2005,
        with
        earlier application permitted. The adoption of SFAS No. 153 will have no
        impact
        on the Company’s results of operations or its future financial position or
        results of operations.
 
 F
            -
            13
 In
        December 2004, the FASB issued FAS No. 123(R), "Share-Based Payment," an
        amendment of FASB Statements 123 and 95. FAS No, 123(R) replaced FAS No.
        123,
        "Accounting for Stock-Based Compensation," and supersedes APB Opinion No.
        25,
        "Accounting for Stock Issued to Employees." This statement required companies
        to
        recognize the fair value of stock options and other stock-based compensation
        to
        employees beginning with fiscal periods beginning after June 15, 2005. In
        April
        2005, the Securities and Exchange Commission approved a new rule for public
        companies which delays the adoption of this standard for an additional nine
        months. This means that the Company is required to implement FAS No, 123(R)
        in
        the quarter beginning January 1, 2006. The Company currently measures
        stock-based compensation in accordance with APB Opinion No. 25, as discussed
        above. The impact on the Company's financial condition and results of operations
        of adopting FAS No. 123(R) will depend on the number and terms of stock options
        granted in future years under the modified prospective method, the amount
        of
        which can not currently be estimated by management.
 
 *Presentation
        of Prior Year Data*
 
 Certain
        reclassifications have been made to conform prior year data with the current
        presentation.
  
 **2.
        Unzipped Apparel, LLC (“Unzipped”)**
 
 *Equity
        Investment:*
 
 On
        October 7, 1998, the Company formed Unzipped with joint venture
        partner Sweet
        Sportswear, LLC (“Sweet”) ,
        the
        purpose of which was to market and distribute apparel under the BONGO label.
        The
        Company and Sweet each had a 50% interest in Unzipped. Pursuant to the terms
        of
        the joint venture, the Company licensed the BONGO trademark to Unzipped for
        use
        in the design, manufacture and sale of certain designated apparel products.
 
 *Acquisition:*
 
 On
        April
        23, 2002, the Company acquired the remaining 50% interest in Unzipped from
        Sweet
        for a purchase price of three million shares of the Company’s common stock and
        $11 million in debt evidenced by the 8% Senior Subordinated Note due in 2012
        (“Sweet Note”). In connection with the acquisition of Unzipped, the Company
        filed a registration statement with the SEC for the three million shares
        of the
        Company’s common stock issued to Sweet, which was declared effective by the SEC
        on July 29, 2003.
 
 *Revolving
        Credit Agreement:*
 
 On
        February 25, 2003, Unzipped entered into a two-year $25 million credit facility
        (“the Unzipped Credit Facility”) with GE Capital Commercial Services, Inc.
        Borrowings were limited by advance rates against eligible accounts receivable
        and inventory balances, as defined. Under the Unzipped Credit Facility, Unzipped
        could also arrange for letters of credit in an amount up to $5 million. The
        borrowings bore interest at a rate of 2.25% per annum in excess of the 30
        day
        Commercial Paper rate or 3%, whichever is greater. Borrowings under the Unzipped
        Credit Facility were secured by substantially all of the assets of Unzipped.
        In
        addition, Unzipped had agreed to subordinate its accounts payable to Azteca
        Production International, Inc (“Azteca”), and Apparel Distribution Services, LLC
        (“ADS”), all of which were related to Sweet, to
        GECCS.
        Unzipped was required to meet a minimum tangible net worth covenant, as defined.
        At October 31, 2004, the loan had been repaid in full and the borrowing
        arrangement with GECCS was terminated.
 
 *Related
        Party Transactions:*
 
 Prior
        to
        August 5, 2004, Unzipped was managed by Sweet pursuant to a management agreement
        (the “Management Agreement”). Unzipped also had a supply agreement with Azteca
        and a distribution agreement with ADS ). All of these entities are owned
        or
        controlled by Hubert Guez.
 
 Pursuant
        to the Management Agreement, Sweet was obligated to manage the operations
        of
        Unzipped in return for, commencing in Fiscal 2004, a management fee based
        upon
        certain specified percentages of net income that Unzipped would achieved
        during
        the three-year term. In addition, Sweet guaranteed that the net income, as
        defined, of Unzipped commencing in Fiscal 2004 would be no less than $1.7
        million for each year during the term (the “Guarantee”). In the event that the
        Guarantee is not met, under the Management Agreement, Sweet is obligated
        to pay
        to the Company the difference between the actual net income of Unzipped,
        as
        defined, and the Guarantee (the “Shortfall Payment”). The Shortfall Payment can
        be offset against the Sweet Note in the original amount of $ 11 million at
        the
        option of either Sweet or the Company.
 
 F
            -
            14
 For
        the
        Current Year, Unzipped had a net loss (as
        defined, for the purpose of determining if the Guarantee had been met) of
        $296,
        as compared to a net loss (as defined, for the purpose of determining if
        the
        Guarantee had been met) of $6.4 million in the 11-month Prior Year and a
        net
        income (as defined, for the purpose of determining if the Guarantee had been
        met) of $74 in Fiscal 2004. Consequently for the Current Year there was a
        Shortfall Payment of $438, as compared to an adjusted Shortfall Payment of
        $7.6
        million, net of $685 reserve, in the 11-month Prior Year, and $1.6 million
        in
        Fiscal 2004. The adjusted Shortfall Payments have been recorded in the
        consolidated income statements as a reduction of Unzipped’s cost of sales (since
        the majority of Unzipped’s operations were with entities under common ownership
        with Sweet, including all of the purchases of inventory) and on the balance
        sheet as a reduction of the Sweet Note based upon the right to offset in
        the
        Management Agreement. After adjusting for the Shortfall Payment, Unzipped
        reported a net loss of $38 for the Current Year, compared to net income of
        $461
        in the 11-month Prior Year and net income of $1.4 million in Fiscal 2004.
        Due to
        the immaterial nature of the related amounts, the net loss of $38 from Unzipped
        has been included in the selling, general and administrative expense in the
        Company’s Consolidated Statements of Operations for the Current
        Year.
 
 Prior
        to
        August 5, 2004, there was a distribution agreement between Unzipped and ADS
        pursuant to which Unzipped paid ADS a per unit fee for warehousing and
        distribution functions and per unit fee for processing and invoicing orders.
        The
        agreement also provided for reimbursement for certain operating costs incurred
        by ADS and charges for special handling fees at hourly rates approved by
        management. Prior to August 5, 2004, there was also a supply agreement in
        effect
        between Unzipped and Azteca pursuant to which Unzipped paid Azteca cost plus
        6%
        for goods, and was entitled to up to 30 days in which to pay Azteca.
 
 Prior
        to
        August 5, 2004, Azteca allocated expenses to Unzipped for Unzipped’s use of a
        portion of Azteca’s office space, design and production team and support
        personnel. Unzipped also occupied office space in a building rented by ADS
        and
        Commerce Clothing Company, LLC, a related party to Azteca.
 
 On
        August
        5, 2004, Unzipped terminated the Management Agreement with Sweet, the supply
        agreement with Azteca and the distribution agreement with ADS and commenced
        a
        lawsuit against Sweet, Azteca, ADS and Hubert Guez. See Note 11.
 
