**UNITED
        STATES**
  **SECURITIES
        AND EXCHANGE COMMISSION**
  **Washington,
        D.C. 20549**
  **FORM
        10-K/A**
 **Amendment
        No. 1**
 
 **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**
  **o**  **TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
        FOR THE TRANSITION PERIOD FROM ______ TO ______**
 
 **0-10593**
 **(Commission
        File Number)**
 **ICONIX
        BRAND GROUP, INC.**
 *(Exact
        name of registrant as specified in its charter)*
  **Delaware**
              
              **11-2481903***(State
                  or other jurisdiction*
                *of
                  incorporation or organization)*
              
              *(I.R.S.
                  employer identification no.)*
 
 **1450
        Broadway, New York, New York 10018**
 *(Address
        of principal executive offices 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 o
  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**Explanatory
                  Note
              
              
              1PART
                  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
              
              37Signatures
              
              38Consolidated
                  Financial Statements
              
              F-1
  
  **EXPLANATORY
        NOTE**
  Iconix
        Brand Group, Inc. (“the Company”), with the concurrence of the Audit Committee
        of the Company’s Board of Directors, concluded that its previously issued
        financial statements for the year ended December 31, 2005, the eleven months
        ended December 31, 2004 and the year ended January 31, 2004 should be restated
        as a result of recent correspondence with the staff of the Securities and
        Exchange Commission (the "SEC") regarding a misclassification in the Company’s
        Consolidated Statement of Cash Flows. In addition, in connection with the
        above
        mentioned SEC correspondence the Company will reclassify one item within
        its
        Statements of Operations, as discussed in Note 19.
  This
        Amendment No. 1 to the Company’s Annual Report on Form 10-K ("Form 10-K/A") for
        the fiscal year ended December 31, 2005, initially filed with the SEC on
        March
        21, 2006 (the "Original Filing"), is being filed to restate the Company’s
        Consolidated Statement of Cash Flows for each of the year ended December
        31,
        2005, the eleven months ended December 31, 2004 and the year ended January
        31,
        2004. The restatement relates to the classification in the Consolidated
        Statements of Cash Flows for activities related to net factored accounts
        receivable and payable to factor from operating activities to financing
        activities. The Company has ceased all factoring arrangements and therefore
        will
        no longer have any cash flow activities relating to net factored accounts
        receivable and payable to factor in the future.  For a more detailed
        description of this restatement, see Note 19, "Restatement and
        reclassifications" to the accompanying consolidated financial statements
        and the
        section entitled "Restatement and Reclassifications" in Management’s Discussion
        and Analysis of Results of Operations and Financial Condition in this Form
        10-K/A.  The Form 10-K/A did not affect the Consolidated Balance
        Sheets, Consolidated Statements of Changes in Stockholders’ Equity, the
        consolidated net income or the consolidated earnings per share for any of
        the
        affected periods. Further, the restatement will solely affect the classification
        of these activities and the subtotals of cash flows from operating and financing
        activities presented in the restated Consolidated Statements of Cash Flows,
        but
        they will have no impact on the net increase (decrease) in total cash set
        forth
        in the Consolidated Statements of Cash Flows for any of the previously reported
        periods.
  For
        the
        convenience of the reader, this Form 10-K/A sets forth the Original Filing
        in
        its entirety, as amended by this Form 10-K/A. However, this Form 10-K/A amends
        and restates only Items 7, 8 and 9A of Part II, in each case, solely as a
        result
        of, and to reflect, the Restatement (as defined in Management’s Discussion and
        Analysis of Results of Operations and Financial Condition in this Form 10-K/A)
        and, except as noted above, no other information in the Original Filing is
        amended hereby. The foregoing items have not been updated to reflect other
        events occurring after the Original Filing or to modify or update those
        disclosures affected by subsequent events. In addition, Item 15 of Part IV
        of
        this Form 10-K/A has been amended to include (1) the currently-dated
        certifications from the Company's Chief Executive Officer and its Chief
        Financial Officer and (2) the currently-dated consent of the Company’s
        independent registered public accounting firm to the use of their report
        on the
        financial statements of the Company in the specified registration statements
        of
        the Company. The updated certifications are attached to this Form 10-K/A
        as
        Exhibits 31.1, 31.2, 32.1 and 32.2, respectively, and the updated consent
        is
        attached to this Form 10-K/A as Exhibit 23.
  Except
        for the foregoing amended information, this Form 10-K/A continues to describe
        conditions as of the date of the Original Filing, and the Company has not
        updated the disclosure made in this Form 10-K/A to reflect events occurring
        after the Original Filing. Disclosure reflecting events occurring after the
        Original Filing or modifying or updating information in this Form 10-K/A
        that is
        required to be made by the Company will be addressed, in our future Quarterly
        Report on Form 10-Q prospectively.
  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, thereby 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 typically maintains 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
                Ended
                December
                  31,
              