 The
        related party transactions, most of which are being disputed in the litigation
        as further described in Note 8, are summarized as follows:
 Year
                    ended
                11-month
                    ended
                Year
                    ended12/31/2005
                12/31/2004
                1/31/2004Products
                    purchased from Azteca
                $
                    -
                $
                    22,886
                $
                    50,907Allocated
                    office space, design and production team and supportpersonnel
                    expense from Azteca
                -
                118
                452Management
                    fee
                -
                -
                -Shortfall
                    Payment per Management Agreement
                438
                7,566
                1,626Interest
                    expense paid on Azteca subordinated debt
                -
                -
                -Expenses
                    of distribution services per distribution agreement with
                    ADS
                -
                2,405
                3,262
  At
        December 31, 2005, the Company included in accounts payable and accrued expenses
        due to Azteca and ADS $847 and $2.3 million, respectively. These amounts,
        however, are in dispute in the litigation. See Note 11.
 
 In
        a
        separate transaction concerning Unzipped, Bongo Apparel, Inc (“BAI”), licensee
        under the Jeanswear License, and managed the transition of the operations
        of
        Unzipped to a licensing business beginning on August 5, 2004. In
        connection with Jeanswear License and this transition, the designees of TKO
        Apparel (an affiliate of BAI) purchased one million shares of the common
        stock
        of the Company at a price of $2.20 per share. In a separate transaction,
        TKO
        agreed to lend Unzipped up to $2.5 million. As of December 31, 2004, the
        loan
        balance was $2.5 million, which the Company repaid in 2005.
 
 **3.**
            **Badgley
                Mischka Licensing LLC** 
 On
        October 29, 2004 (the "Closing Date"), the Company acquired the principal
        assets
        (the "Purchased Assets") of B.E.M. Enterprise, Ltd. (“BEM”), the holding company
        for the Badgley Mischka designer business from parent company Escada U.S.A.
        The
        purchased assets include the Badgley Mischka® trademark, two existing licenses
        and the rights to operate the existing Badgley Mischka retail store located
        on
        Rodeo Drive in Beverly Hills, California. The purchase price for the transaction
        was $950, (excluding $372 of fees and expenses related to the acquisition)
        which
        was paid by the Company's issuance of 214,981 shares of the Company's common
        stock. The purchase price of the Purchased Assets was subject to an upward
        adjustment in the event that the closing sale price of the Company's common
        stock on the date which was 180 days after the Closing Date was less than
        the
        closing sale price on the Closing Date. No such adjustment to the purchase
        price
        was necessary as the closing sales price at April 27, 2005 was $4.95, greater
        than the closing price of $4.44 on the Closing Date. The Company filed a
        registration statement with the SEC for the resale of the 214,981 shares
        of the
        Company's common stock issued to BEM, which was declared effective by the
        SEC on
        December 1, 2004.
 
 F
            -
            15
 Included
        in cash on the Company’s condensed consolidated financial statements is a term
        deposit in the principal amount of $100 which has been pledged as collateral
        to
        the landlord of the Badgley Mischka retail store until December 31, 2005,
        in
        connection with the leased premises. The term deposit was redeemed in full
        in
        January 2006.
 
 The
        Company was advised in acquisition of the Purchased Assets by UCC Funding
        Corporation (“UCC”), of which Robert D’Loren, a then director of the Company, is
        President. In connection with the services provided in the acquisition, Mr.
        D’Loren, the sole shareholder of UCC, received 50,000 stock options, which
        were
        valued at $133 and included in the cost of the acquisition. In addition,
        UCC
        receives a fee of 5% of the gross revenues that the Company derives from
        the
        BADGLEY MISCHKA trademark and all derivative trademarks, which right was
        assigned to Content Holding, which is owned by Mr. D’Loren. In addition, should
        the Company sell all or substantially all of the acquired assets, UCC will
        receive a cash payment calculated under a formula based on the sales
        price
 
 **4.**
            **Acquisition
                Of Joe Boxer** 
 On
        July
        22, 2005, the Company acquired the Joe Boxer ® brand from Joe Boxer Company, LLC
        and its affiliates. Joe Boxer is a leading lifestyle brand of apparel, apparel
        accessories and home goods for men, women, teens and children. The Joe Boxer
        brand is currently licensed exclusively to Kmart in the United States and
        internationally to manufacturers in Canada and Mexico.
 
 The
        aggregate purchase price paid was $88.9 million as detailed in the table
        below.
        Based on the Company’s assessment of the fair value of the assets acquired,
        approximately $79.8 million has been assigned to the Joe Boxer trademark.
        Under
        the purchase method of accounting, tangible and identifiable intangible assets
        acquired and liabilities assumed are recorded at their estimated fair values.
        The estimated fair values and useful lives of intangible assets acquired
        have
        been supported by third party valuation based on a discounted cash flow
        analysis. The Joe Boxer trademark has been determined to have an indefinite
        useful life and accordingly, consistent with FAS 142, no amortization will
        be
        recorded in the Company’s consolidated statements of operations. Instead, the
        related intangible asset will be tested for impairment at least annually,
        using
        discounted cash flow analysis and estimates of future sales proceeds with
        any
        related impairment charge recorded to the statement of operations at the
        time of
        determining such impairment.
 
 Total
        purchase price was comprised as follows:
 Cash
                  paid for acquisition
              $
                  40,755Fair
                  value of 4,350,000 restricted sharesof
                  common stock at $8.33 per share
              36,236Assumption
                  of K-mart loan, including$3,509
                  due within 12 months
              10,798Accrued
                  interest, K-mart loan
              309Value
                  of warrants issued as acost
                  of the acquisition
              788Total
                  cost of acquisition
              $
                  88,886
 
 The
        purchase price was allocated to the estimated fair value of the assets acquired
        as follows:
 Accounts
                  receivable
              $
                  3,121Deferred
                  tax asset
              2,700Licensing
                  contracts
              1,333Joe
                  Boxer trademark
              79,800Goodwill
              1,932Total
                  allocated purchase price
              $
                  88,886
 
 The
        $1.3
        million of licensing contracts is being amortized on a straight-line basis
        over
        the remaining contractual period of approximately 29 months. The goodwill
        of
        $1.9 million is not being amortized but instead is subject to a test for
        impairment on at least an annual basis. Any adjustments resulting from the
        finalization of the purchase price allocations will affect the amounts assigned
        to goodwill.
 
 As
        part
        of this acquisition, the Company entered into an employment agreement with
        William Sweedler as Executive Vice President of the Company and President
        of the
        Joe Boxer division. As part of his compensation, on July 22, 2005, he was
        granted 1,425,000 stock options of which 225,000 vested immediately, and
        1,200,000 will vest contingent upon achievement by the Joe Boxer division
        of
        certain revenues levels.
 
 F
            -
            16
 The
        Company obtained $40 million in cash to pay a portion of the purchase price
        for
        the Joe Boxer assets through the debt issuance by IP Holdings, LLC (“IPH”), a
        subsidiary of the Company, of a $63 million asset-backed note. Approximately
        $17.5 million of the proceeds of the note was used to refinance previously
        existing notes with the same lender, $40.0 million was paid to the sellers,
        approximately $1.0 million was used to pay costs associated with the debt
        issuance, $310 was deposited in a reserve account as required by the lender,
        and
        approximately $4.0 million was available to the Company for working capital
        purposes. Costs associated with the debt issuance of approximately $1.0 million
        have been deferred and are being amortized over the 7-year life of the
        refinanced debt.
 