              11-Months
                Ended
                December
                  31,
              
              Fiscal
                  Year
                Ended
                  January 31,2005
              
              2004
              
              2004
              
              2003
              
              2002Net
                  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 common shares
                  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,Balance
                  Sheet Data *:
              
              2005
              
              2004
              
              2004
              
              2003
              
              2002Current
                  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 Notes 4 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, as 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.




Restatement
      and
      Reclassifications




The
        Company concluded that its previously issued financial statements for the
        year
        ended December 31, 2005, the eleven months ended December 31, 2004 and the
        year
        ended January 31, 2004 should be restated as a result of recent correspondence
        with the staff of the SEC regarding a misclassification in the Company’s
        Consolidated Statement of Cash Flows. As a result, the Company has restated
        its
        consolidated Statement of Cash Flows as described below. In addition, the
        connection with the above mentioned SEC correspondence the Company
        reclassified one item within its Statements of Operations pertaining to general
        and administrative expenses for the 11 months ended December 31, 2004 and
        the
        year ended January 31, 2004.
 
 The
        restatements result solely from the misclassification of cash flows related
        to
        net factored accounts receivable and payable to factor. The cash flows from
        this
        item had been classified as financing activities. However this item should
        have
        been classified as operating activities. Accordingly, the restatements will
        solely affect the classification of these activities and the subtotals of
        cash
        flows from operating and financing activities presented in the restated
        Consolidated Statements of Cash Flows, but they will have no impact on the
        net
        increase (decrease) in total cash set forth in the Consolidated Statements
        of
        Cash Flows for any of the previously reported periods.




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 licensing 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 generated $9.0 million in
      revenue, the acquisition of Rampage in September 2005, which generated $2.7
      million in revenue, and the launch of the Company's Candie's brand in Kohl's,
      which generated $4.1 million in revenue.





Due
      to a
      change in revenue recognition resulting from its change of business practice
      beginning January 2005, Bright Star recorded only the net commission earned
      on
      sales in the 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
      $13.2 million in the 11-month Prior Year, an increase of $17.0 million. In
      the
      Current Year, there was no reportable gross profit from Unzipped's jeans wear
      operations, as compared to $2.6 million of gross profit in the 11-month Prior
      Year which reflects the liquidation of the remaining Bongo inventory in
      connection with the transition of the jeanswear business to a licensing
      arrangement. The overall increase in gross profit was primarily driven by the
      increase in licensing revenue which has no related cost of good sold. Bright
      Star's gross profit increased to $2.2 million in the 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 $10.2 million
      in
      the 11-month Prior Year, an increase of $3.7 million.  The
      Company's SG&A expenses related to licensing increased by $4.0 million to
      $12.4 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 $1.7 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. Included in SG&A for Unzipped in the
      11-month Prior Year was a $7.6 million reduction related to the Shortfall
      Payment of $6.9 million and $685,000 recorded as a reserve pending the
      outcome of the Company's litigation with the former manager, supplier and
      distributor of Unzipped. See Notes 2 and 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 $13.9 million, from $27.1 million in
      Fiscal 2004, to $13.2 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 $2.6 million as compared to $9.7 million in Fiscal 2004. The
      decrease in Unzipped's gross profit in the 11-month Prior Year reflect 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. These decreases in gross
      profit were partially offset by an increase in gross profit of $2.3 million
      resulting from a corresponding increase in licensing revenue which has no
      related cost of good sold.




20




*Operating
      Expenses.* During
      the 11-month Prior Year, consolidated selling, general and administrative
      expenses decreased by $20.5 million to $10.2 million, down from $30.7 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 decreased by $5.9 million in the 11-month Prior Year to $1.7 million
      as
      compared to $7.6 million in Fiscal 2004. Unzipped’s SG&A for the 11-month
      Prior Year included a $7.6 million reduction related to the Shortfall Payment
      of
      $6.9 million and $685,000 recorded as a reserve pending the outcome of its
      litigation with the Company and for the Fiscal 2004's the SG&A
      included a reduction related to the Shortfall Payment of $1.6 million. See
      Notes 2 and 8 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 no 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. Restated net cash provided from these operating activities
      totaled $16.0 million in the Current Year, compared to $4.8 million in the
      11-month Prior Year and $11.2 million in Fiscal 2004. As
      previously discussed, the restatement relates to theclassification
      in the Consolidated Statements of Cash Flows for activities related to net
      factored accounts receivable and payable to factor from operating activities
      to
      financing activities.The
      Company has ceased all factoring arrangements and therefore will no longer
      have
      any cash flow activities relating to net factored accounts receivable and
      payable to factor in the future.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
      restated Company's cash provided by financing activities in the Current Year
      totaled $59.9 million compared to $6.4 million used in financing activities
      during the 11-month Prior Year and $10.5 million in Fiscal 2004. Of the $59.9
      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 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 selling, general and administrative
      expenses and on the balance sheet as a reduction of the Sweet Note based upon
      the right to offset in the Sweet Management Agreement. After adjusting for
      the
      Shortfall Payments, Unzipped reported 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. In light of the misclassification in the Company’s Consolidated Statements
      of Cash Flows discussed below, the above-mentioned officers reevaluated the
      Company’s disclosure controls and procedures and determined that their earlier
      conclusion regarding such controls and procedures remains valid.





This
      amended Form 10-K/A for the year ended December 31, 2005 is to restate the
      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. The
      restatements did not affect the Company’s Consolidated Balance Sheets,
      Consolidated Statements of Changes in Stockholders’ Equity, consolidated
      net income or consolidated earnings per share for any of the affected
      periods.




The
      restatements result solely from the misclassification of cash flows related
      to
      net factored
      accounts receivable and payable to factor .
      The
      cash flows from this item had been classified as financing activities, however
      this item should have been classified as operating activities. 
Accordingly, the restatements will solely affect the classification of these
      activities and the subtotals of cash flows from operating and financing
      activities presented in the restated Consolidated Statements of Cash Flows,
      but
      they will have no impact on the net increase (decrease) in total cash set
      forth in the Consolidated Statements of Cash Flows for any of the previously
      reported periods. The
      Company has ceased all factoring arrangements and therefore will no longer
      have
      any cash flow activities relating to net factored accounts receivable and
      payable to factor in the future.





(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
            
            
            
            
            
            Annual
                Com-
            
            Underlying
            
            All
                OtherYear
            
            Salary
            
            Bonus
                  (1)
            
            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
            
            
            
            Underlying
                Unexercised
            
            In-The-Money
                OptionsAcquired
              On
            
            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,
            
            outstanding
                options,
            
            (excluding
                securities reflectedwarrants
                and 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 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




ICONIX
                BRAND GROUP, INC.Date: September 27,
              2006
            By:
            /s/ Neil
              Cole**Neil
                Cole,**
              **President
                and Chief Executive Officer**







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




**Name**
            
            **Title**
            
            **Date**/s/
              **Neil Cole****Neil
                  Cole**
            
            Chairman
                of the Board, President and Chief Executive Officer
            
            September  27,
                2006/s/
                  **Warren Clamen****Warren
                  Clamen**
            
            Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)
            
            September  27,
                  2006/s/
                  **Drew Cohen****Drew
                  Cohen**
            
            Director
            
            September  27,
                  2006**Barry
                  Emanuel**
            
            Director
            
            September  ,
                  2006/s/
                  **Michael Groveman****Michael
                  Groveman**
            
            Director
            
            September  27,
                  2006/s/
                  **Steven Mendelow****Steven
                  Mendelow**
            
            Director
            
            September  27,
                  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. (24)


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. (24)





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. (24)





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
                (24)





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
                (24)




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
                on March 21, 2006 as an exhibit to the Company’s Annual Report on Form
                10-K for the period ended December 31, 2005 and incorporated by reference
                herein.