 UCC
        acted
        as a financial advisor to IPH in connection with the Joe Boxer and the Rampage
        brand acquisitions. On June 7, 2005, the Company entered into an agreement
        with
        UCC to issue UCC a ten-year warrant ("Warrant") to purchase an aggregate
        of
        1,000,000 shares of the Company's common stock ("Warrant Shares") at a price
        of
        $5.98 per share, subject to anti-dilution adjustments under certain conditions.
        Pursuant to the agreement, UCC will act, for a 36-month term, as the Company's
        exclusive advisor in connection with providing various advisory services
        relating to the Company's acquisitions. One third of the Warrant Shares vest
        upon consummation of each acquisition, for a total of three acquisitions.
        On
        July 22, 2005, 333,334 of the Warrants Shares vested, with a fair value of
        $788,
        upon consummation of the acquisition of Joe Boxer
 
 On
        September 19, 2005, the Company filed with the SEC a registration statement
        covering the resale of certain of the shares of common stock issued in
        connection with the acquisition of Joe Boxer and the resale of the Warrant
        Shares. The registration statement was declared effective by the SEC on October
        12, 2005
 
 The
        following unaudited pro-forma information presents a summary of the Company's
        consolidated results of operations as if the Joe Boxer acquisition and Rampage
        acquisition (See Note 5) and their related financing had occurred on January
        1,
        2004. These pro forma results have been prepared for comparative purposes
        only
        and do not purport to be indicative of the results of operations which actually
        would have resulted had the acquisitions occurred on January 1, 2004, or
        which
        may result in the future.
 
 Year
                  ended
              11
                  months ended12/31/2005
              12/31/2004(000's
                  omitted, except per share)Total
                  net revenues
              $47,879
              $98,345Operating
                  income
              $30,596
              $28,229Net
                  Income
              $26,799
              $16,700Basic
                  earnings per common share
              $0.77
              $0.50Diluted
                  earnings per common share
              $0.65
              $0.47
 
 **5.**
            **Acquisition
                Of Rampage** 
 On
        September 16, 2005, the Company acquired the Rampage brand from Rampage
        Licensing, LLC, a California limited liability company.
 
 The
        purchase price for the acquisition was $47.3 million as detailed in the table
        below. Based on the Company’s preliminary assessment of the fair value of the
        assets acquired, approximately $41.1 million has been assigned to the Rampage
        trademark. Under the purchase method of accounting, tangible and identifiable
        intangible assets acquired and liabilities assumed are recorded at their
        estimated fair values. The estimated fair values and useful lives of the
        intangible assets acquired have been supported by third party valuation.
        The
        Rampage trademark has been determined to have an indefinite useful life,
        and
        accordingly, consistent with FAS 142, no amortization will be recorded in
        the
        Company’s consolidated statements of operations. Instead, the related intangible
        asset will be tested for impairment at least annually, with any related
        impairment charge recorded to the statement of operations at the time of
        determining such impairment.
 
 Total
        purchase price was determined as follows:
 Cash
                  paid for acquisition
              $
                  26,159Fair
                  value of 2,171,336 restricted sharesof
                  common stock at $9.28 per share
              20,150Value
                  of warrants issued as acost
                  of the acquisition
              1,653Other
                  estimated costs of acquisition
              150Total
                  cost of acquisition
              $
                  48,112
  
 F
            -
            17
 The
        purchase price was allocated to the estimated fair value of the assets acquired
        as follows:
 Rampage
                  licensing contract
              $
                  550Rampage
                  domain name
              230Rampage
                  non-compete agreement
              600Rampage
                  trademark
              41,070Goodwill
              5,662Total
                  allocated purchase price
              $
                  48,112
 
 The
        licensing contracts are to be amortized on a straight-line basis over the
        remaining contractual period of approximately 3 years, the Rampage domain
        name
        is to be amortized on a straight-line basis over 5 years, and the value of
        the
        non-compete agreement is to be amortized on a straight-line basis over 2
        years.
        The goodwill of approximately $5.7 million is subject to a test for impairment
        on an annual basis. A net adjustment of $669resulted from the finalization
        of
        the purchase price allocations was made to increase the amounts assigned
        to
        goodwill.
 
 The
        Company obtained $25.75 million in cash to pay a portion of the purchase
        price
        of the Rampage assets through the debt issuance by IPH of a $103 million
        asset-backed note. Approximately $63 million of the proceeds of the note
        was
        used to refinance the note described in Note 4, $25.75 million was paid to
        the
        sellers, approximately $774 was used to pay costs associated with the debt
        issuance, $1.4 million was deposited in a reserve account as required by
        the
        lender, and $12 million was deposited in an escrow account for the benefit
        of
        the holders of the note, to be used by IPH only for the purchase of additional
        intellectual property assets from the Company. The purchase did not occur
        prior
        to November 15, 2005 so the $12 million was redeemed in November 2005 with
        no
        penalty. Costs associated with the debt issuance have been deferred and are
        being amortized over the 7-year life of the notes.
 
 In
        accordance with the agreement with UCC (See Note 4), an additional 333,333
        of
        the Warrants Shares vested on September 16, 2005 with a fair value of $1.7
        million upon consummation of the Rampage acquisition, for which UCC acted
        as a
        financial advisor to IPH
 
 On
        October 17, 2005, the Company filed with the SEC a registration statement
        covering the resale of the shares of common stock issued in connection with
        the
        acquisition of Rampage. The registration statement was declared effective
        by the
        SEC on October 27, 2005
 
 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, 2004, see Note 4.
 
 
 **6.**
            **Other
                Intangibles, net** 
 Other
        intangibles, net consist of the following:
  Estimated
              
              December
                  31,
              December
                  31,Lives
                  in years
              
              2005
              2004Gross
                  carrying amount
              Accumulated
                  amortization
              Gross
                  carrying amount
              Accumulated
                  amortizationTrademarks
              10
                  - indefinite(1)
              
              $146,626
              $9,694
              $25,437
              $8,903Non-compete:Candies
              15
              
              2,275
              2,275
              2,275
              2,255Rampage
              2
              
              600
              81
              -
              -Licensing
                  contract:Joe
                  Boxer
              2.5
              
              1,333
              218
              -
              -Rampage
              3
              
              550
              51
              -
              -Rampage
                  domain name
              5
              
              230
              14
              -
              -Other
                  intangibles
              3(2)
              
              900
              900
              900
              863$
                  152,514
              $
                  13,233
              $
                  28,612
              $
                  12,021
 
 Amortization
        expense for intangible assets was $1.2 million, $1.5 million, and $1.8 million
        for the Current Year, the 11-month Prior Year, and Fiscal 2004, respectively.
        The trademarks of Joe Boxer and Rampage have been determined to have an
        indefinite useful life and accordingly, consistent with FAS 142, no amortization
        will be recorded in the Company’s consolidated statements of operations.
        Instead, the related intangible asset will be tested for impairment at least
        annually, with any related impairment charge recorded to the statement of
        operations at the time of determining such impairment. 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, 2010 are estimated to be $1.3 million,
        $1.2 million, $428, $247, and $236, respectively.
 
 F
            -
            18
 (1)  The
        amortization for Candies and Bongo trademarks are as of June 30, 2005. Effective
        July 1, 2005, the Company changed their useful lives to indefinite.
 (2)  During
        the 4 th quarter
        of Fiscal 2004, the Company changed its estimate of the life of this item
        from 4
        years to 3 years. As a result, the quarterly amortization is $113 beginning
        in
        the 4 th quarter
        of Fiscal 2004. See Note 14.
 