(24)
              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-9





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




Report
                of Independent Registered Public Accounting Firm on Financial Statement
                Schedule for the year ended December 31, 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, except
      for Note 19 which is as of September 27, 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
            
            
            -
            
            
            55,795
            
            
            104,230Gross
                profit
            
            
            30,156
            
            
            13,185
            
            
            27,147Selling,
                  general and administrative expenses (net of recovery pursuant to an
                  agreement of $438, $7,566 and $1,626 in the year ended 12/31/2005,
                  the 11
                  months ended 12/31/2004 months ended 12/31/2004 and the year ended
                  1/31/2004, respectively
            
            
            13,880
            
            
            10,154
            
            
            30,682Special
                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 designeesof
                TKO 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-employee
                related 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
            
            2004(Restated)
            
            (Restated)
            
            (Restated)Cash
                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
            )Factored
                accounts receivable and payable to factor, net
            
            
            3,865
            
            
            5,088
            
            
            9,013Inventories
            
            
            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 operating activities
            
            
            15,982
            
            
            4,809
            
            
            11,163Cash
                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
            )
            
            -Restricted
                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
            
            
            59,861
            
            
            (6,391
            )
            
            (10,543
            )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.




F-9


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:




**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.




F-10





*Goodwill
      and Other Intangibles*





In
      June
      2001, the FASB issued Statement of Financial Accounting Standards No. 142 (SFAS
      No. 142), “Goodwill and Other Intangible Assets,” which changes the accounting
      for goodwill and other intangible assets without determinable lives from an
      amortization method to an impairment-only approach. The Candie's and Bongo
      trademarks had previously been amortized on a straight-line basis over their
      estimated useful lives of approximately 20 years. Effective July 1, 2005, the
      Company changed for accounting purposes, the estimated useful lives of the
      Candie's and Bongo trademarks to be an indefinite life. Accordingly the recorded
      value of these trademarks will no longer be amortized, but instead will be
      tested for impairment on an annual basis. In arriving at the conclusion to
      use
      an indefinite life management considered among other things, the Company's
      new
      licensing business model which has expanded the extent of potential use of
      these
      brand names in future years. This has been initially evidenced by the Candies
      licensing contract signed with Kohl's Department Stores (“Kohl's”,) in late 2004
      which has very rapidly expanded the Candies name to over 18 product categories
      in almost 700 Kohl's retail locations. Further the Candie's brand has been
      present in the US market since 1970s. Similarly, the Bongo brand has expanded
      from a predominantly jeanswear brand to a broad variety of product groups and
      multiple licenses in the U.S. and internationally. Brand recognition for both
      of
      these brands is very high, has been generally stable for an extended period
      of
      time, and the Company expects this consumer recognition and acceptance to remain
      stable or grow in the future based on anticipated broader distribution and
      product line expansion. 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 selling, general and administrative expenses and on
      the
      balance sheet as a reduction of the Sweet Note based upon the right to offset
      in
      the Management Agreement. After adjusting for the Shortfall Payment, Unzipped
      reported a net loss of $38 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:




EstimatedLives
                in years
            
            December
                  31,2005
            
            December
                  31,2004Gross
                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
            
            WeightedAverage
            
            Average
            
            
            
            WeightedRange
                  of
                Exercise
                  Prices
            
            Number
                Outstanding
            
            Contractual
              Life
            
            Exercise
              Price
            
            Number
                Exercisable
            
            Average
                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




F-27




**17.****Unaudited
                Consolidated Interim Financial
                Information**





Unaudited
      interim consolidated financial information for Current Year and the 11-month
      Prior Year is summarized as follows:





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
            
            
            3,954
            
            
            5,157
            
            
            2,625
            
            
            1,449Operating
                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
                312004Net
                sales
            
            $
            62,734Licensing
                and commission revenue
            
            
            11,327Gross
                profit
            
            
            22,375Income
                (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




**19.****Restatement
                and reclassifications**




The
      Company has restated the 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. The
      previously reported Consolidated Statements of Cash Flows reflected changes
      in
      net factored accounts receivable and payable to factor, as cash flows
      provided by financing activities. The restated Statements of Cash Flows includes
      the changes in net factored accounts receivable and payable to factor as cash
      flows provided by operating activities.  The
      Company has ceased all factoring arrangements and therefore will no longer
      have
      any cash flow activities relating to net factored accounts receivable and
      payable to factor in the future.






F-28




The
      following tables disclose the impact of the restatements for the year ended
      December 31, 2005, the 11 months ended December 31, 2004 and the year ended
      January 31, 2004.