 
 **7.**
            **Special
                Charges** 
 Special
        charges consist of the following:
 12
                  Months
              11
                  Months
              12
                  Monthsended
              ended
              endedDecember
                  31,
              December
                  31,
              January
                  31,2005
              2004
              2004Impairment
                  loss and lease obligations onretail
                  store closings (A)
              $
                  -
              $
                  -
              $
                  1,241Professional
                  fees for the SEC investigation andvarious
                  litigation and litigation settlement.See
                  Note 8. (B)
              -
              -
              583Termination,
                  severance pay of certain employees andbuyout
                  of employment contracts (C)
              -
              -
              743Write-off
                  of fixed assets and abandoned leasehold improvements (D)
              -
              -
              1,567Penalty
                  payment to Sweet. (E)
              -
              -
              83Accrued
                  lease expense for the closed officespace
                  through the end of the lease. (F)
              -
              -
              247Settlement
                  of minimum commissions underfactoring
                  contract (G)
              -
              -
              165Professional
                  fees related to Unzipped’s litigation (H)
              1,466
              533
              -Caruso
                  shareholder lawsuit settlement (I)
              -
              (238)
              -$
                  1,466
              $
                  295
              $
                  4,629
 
 (A)
            In
                connection with the closing of retail stores. The 2004 charge includes
                the
                settlements of lease obligations of $1.2 million. The 2003 charge
                includes
                the write-off of leasehold improvements of $623 and an estimated
                cost of
                lease obligations of $300. 
 (B)
            In
                connection with a class action lawsuit and other litigation more
                fully
                described in Note 8 the Company incurred professional fees and other
                related costs. 
 (C)
            In
                connection with severance pay for approximately 170 and 10 terminated
                employees in Fiscal 2004 and Fiscal 2003, respectively. The Company
                accrued $178 of severance at January 31, 2004. 
 (D)
            In
                connection with the write-off of computer equipment & software,
                leasehold improvements, furniture & fixtures, trade show booths and
                displays due to the transition of the wholesales footwear business
                in
                Fiscal 2004 to a licensing operation. 
 (E)
            In
                connection with a late registration filing with SEC related to the
                acquisition of Unzipped. See Note 2. 
 (F)
            In
                connection with an office space closing. 
 (G)
            In
                connection with a termination of “the Credit Facility”. See Note
                8. 
 (H)
            See
                Note 11. 
 (I)
            See
                Note 11. 
 F
            -
            19
 
 **8.**
            **Debt
                Arrangements** 
 *Asset-Backed
        Notes*
 
 In
        August
        2002, IPH issued in a private placement $20 million of asset-backed notes
        secured by intellectual property assets (trade names, trademarks, license
        agreements and payments and proceeds with respect thereto) of IPH. The notes
        had
        a 7-year term with a fixed interest rate of 7.93% with quarterly principal
        and
        interest payments of approximately $859. After funding a liquidity reserve
        account in the amount of $2.9 million, the net proceeds of the notes ($16.2
        million) were used by the Company to reduce amounts due by the Company under
        its
        then-existing revolving credit facilities. In April 2004, IPH issued an
        additional $3.6 million in subordinated asset-backed notes secured by its
        intellectual property assets. The additional borrowing had a maturity date
        of
        August 2009, with a floating interest rate of LIBOR + 4.45% and quarterly
        principal and interest payments and $500 of interest prepaid at closing.
        The net
        proceeds of $2.9 million were used by the Company for general working capital
        purposes. As of July 22, 2005, the total principal on these notes was
        approximately $17.5 million, which were refinanced in connection with the
        Joe
        Boxer and Rampage acquisition described below.
 
 In
        the
        fiscal quarter ended September 30, 2005, the Company acquired the Joe Boxer
        brand from Joe Boxer Company, LLC and its affiliates, and the Rampage brand
        from
        Rampage Licensing, LLC. See Notes 4 and 5. The financing for the acquisitions
        was accomplished through two private placements by IPH of asset-backed notes
        for
        a combined total of $103 million secured by the intellectual property assets
        (including the Joe Boxer assets and the Rampage assets) owned by IPH. The
        proceeds of the notes were used as follows: approximately $17.5 million was
        used
        to refinance previously issued notes, $40.0 million was paid to the sellers
        of
        Joe Boxer, approximately $25.8 million was paid to the sellers of Rampage,
        $1.7
        million was placed in a reserve account as required by the lender, approximately
        $1.8 million was used to pay costs associated with the debt issuance,
        approximately $200 was paid to legal professionals associated with the
        acquisitions, approximately $4.0 million was available to the Company for
        working capital purposes, and $12 million was deposited in an escrow account
        for
        the benefit of the holder of the note, to be used by IPH solely for the purchase
        of certain intellectual property assets. IPH redeemed $12 million of the
        note
        without penalty as such purchase did not occur prior to November 15, 2005.
        Costs
        associated with the debt issuances of approximately $1.8 million have been
        deferred and are being amortized using the interest method over the 7 year
        life
        of the notes.
 
 Cash
        on
        hand in the bank account of IPH is restricted at any point in time up to
        the
        amount of the next debt payment required under the asset backed notes.
        Accordingly, $4.1 million and $530 as of December 31, 2005 and 2004,
        respectively, have been disclosed as restricted cash within the Company’s
        current assets. Further, a a reserve account as required by the lender, the
        proceeds of which will be applied to the last debt payment. Accordingly,
        $5.0
        million and $2.9 million as of December 31, 2005 and 2004, respectively,
        have
        been disclosed as restricted cash within the Company’s other
        assets.
 
 Interest
        rates and terms on the notes are as follows: the $63 million principal amount
        of
        the note bears interest at a fixed interest rate of 8.45% with a 7 year term,
        the $28 million principal amount of the note bears interest at a fixed rate
        of
        8.10% with a 7 year term, and the $12 million principal amount of the note
        bore
        interest at a floating interest rate of LIBOR + 0.7%. IPH redeemed $12 million
        of the note in November, 2005 without penalty. Neither the Company nor any
        of
        its subsidiaries (other than IPH) is obligated to make any payment with respect
        to IPH’s asset-backed notes, and the assets of the Company and its subsidiaries
        (other than IPH) are not available to IPH’s creditors. The assets of IPH are not
        available to the creditors of the Company or its subsidiaries (other than
        IPH).
 
 *The
        Kmart Note*
 
 In
        connection with the acquisition of Joe Boxer in July, 2005, the Company assumed
        a promissory note, dated August 13, 2001 in the amount of $10.8 million that
        originated with the execution of the Kmart License by the former owners of
        Joe
        Boxer.   The note provides for interest at 5.12% and is payable in
        three (3) equal annual installments, on a self-liquidating basis, on the
        last
        day of each year commencing on December 31, 2005 and continuing through December
        31, 2007.  Payments due under the note may be off-set against any royalties
        owed under the Kmart License.  As of December 31, 2005, the outstanding
        balance of the note was $7.4 million. The note may be pre-paid without penalty.
  
 *Revolving
        Credit Facilities*
 
 On
        January 23, 2002, the Company entered into a three-year $20 million credit
        facility (“the Credit Facility”) with CIT Commercial Services. Borrowings under
        the Credit Facility were formula based and originally included a $5 million
        over
        advance provision with interest at 1.00% above the prime rate. In June 2002,
        the
        Company agreed to amend the Credit Facility to increase the over advance
        provision to $7 million and include certain retail inventory in the availability
        formula. Borrowings under the amended Credit Facility bore interest at 1.5%
        above the prime rate. This Credit Facility was terminated by an agreement
        dated
        January 15, 2004.
 
 F
            -
            20
 On
        February 25, 2003 Unzipped entered into a two-year $25 million credit facility
        with GE Capital Commercial Services, Inc.. Borrowings were limited by advance
        rates against eligible accounts receivable and inventory balances, as defined.
        Under the facility, Unzipped could also arrange for letters of credit in
        an
        amount up to $5 million. The borrowings bore interest at a rate of 2.25%
        per
        annum in excess of the 30 day Commercial Paper rate or 3%, whichever is greater.
        The Unzipped Credit Facility was terminated on October 31, 2004.
  *Debt
        Maturities*
 
 The
        Companies debt maturities are the following:
 
 Total
              2006
              2007
              2008
              2009
              2010
              thereafterDue
                  to Sweet (Note 2)
              $
                  2,936
              $-
              $-
              $-
              $-
              $-
              $2,936Kmart
                  Note
              7,377
              3,596
              3,781
              -
              -
              -
              -Asset
                  backed notes
              88,806
              10,109
              10,137
              11,272
              11,958
              12,987
              32,343Total
                  Debt
              $
                  99,119
              $13,705
              $13,918
              $11,272
              $11,958
              $12,987
              $35,279
 
 **9.**
            **Stockholders’
                Equity** 
 *Stock
        Options*
 
 The
        Black-Scholes option valuation model was developed for use in estimating
        the
        fair value of traded options which have no vesting restrictions and are fully
        transferable. In addition, option valuation models require the input of highly
        subjective assumptions including the expected stock price volatility. Because
        the Company’s employee stock options have characteristics significantly
        different from those of traded options, and because changes in the subjective
        input assumptions can materially affect the fair value estimate, in management’s
        opinion, the existing models do not necessarily provide a reliable single
        measure of the fair value of its employee stock options.
 
 The
        fair
        value for these options was estimated at the date of grant using a Black-Scholes
        option-pricing model with the following weighted-average
        assumptions:
 
 Year
                  ended
              11
                  Months ended
              Year
                  endedDecember
                  31,
              December
                  31,
              January
                  31,2005
              2004
              2004Expected
                  Volatility
              .30-.55
              .69-.77
              .72-.77Expected
                  Dividend Yield
              0%
              0%
              0%Expected
                  Life (Term)
              3-5
                  years
              3-5
                  years
              3-7
                  yearsRisk-Free
                  Interest Rate
              3.00-4.24%
              3.24-4.06%
              1.40-3.55%
 
 The
        weighted-average fair value of options granted (at their grant date) during
        the
        Current Year, the 11-month Prior Year, and Fiscal 2004 was $2.63, $1.65,
        and
        $0.97 per share, respectively.
 
 In
        1989,
        the Company’s Board of Directors adopted, and its stockholders approved, the
        Company’s 1989 Stock Option Plan (the “1989 Plan”). The 1989 Plan, as amended in
        1990, provides for the granting of incentive stock options (“ISO’s”) and limited
        stock appreciation rights (“Limited Rights”), covering up to 222,222 shares of
        common stock. The 1989 Plan terminated on August 1, 1999.
 
 Under
        the
        1989 Plan, ISO’s were to be granted at not less than the market price of the
        Company’s Common Stock on the date of the grant. Stock options not covered by
        the ISO provisions of the 1989 Plan (“Non-Qualifying Stock Options” or “NQSO’s”)
        were granted at prices determined by the Board of Directors. There were no
        options outstanding under the 1989 Plan as of December 31, 2005. 5,000 options
        were outstanding as of December 31, and January 31, 2004 under the 1989
        Plan.
 
 F
            -
            21
 In
        1997,
        he Company’s stockholders approved the Company’s 1997 Stock Option Plan (the
“1997 Plan”). The 1997 Plan authorizes the granting of common stock options to
        purchase up to 3,500,000 shares of Company common stock. All employees,
        directors, independent agents, consultants and attorneys of the Company,
        including those of the Company’s subsidiaries, are eligible to be granted NQSO’s
        under the 1997 Plan. ISO’s may be granted only to employees of the Company or
        any subsidiary of the Company. The 1997 Plan terminates in 2007.
 
 In
        2000,
        the Company's shareholders approved the Company's 2000 Stock Option Plan
        (the
        "2000 Plan"). The 2000 Plan authorizes the granting of common stock options
        to
        purchase up to 2,000,000 shares of Company common stock. All employees,
        directors, independent agents, consultants and attorneys of the Company,
        including those of the Company's subsidiaries, are eligible to be granted
        NQSO's
        under the 2000 Plan. The 2000 Plan terminates in 2010.
 
 In
        2001,
        the Company adopted the 2001 Stock Option Plan (the "2001 Plan"). The 2001
        Plan
        authorizes the granting of common stock options to purchase up to 2,000,000
        shares of Company common stock. All employees, directors, independent agents,
        consultants and attorneys of the Company, including those of the Company's
        subsidiaries, are eligible to be granted NQSO's under the 2001 Plan. The
        2001
        Plan terminates in 2011.
 
 In
        2002,
        the Company's shareholders 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.
 
 The
        options that were granted under the Plans expire between five and ten years
        from
        the date of grant.
  A
        summary
        of the Company’s stock option activity, and related information for the Current
        Year, the 11-month Prior Year, and Fiscal 2004 follows:
 
 Weighted-AverageShares
              Exercise
                  PriceOutstanding
                  January 31, 2003
              6,439,525
              2.34Granted
              920,000
              1.63Canceled
              (768,100)
              2.96Exercised
              (851,619)
              1.20Expired
              (93,300)
              4.09Outstanding
                  January 31, 2004
              5,646,506
              $
                  2.29Granted
              1,455,000
              2.72Canceled
              (512,700)
              2.54Exercised
              (1,108,680)
              1.61Expired
              (12,500)
              1.94Outstanding
                  December 31, 2004
              5,467,626
              $
                  2.52Granted
              4,972,168
              7.43Canceled
              (142,500)
              2.63Exercised
              (708,877)
              2.14Expired
              (15,125)
              0.74Outstanding
                  December 31, 2005
              9,573,292
              $
                  5.09
 
 At
        December 31, 2005, December 31, 2004, and January 31, 2004, exercisable stock
        options totaled 8,373,292, 4,420,125, and 4,843,755, and had weighted average
        exercise prices of $4.55, $2.45, and $2.26 per share, respectively.
 
  F
            -
            22
 Options
        outstanding and exercisable at December 31, 2005 were as follows:
  
  Options
                  Outstanding
              
              Options
                  ExercisableWeighted
                  Average
              
              Weighted
              
              
              
              WeightedRange
                  of
              
              Number
              
              Average
              
              Average
              
              Number
              
              AverageExercise
                  Prices
              
              Outstanding
              
              Contractual
                  Life
              
              Exercise
                  Price
              
              Exercisable
              
              Exercise
                  Price$0.24-1.14
              
              
              426,625
              
              
              4.50
              
              $
              1.07
              
              
              426,625
              
              $
              1.07$1.15-1.50
              
              
              395,500
              
              
              5.01
              
              $
              1.25
              
              
              395,500
              
              $
              1.25$1.51-2.50
              
              
              1,036,500
              
              
              7.07
              
              $
              1.99
              
              
              1,036,500
              
              $
              1.99$2.51-3.50
              
              
              2,491,750
              
              
              4.80
              
              $
              3.12
              
              
              2,491,750
              
              $
              3.12$3.51-5.00
              
              
              1,421,000
              
              
              8.91
              
              $
              4.62
              
              
              1,421,000
              
              $
              4.62$5.01-10.19
              
              
              3,801,917
              
              
              9.48
              
              $
              8.24
              
              
              2,601,917
              
              $
              9.449,573,292
              
              
              7.51
              
              $
              5.09
              
              
              8,373,292
              
              $
              4.55
 
 At
        December 31, 2005, 1,931,500, 1,392,750, and 832,500 common shares were reserved
        for issuance on exercise of stock options under the 2002, 2001, and 2000
        Stock
        Option Plan, respectively.
 