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


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




Year
                Ended
            
            Year
                Ended
            
            11
                Months Ended
            
            11
                Months Ended
            
            Year
                Ended
            
            Year
                EndedDecember
                31,
            
            December
                31,
            
            December
                31,
            
            December
                31,
            
            January
                31,
            
            January
                31,2005
            
            2005
            
            2004
            
            2004
            
            2004
            
            2004(As
                previously
            
            (Restated)
            
            (As
                previously
            
            (Restated)
            
            (As
                previously
            
            (Restated)reported)
            
            
            
            reported)
            
            
            
            reported)Cash
                flows (used in) provided by operating activities:Net
                income (loss)
            
            $
            15,943
            
            $
            15,943
            
            $
            241
            
            $
            241
            
            $
            (11.340
            )
            $
            (11,340
            )Adjustments
                to reconcile net income (loss) tonet
                cash provided by operating activities:Depreciation
                of property and equipment
            
            
            130
            
            
            130
            
            
            236
            
            
            236
            
            
            863
            
            
            863Amortization
                of intangibles
            
            
            1,733
            
            
            1,733
            
            
            1,901
            
            
            1,901
            
            
            1,873
            
            
            1,873Gain
                on sale of marketable securities
            
            
            (75
            )
            
            (75
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Bad
                debt expense
            
            
            260
            
            
            260
            
            
            -
            
            
            -
            
            
            792
            
            
            792Issuance
                of common stock to non-employee directors
            
            
            110
            
            
            110
            
            
            110
            
            
            110
            
            
            59
            
            
            59Stock
                option compensation non - employees
            
            
            173
            
            
            173
            
            
            25
            
            
            25
            
            
            -
            
            
            -Recovery
                on receivable
            
            
            -
            
            
            -
            
            
            (53
            )
            
            (53
            )
            
            -
            
            
            -Reduction
                of settlement payment
            
            
            -
            
            
            -
            
            
            (238
            )
            
            (238
            )
            
            -
            
            
            -Write-off
                of impaired assets
            
            
            95
            
            
            95
            
            
            -
            
            
            -
            
            
            1,567
            
            
            1,567Shortfall
                Payment against Guarantee
            
            
            (438
            )
            
            (438
            )
            
            (7,566
            )
            
            (7,566
            )
            
            (1,626
            )
            
            (1,626
            )Shortfall
                Payment reserve
            
            
            -
            
            
            -
            
            
            685
            
            
            685
            
            
            -
            
            
            -Accrued
                interest on long-term debt
            
            
            (134
            )
            
            (134
            )
            
            500
            
            
            500
            
            
            -
            
            
            -Deferred
                income tax benefit
            
            
            (5,132
            )
            
            (5,132
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Changes
                in operating assets and liabilities, net of business
                acquisition:Accounts
                receivable
            
            
            (1,553
            )
            
            (1,553
            )
            
            1,046
            
            
            1,046
            
            
            4,388
            
            
            4,388Due
                from affiliate
            
            
            34
            
            
            34
            
            
            103
            
            
            103
            
            
            (56
            )
            
            (56
            )Factored
                accounts receivable and payable to factor, net
            
            
            -
            
            
            3,865
            
            
            -
            
            
            5,088
            
            
            -
            
            
            9,013Inventories
            
            
            279
            
            
            279
            
            
            7,160
            
            
            7,160
            
            
            11,577
            
            
            11,577Prepaid
                advertising and other
            
            
            (1,994
            )
            
            (1,994
            )
            
            688
            
            
            688
            
            
            (246
            )
            
            (246
            )Refundable
                and prepaid taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            29
            
            
            29Other
                assets
            
            
            (7
            )
            
            (7
            )
            
            (1,168
            )
            
            (1,168
            )
            
            115
            
            
            115Deferred
                revenue
            
            
            3,003
            
            
            3,003
            
            
            (1,277
            )
            
            (1,277
            )
            
            3,056
            
            
            3,056Due
                to related parties
            
            
            -
            
            
            -
            
            
            (2,342
            )
            
            (2,342
            )
            
            (3,861
            )
            
            (3,861
            )Accounts
                payable and accrued expenses
            
            
            (310
            )
            
            (310
            )
            
            (330
            )
            
            (330
            )
            
            (5,040
            )
            
            (5,040
            )Net
                cash provided by operating activities
            
            
            12,117
            
            
            15,982
            
            
            (279
            )
            
            4,809
            
            
            2,150
            
            
            11,163Cash
                flows used in investing activities:Purchases
                of property and equipment
            