 *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 Candie’s Common Stock ten business days after any person or
        group acquires 15% or more of the Candie’s Common Stock, or ten business days
        after any person or group announces a tender offer for 15% or more of the
        outstanding Candie’s Common Stock.
 
 *Stock
        Repurchase Program*
 
 On
        September 15, 1998, the Company’s Board of Directors authorized the repurchase
        of up to two million shares of the Company’s Common Stock, which was replaced
        with a new agreement on December 21, 2000, authorizing the repurchase of
        up to
        three million shares of the Company’s Common Stock. In the Current Year and the
        11-month Prior Year, no shares were repurchased in the open market. In Fiscal
        2003, 84,500 shares were repurchased in the open market, at an aggregate
        cost of
        $192.
 
  **10.**
            **Earnings
                (Loss) Per Share** 
 Basic
        earnings (loss) per share includes no dilution and is computed by dividing
        net
        income available (loss attributable) to common shareholders by the weighted
        average number of common shares outstanding for the period. Diluted earnings
        per
        share reflect, in periods in which they have a dilutive effect, the effect
        of
        common shares issuable upon exercise of stock options. The difference between
        reported basic and diluted weighted-average common shares results from the
        assumption that all dilutive stock options outstanding were exercised and
        all
        convertible bonds have been converted into common stock. Diluted loss per
        share
        reflects, in periods in which they have a dilutive effect, the effect of
        common
        shares issuable upon exercise of stock options.
 
 As
        of
        December 31, 2005, 7.3 million of total 8.4 million potentially dilutive
        shares
        relating to stock options were included in the computation of diluted EPS,
        compared to 2.1 million of total 5.7 million as of December 31, 2004. For
        the
        prior periods with a net loss, the diluted weighted average number of shares
        does not include any outstanding options or convertible preferred stock because
        they were antidilutive. As of January 31, 2004, 5.6 million potentially dilutive
        shares relating to stock options were not included in the computation of
        diluted
        EPS because to do so would have been antidilutive.
 
 
 **11.**
            **Commitments
                and Contingencies** 
 **Unzipped
        litigation**
  On
        August
        5, 2004, the Company, along with its subsidiaries, Unzipped, Caruso & Co.
        and IPH (“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 Production International, Inc, (“Azteca”) and
        Apparel Distribution Services, LLC (“ADS”), respectively; and a principal of
        these entities and former member of the Company’s Board of Directors, Hubert
        Guez (“Defendants”). Plaintiffs amended their complaint on November 22, 2004. In
        the amended complaint, plaintiffs allege that Defendants fraudulently induced
        them to purchase Sweet's 50% interest in Unzipped for an inflated price,
        that
        Sweet and Azteca committed material breaches of the Unzipped management
        agreement and supply and distribution agreements, described below, and that
        Mr.
        Guez materially breached his fiduciary obligations to the Company while a
        member
        of its Board of Directors. Also, Plaintiffs allege that Defendants have
        imported, distributed and sold goods bearing the Company’s Bongo trademarks in
        violation of federal and California law. Plaintiffs seek damages in excess
        of
        $50 million. Defendants filed a motion to dismiss certain of the claims asserted
        by the Plaintiffs in the amended complaint, which was denied by the Court
        in its
        entirety on February 7, 2005.
  F
            -
            23
 On
        March
        10, 2005, Sweet, Azteca and ADS(“Cross-Complainants”), filed an answer to
        Plaintiffs' amended complaint and a cross-complaint against Plaintiffs and
        the
        Company’s chief executive officer, Neil Cole (collectively, “Cross-Defendants”),
        seeking compensatory, punitive and exemplary damages and litigation costs,
        as
        well as the establishment of a constructive trust for their benefit. The
        Cross-Complainants alleged that some or all of the Cross-Defendants breached
        the
        Unzipped management agreement and supply and distribution agreements; that
        IPH
        and Mr. Cole interfered with Sweet's performance under the Unzipped management
        agreement; and that the Company, Caruso & Co., IPH and Mr. Cole interfered
        with Cross-Complainants' relationships with Unzipped and caused Unzipped
        to
        breach its agreements with Azteca and ADS. Cross-Complainants also alleged
        that
        some or all of the Company, Caruso & Co. and Mr. Cole fraudulently induced
        Sweet to sell its 50% interest in Unzipped to the Company for a deflated
        price
        and accept the 8% senior subordinated note in the principal amount of $11
        million that the Company issued to it in connection therewith.
  The
        Company had previously entered into a management agreement with Sweet wherein
        Sweet guaranteed that the net income of Unzipped, as defined, would be no
        less
        than $1.7 million for each year during the term (the “Guarantee”). In the event
        that the Guarantee was not met, Sweet was obligated to pay the difference
        between the actual net income, as defined, and the Guarantee, such difference
        referred to as the “Shortfall Payment”. The cross-complaint alleged that the
        Company breached its obligations to Sweet arising under the Sweet Note by,
        among
        other things, understating Unzipped's earnings for Fiscal 2004 and the first
        three quarters of its fiscal year ended January 31, 2005 for the purpose
        of
        causing Unzipped to fall short of the Guarantee for these periods, and
        improperly offsetting the Shortfall Payment against the Sweet Note. Lastly,
        the
        cross-complaint alleged that the understatements in Unzipped's earnings and
        offsets against the Sweet Note were incorporated into the Company’s public
        filings for the periods identified above, causing it to overstate materially
        its
        earnings and understate its liabilities for such periods with the effect
        of
        improperly inflating the public trading price of the Company’s common
        stock.
  Cross-Defendants
        filed a motion to dismiss certain of the claims asserted in the cross-complaint,
        and, on June 28, 2005, the Court granted Cross-defendants' motion in part.
        On
        July 22, 2005, Cross-Complainants amended their cross-complaint, omitting
        their
        previously asserted claim that some or all of the Company, Caruso & Co. and
        Mr. Cole fraudulently induced Sweet to sell its 50% interest in Unzipped
        for a
        deflated price and accept the Sweet Note. Although the amended cross-complaint
        no longer seeks relief for this purported fraud, the substance of the
        allegations remained largely unchanged.
  Cross-Defendants
        filed a motion to dismiss certain of the claims asserted in the amended
        cross-complaint, and, on October 25, 2005, the Court granted Cross-Defendants’
motion in part, dismissing all claims asserted against Mr. Cole along with
        the
        Cross-Complainants' sole remaining fraud claim. The remaining Cross-Defendants
        deny Cross-Complainants' allegations and intend to vigorously defend against
        the
        amended cross-complaint.
  In
        a
        related litigation, on November 5, 2004, Unzipped commenced a lawsuit in
        the
        Supreme Court of New York, New York County, against Unzipped's former president
        of sales, Gary Bader, alleging that Mr. Bader breached certain fiduciary
        duties
        owed to Unzipped as its president of sales, unfairly competed with Unzipped
        and
        tortuously interfered with Unzipped's contractual relationships with its
        employees. On October 5, 2005, Unzipped amended its complaint to assert
        identical claims against Bader's company, Sportswear Mercenaries, Ltd. (“SMI”).
        On October 14, 2005, Bader and SMI filed an answer containing counterclaims
        to
        Unzipped's amended complaint, and a third-party complaint against the Company
        and Mr. Cole, seeking unspecified damages in excess of $4 million. On December
        2, 2005, the Company, together with Unzipped and Mr. Cole, filed motions
        seeking
        the dismissal of all claims asserted against them by Bader and SMI, and these
        motions are currently pending. In these motions, the Company, Mr. Cole and
        Unzipped have denied the claims asserted against them, and intend to vigorously
        defend against all such claims. At December 31, 2005, the payable to
        Cross-Complainants totaled approximately $3.1 million, which is subject to
        any
        claims, offsets or other deductions the Company may assert against
        Cross-Complainants, and was reflected in the Company’s consolidated financial
        statements under “Accounts payable, subject to litigation.”
  
  F
            -
            24
 **Redwood
        litigation**
  In
        January 2002, Redwood Shoe Corporation, one of the Company’s former footwear
        buying agents, filed a complaint in the United States District Court for
        the
        Southern District of New York, alleging that the Company breached various
        contractual obligations to Redwood and seeking to recover damages in excess
        of
        $20 million plus its litigation costs. The Company filed a motion to dismiss
        certain counts of the complaint based upon Redwood's failure to state a claim,
        in response to which Redwood has filed an amended complaint. The Company
        also
        moved to dismiss certain parts of the amended complaint. The magistrate assigned
        to the matter granted, in part, the Company’s motion to dismiss. By Order dated
        November 28, 2005, the District Court adopted the Magistrate's ruling in
        its
        entirety, thereby accepting the Company’s position that it never agreed to
        purchase a minimum quantity of footwear from Redwood and dismissing
        approximately $20 million of Redwood's asserted claims. On December 14, 2005,
        the Company filed an answer asserting 13 counterclaims against Redwood and
        Redwood's affiliate, Mark Tucker, Inc ("MTI"). On the same date, it filed
        a
        motion to have MTI joined with Redwood as a defendant in the action, which
        motion MTI has advised the District Court that it will not oppose. The Company
        intends to vigorously defend the lawsuit, and to vigorously prosecute the
        claims
        it has asserted against Redwood and MTI. At December 31, 2005, the payable
        to
        Redwood totaled approximately $1.8 million, which is subject to any claims,
        offsets or other deductions the Company may assert against Redwood, and was
        reflected in the Company’s consolidated financial statements under “Accounts
        payable, subject to litigation.”
  **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 its financial position or future liquidity. Except
        as
        set forth herein, the Company knows of no material legal proceedings, pending
        or
        threatened, or judgments entered, against any director or officer of the
        Company
        in his capacity as such.
 
 
 **12.**
            **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 Current Year, the Company received
        $1.3 million in royalties from Kenneth Cole Productions.
  The
        Candie’s Foundation, a charitable foundation founded by Neil Cole for the
        purpose of raising national awareness about the consequences of teenage
        pregnancy, owed the Company $193 at December 31, 2005. The Candie’s Foundation
        paid-off the entire borrowing from the Company in February 2006, although
        additional advance will be made as and when necessary. Mr. Cole’s wife,
        Elizabeth Cole, was employed by the Candie’s Foundation at an annualized salary
        of $80 until May 2005. She continues to perform services for the foundation
        but
        without compensation.
  
 **13.**
            **Operating
                Leases** 
 Future
        net minimum lease payments under non-cancelable operating lease agreements
        as of
        December, 2005 are aprroximately as follows:
 
  2006
              $4112007
              290Totals
              $701
 
 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 $470, $426, and $3,315 for Current Year, the 11-month
        Prior Year, and Fiscal 2004 respectively. Contingent rent amounts have been
        immaterial for all periods.
 
 
 **14.**
            **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 Current Year and the 11-month Prior Year and made contribution
        of $12 to the Savings Plan for Fiscal 2004, respectively.
 
 
 **15.**
            ******Income
                Taxes** 
 At
        December 31, 2005 the Company had available federal net operating losses
        carryforwards (“NOL’s”) of approximately $66.5 million for income tax purposes,
        which expire in the years 2006 through 2025. Because of "ownership changes"
        (as
        defined in Section 382 of the Internal Revenue Code) occurring in previous
        fiscal years, the utilization of approximately $4.4 million of the net operating
        losses is limited to $602 per year and expires in 2006 through 2007. The
        remaining $62.1 million is not subject to such limitation and expires in
        the
        years 2009 through 2025. As of December 31, 2005 the Company had available
        state
        and city NOL’s totaling between $59.4 million and $99.4 million, substantially
        all of which expire in the years 2020 through 2025. Included in the Company’s
        NOL’s as of December 31, 2005 is $7.0 million from the exercises of stock
        options. The benefit from the utilization of this portion of the NOL will
        be
        recorded as a credit to additional paid in capital if and when the related
        deferred tax asset is determined to be realizable.
 
 F
            -
            25
 In
        the
        Current Year, a net non-cash tax benefit of $5.0 million was recognized as
        a
        result of the recognition of a $5.1 million deferred tax benefit resulting
        from
        an increase in the amount of the deferred tax asset which management believes
        is
        more likely than not of realization .
 
 The
        income tax provision (benefit) for Federal and state income taxes in the
        consolidated statements of operations consists of the following:
 
 December
                  31
              December
                  31,
              January
                  31,2005
              2004
              2004Current:Federal
              $
                  97
              $
                  -
              $
                  -State
              -
              -
              58Total
                  current
              97
              -
              58Deferred:Federal
              (4,274)
              -
              -State
              (858)
              -
              -Total
                  deferred
              (5,132)
              -
              -Total
                  provision (benefit)
              $(5,035)
              $
                  -
              $
                  58
 
 The
        Company’s effective income tax rate differs from the federal statutory rate
        primarily as a result of a decrease in the deferred tax valuation allowance
        in
        the year ended December 31, 2005 and an increase in the valuation allowance
        in the year ended January 31, 2004.  In the 11 months ended December 31,
        2004, the effective income tax rate differs from the federal statutory
        rate as a result of prior losses incurred being available to offset current
        year
        income for financial statement purposes. The valuation allowance decreased
        in the year ended December 31, 2005 as a result of an increase in the amount
        of
        the related deferred tax asset which management believes is more likely than
        not
        of realization, and $2,700 allocated to the value of the deferred tax asset
        in
        the Joe Boxer acquisition (see Note 4).
 
 The
        significant components of net deferred tax assets of the Company consist
        of the
        following:
 
 December
                  31,2005
              2004Inventory
                  valuation
              $
                  -
              $
                  1,319Litigation
                  settlement
              -
              258Net
                  operating loss carryforwards
              28,232
              25,424Receivable
                  reserves
              106
              776Depreciation
              26
              73Store
                  closing reserves (asset impairments)
              -
              1,275Intangibles
              989
              956Accrued
                  compensation and other
              527
              618Total
                  deferred tax assets
              29,880
              30,719Valuation
                  allowance
              (14,186)
              (25,072)Net
                  deferred tax assets
              15,694
              5,647Trademarks
                  and goodwill
              (4,201)
              (2,025)Total
                  deferred tax liabilities
              (4,201)
              (2,025)Total
                  net deferred tax assets
              $
                  11,493
              $
                  3,622Current
                  portion of net deferred tax assets
              $
                  3,716
              $
                  1,549Non
                  current portion of net deferred assets
              $
                  7,777
              $
                  2,073
 The
        amounts presented in the table as of December 31, 2004 column have been revised
        from the presentation provided in prior year to be consistent with the Company’s
        December 31, 2004 income tax return. The total net deferred tax asset remains
        as
        previously reported.
 