            
            (731
            )
            
            (731
            )
            
            (30
            )
            
            (30
            )
            
            (248
            )
            
            (248
            )Proceeds
                from the sale of equity securities of other entities
            
            
            110
            
            
            110
            
            
            -
            
            
            -
            
            
            -
            
            
            -Purchases
                of equity securities of other entities
            
            
            (663
            )
            
            (663
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Acquisition
                of Badgley Mischka
            
            
            -
            
            
            -
            
            
            (372
            )
            
            (372
            )
            
            -
            
            
            -Acquisition
                of Joe Boxer
            
            
            (40,755
            )
            
            (40,755
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Acquisition
                of Rampage
            
            
            (26,159
            )
            
            (26,159
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Purchase
                of trademarks
            
            
            (320
            )
            
            (320
            )
            
            (19
            )
            
            (19
            )
            
            -
            
            
            -Net
                cash used in investing activities
            
            
            (68,518
            )
            
            (68,518
            )
            
            (421
            )
            
            (421
            )
            
            (248
            )
            
            (248
            )Cash
                flows (used in) provided by financing activities:Revolving
                notes payable - bank
            
            
            -
            
            
            -
            
            
            (12,775
            )
            
            (12,775
            )
            
            (8,802
            )
            
            (8,802
            )Proceeds
                from long -term debt
            
            
            85,489
            
            
            85,489
            
            
            3,600
            
            
            3,600
            
            
            -
            
            
            -Proceeds
                of loans from related parties
            
            
            (2,465
            )
            
            (2,465
            )
            
            2,465
            
            
            2,465
            
            
            -
            
            
            -Proceeds
                from exercise of stock options and warrants
            
            
            1,585
            
            
            1,585
            
            
            1,746
            
            
            1,746
            
            
            1,023
            
            
            1,023Payment
                of long-term debt
            
            
            (17,134
            )
            
            (17,134
            )
            
            (2,630
            )
            
            (2,630
            )
            
            (2,153
            )
            
            (2,153
            )Proceeds
                from common stock issuance
            
            
            -
            
            
            -
            
            
            2,185
            
            
            2,185
            
            
            -
            
            
            -Prepaid
                interest expense - long-term
            
            
            -
            
            
            -
            
            
            (500
            )
            
            (500
            )
            
            -
            
            
            -Factored
                accounts recievables and payable, net
            
            
            3,865
            
            
            
            
            
            5,088
            
            
            
            
            
            9,013Restricted
                cash - Current
            
            
            (3,564
            )
            
            (3,564
            )
            
            (7
            )
            
            (7
            )
            
            (523
            )
            
            (523
            )Restricted
                cash - Non Current
            
            
            (2,082
            )
            
            (2,082
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Deferred
                financing costs
            
            
            (1,968
            )
            
            (1,968
            )
            
            (475
            )
            
            (475
            )
            
            (88
            )
            
            (88
            )Net
                cash (used in) provided by financing activities
            
            
            63,726
            
            
            59,861
            
            
            (1,303
            )
            
            (6,391
            )
            
            (1,530
            )
            
            (10,543
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            7,325
            
            
            7,325
            
            
            (2,003
            )
            
            (2,003
            )
            
            372
            
            
            372Cash
                and cash equivalents, beginning of year
            
            
            268
            
            
            268
            
            
            2,271
            
            
            2,271
            
            
            1,899
            
            
            1,899Cash
                and cash equivalents, end of year
            
            $
            7,593
            
            $
            7,593
            
            $
            268
            
            $
            268
            
            $
            2,271
            
            $
            2,271Balance
                of restricted cash - Current
            
            
            4,094
            
            
            4,094
            
            
            530
            
            
            530
            
            
            523
            
            
            523Total
                cash and cash equivalents including restricted cash, end of
                year
            
            $
            11,687
            
            $
            11,687
            
            $
            798
            
            $
            798
            
            $
            2,794
            
            $
            2,794




In
        addition, the Company has reclassified the guaranteed Shortfall Payments
        related
        to the Unzipped operations from cost of goods sold to selling, general and
        administrative expenses for the 11 months ended December 31, 2004 and the
        year
        ended January 31, 2004, see Notes 2 and 8.




F-29




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





Iconix
      Brand Group, Inc.





The
      audits referred to in our report dated March 20, 2006, except for Note 19
      which is as of September 27, 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/A 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




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