 F
            -
            26
 
 **16.**
            **Segment
                Information** 
 The
        Company has identified operating segments based on, among other things, the
        way
        the Company’s management organizes the components of its business for purposes
        of allocating resources and assessing performance. Prior to the Current Year,
        the Company’s operations were comprised of two reportable segments:
        footwear/licensing and apparel. The footwear segment included Candie’s footwear,
        Bongo footwear, private label footwear, retail store operations, and licensing.
        The apparel segment included Bongo jeanswear. Segment revenues were generated
        from the sale of footwear, apparel and accessories through wholesale channels
        and the Company’s retail locations. The Company defined segment income as
        operating income before interest expense and income taxes.
 
 Commencing
        in the Current Year, the Company stopped reporting segment information under
        footwear/license and apparel operating segments since the Company has fully
        transitioned into a licensing business and the prior segment designations
        are no
        longer considered by management in evaluating operating performance. Summarized
        below are the Company’s segment revenues, income (loss) and total assets by
        reportable segments for the 11-month Prior Year and Fiscal 2004.
 
 
 (000’s
                  omitted)
              Footwear/Licensing
              Apparel
              Elimination
              ConsolidatedFor
                  the 11 months ended December 31, 2004Total
                  revenues
              $30,481
              $
                  38,499
              $-
              $68,980Segment
                  income
              1,841
              895
              -
              2,736Interest
                  expense
              
              
              
              2,495Income
                  before income tax provision
              
              
              
              $241Capital
                  additions
              $
                  24
              $
                  6
              $-
              $
                  30Depreciation
                  and amortization expenses
              $
                  1,672
              $
                  465
              $-
              $
                  2,137Total
                  assets as of December 31, 2004
              $31,710
              $
                  28,450
              $
                  -
              $
                  60,160For
                  the fiscal year ended January 31, 2004Total
                  revenues
              $66,672
              $
                  64,705
              $-
              $131,377Segment
                  (loss) income
              (10,233)
              2,069
              -
              (8,164)Interest
                  expense
              
              
              
              3,118Loss
                  before income tax provision
              
              
              
              $(11,282)Capital
                  additions
              $
                  232
              $
                  16
              $-
              $
                  248Depreciation
                  and amortization expenses
              $
                  2,400
              $
                  336
              $-
              $
                  2,736Total
                  assets as of January 31, 2004
              $33,896
              $
                  40,949
              $
                  -
              $
                  74,845
 
 **17.**
            **Unaudited
                Consolidated Interim Financial
                Information** 
 Unaudited
        interim consolidated financial information for Current Year and the 11-month
        Prior Year is summarized as follows:
 
 F
            -
            27
 First
              Second
              Third
              FourthQuarter
              Quarter
              Quarter
              Quarter(in
                  thousands except per share data)Current
                  YearLicensing
                  and commission revenues
              $
                  4,300
              $
                  4,287
              $
                  9,205
              $
                  12,364Net
                  revenues
              4,300
              4,287
              9,205
              12,364Gross
                  profit
              4,300
              4,287
              9,205
              12,364Operating
                  income (loss)
              1,242
              1,121
              5,048
              7,399Net
                  income (loss)
              $
                  787
              $
                  2,511
              $
                  5,159
              $
                  7,486Basic
                  earnings (loss) per share
              $
                  0.03
              $
                  0.09
              $
                  0.16
              $
                  0.21Diluted
                  earnings (loss) per share
              $
                  0.03
              $
                  0.08
              $
                  0.14
              $
                  0.1911-month
                  Prior YearNet
                  sales
              $
                  17,289
              $
                  26,035
              $
                  9,950
              $
                  5,153Licensing
                  and commission revenues
              1,936
              2,639
              3,454
              2,524Net
                  revenues
              19,225
              28,674
              13,404
              7,677Gross
                  profit
              4,942
              5,894
              6,084
              3,831Operating
                  income (loss)
              729
              1,258
              1,260
              (1,111)Net
                  income (loss)
              $
                  33
              $
                  518
              $
                  603
              $
                  (913)Basic
                  earnings (loss) per share
              $
                  0.00
              $
                  0.02
              $
                  0.02
              $
                  (0.03)Diluted
                  earnings (loss) per share
              $
                  0.00
              $
                  0.02
              $
                  0.02
              $
                  (0.03)
 
 During
        the fourth quarter of the Current Year, the Company recorded $470 for legal
        professional fees relating to litigation involving Unzipped, See Note 2.
        During
        the third quarter ended September 30, 2005, the Company made two acquisitions.
        See Notes 4 and 5
 
 
 **18.**
            **Change
                in Fiscal Year End** 
 As
        discussed in Note 1 - Summary of Significant Accounting Policies - effective
        in
        2004, the Company’s fiscal year end has changed from January 31 to December 31.
        Accordingly, the Company reported audited financial statements for the 11
        months
        ended December 31, 2004 in prior year’s Form 10-K and financial statements for
        the 12 months ended December 31, 2005 in this Form 10-K. The following table
        provides certain unaudited financial information for the 12 months ended
        December 31, 2004.
 
 12
                  months endedDecember
                  312004(1)Net
                  sales
              $62,734Licensing
                  and commission revenue
              11,327Gross
                  profit
              29,026Income
                  (loss) before income taxes
              231Provision
                  (benefit) for income taxes
              -Net
                  income (loss)
              231Basic
                  earnings (loss) per share
              $0.01Diluted
                  earning (loss) per share
              $0.01
 
  
 F
            -
            28
    
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 Iconix
        Brand Group, Inc.
 
 The
        audits referred to in our report dated March 20, 2006, relating to the
        consolidated financial statements of Iconix Brand Group, Inc.and Subsidiaries,
        which is contained in Item 8 of the Form 10-K included the audits of the
        financial statement schedule listed in the accompanying index for the fiscal
        year ended December 31, 2005, the 11-month ended December 31, 2004 and the
        fiscal year ended January 31, 2004. This financial statement schedule is
        the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on the financial statement schedule based upon our audits.
 
 In
        our
        opinion the financial statement schedule presents fairly, in all material
        respects, the information set forth therein.
 
 
 
 
 
 /s/
        BDO Seidman, LLP
 BDO
        Seidman, LLP
 
 
 
 March
        20,
        2006
 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
                  EAdditionsBalance
                  at
              Charged
                  to
              
              Balance
                  atBeginning
                  of
              Costs
                  and
              
              End
                  ofDescription
              Period
              Expenses
              Deductions
              PeriodReserves
                  and allowances deducted from asset accounts:Accounts
                  Receivables (a):12
                  month ended December 31, 2005
              $-
              $260
              $-
              $26011
                  month ended December 31, 2004
              $-
              $-
              $-
              $-Year
                  ended January 31, 2004
              $-
              $792
              $792
              $-Due
                  from Factor reserves (a):12
                  month ended December 31, 2005
              $
                  1,856
              $
                  360
              $2,216
              $
                  -11
                  month ended December 31, 2004
              $
                  1,271
              $
                  1,099
              $
                  514
              $
                  1,856Year
                  ended January 31, 2004
              $
                  2,982
              $
                  12,121
              $
                  13,832
              $
                  1,271Inventory
                  reserves:12
                  month ended December 31, 2005
              $
                  2,252
              $
                  154
              $
                  2,406
              $
                  -11
                  month ended December 31, 2004
              $
                  4,094
              $
                  1,937
              $
                  3,779
              $
                  2,252Year
                  ended January 31, 2004
              $
                  3,247
              $
                  4,004
              $
                  3,157
              $
                  4,094
 
 (a)
            These
                amounts include reserves for chargebacks, markdowns, co-op advertising
                allowances, and bad debts. 
   S
        -
        2