Delaware
|
11-2481903
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
1450
Broadway, New York, NY
|
10018
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Part
I.
|
Financial
Information
|
Page
No.
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
Condensed
Consolidated Balance Sheets - September 30, 2006 and December 31,
2005
|
3
|
|
Condensed
Consolidated Income Statements - Three and Nine Months Ended September
30,
2006 and 2005
|
4
|
|
Condensed
Consolidated Statement of Stockholders' Equity - Nine Months Ended
September 30, 2006
|
5
|
|
Condensed
Consolidated Statements of Cash Flows - Nine Months Ended September
30,
2006 and
2005
|
6
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
22
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
28
|
|
|
|
Item
4.
|
Controls
and Procedures
|
28
|
|
|
|
|
|
|
Part
II.
|
Other
Information
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
29
|
Item
1A.
|
Risk
Factors
|
29
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
29
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
29
|
Item
6.
|
Exhibits
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
Signatures
|
|
31
|
September
30,
|
|
|
December
31,
|
||||
|
2006
|
|
|
2005
|
|||
Assets
|
(Unaudited)
|
|
|||||
Current
Assets:
|
|||||||
Cash
and cash equivalents (including restricted cash of $16,055 in 2006
and
$4,094 in 2005)
|
$
|
21,255
|
$
|
11,687
|
|||
Marketable
securities
|
-
|
553
|
|||||
Accounts
receivable, net of reserve of $1,164 in 2006 and $260 in
2005
|
11,808
|
3,532
|
|||||
Due
from affiliate
|
244
|
193
|
|||||
Deferred
income taxes
|
6,691
|
3,716
|
|||||
Prepaid
advertising and other
|
1,854
|
2,664
|
|||||
Total
Current Assets
|
41,852
|
22,345
|
|||||
Property
and equipment:
|
|||||||
Furniture,
fixtures and equipment at cost
|
2,585
|
2,027
|
|||||
Less:
Accumulated depreciation and amortization
|
(1,332
|
)
|
(1,175
|
)
|
|||
|
1,253
|
852
|
|||||
Other
Assets:
|
|||||||
Restricted
cash
|
10,575
|
4,982
|
|||||
Goodwill
|
42,528
|
32,835
|
|||||
Trademarks
and other intangibles, net
|
267,938
|
139,281
|
|||||
Deferred
financing costs, net
|
3,547
|
3,597
|
|||||
Deferred
income taxes
|
12,597
|
11,978
|
|||||
Other
|
3,274
|
1,374
|
|||||
|
340,459
|
194,047
|
|||||
Total
Assets
|
$
|
383,564
|
$
|
217,244
|
|||
Liabilities
and Stockholders’ Equity
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
5,391
|
$
|
3,360
|
|||
Promissory note payable
|
750
|
-
|
|||||
Accounts
payable, subject to litigation
|
4,886
|
4,886
|
|||||
Deferred
revenue
|
3,152
|
4,782
|
|||||
Current
portion of long-term debt
|
25,549
|
13,705
|
|||||
Total
current liabilities
|
39,728
|
26,733
|
|||||
|
|||||||
Deferred
income taxes
|
7,939
|
4,201
|
|||||
Long-term
debt, less current maturities
|
144,882
|
85,414
|
|||||
Total
liabilities
|
192,549
|
116,348
|
|||||
|
|||||||
Contingencies
and commitments
|
-
|
-
|
|||||
|
|||||||
Stockholders’
Equity:
|
|||||||
Common
stock, $.001 par value
-
shares authorized 75,000;
|
|||||||
shares
issued 40,521 and 35,540 respectively
|
41
|
36
|
|||||
Additional
paid-in capital
|
203,153
|
136,842
|
|||||
Accumulated
other comprehensive income
|
155
|
-
|
|||||
Retained
deficit
|
(11,667
|
)
|
(35,315
|
)
|
|||
Treasury
stock - 198 shares at cost
|
(667
|
)
|
(667
|
)
|
|||
Total
stockholders’ equity
|
191,015
|
100,896
|
|||||
Total
Liabilities and Stockholders’ Equity
|
$
|
383,564
|
$
|
217,244
|
|
Three
Months Ended Sept 30,
|
|
Nine
Months Ended Sept 30,
|
|
|||||||||
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|||||||||||||
Licensing
and commission revenue
|
$
|
22,113
|
$
|
9,205
|
$
|
53,791
|
$
|
17,792
|
|||||
|
|||||||||||||
Selling,
general and administrative expenses (net of
|
|||||||||||||
recovery
in 2005 pursuant to an agreement. See Note I)
|
6,072
|
3,868
|
17,572
|
9,385
|
|||||||||
Special
charges
|
632
|
289
|
1,900
|
996
|
|||||||||
|
|||||||||||||
Operating
income
|
15,409
|
5,048
|
34,319
|
7,411
|
|||||||||
|
|||||||||||||
Other
expenses:
|
|||||||||||||
Interest
expense
|
3,441
|
1,343
|
8,620
|
2,223
|
|||||||||
Interest
income
|
(277
|
)
|
(54
|
)
|
(629
|
)
|
(89
|
)
|
|||||
Interest
expense - net
|
3,164
|
1,289
|
7,991
|
2,134
|
|||||||||
|
|||||||||||||
Income
before income taxes
|
12,245
|
3,759
|
26,328
|
5,277
|
|||||||||
|
|||||||||||||
Income
taxes (benefits)
|
4,299
|
(1,400
|
)
|
2,680
|
(3,180
|
)
|
|||||||
|
|||||||||||||
Net
income
|
$
|
7,946
|
$
|
5,159
|
$
|
23,648
|
$
|
8,457
|
|||||
|
|||||||||||||
|
|||||||||||||
|
|||||||||||||
Earnings
per share:
|
|||||||||||||
Basic
|
$
|
0.20
|
$
|
0.16
|
$
|
0.62
|
$
|
0.28
|
|||||
|
|||||||||||||
Diluted
|
$
|
0.18
|
$
|
0.14
|
$
|
0.54
|
$
|
0.26
|
|||||
|
|||||||||||||
|
|||||||||||||
Weighted
average number of common shares outstanding:
|
|||||||||||||
Basic
|
39,782
|
32,501
|
38,075
|
29,859
|
|||||||||
|
|||||||||||||
Diluted
|
44,818
|
36,654
|
43,469
|
33,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid
- in
|
|
|
Retained
|
|
|
Treasury
|
|
Comprehensive
|
|
|
|
|||||
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Income
|
|
|
Total
|
|
Balance
at January 1, 2006
|
35,540
|
$
|
36
|
$
|
136,842
|
$
|
(35,315
|
)
|
$
|
(667
|
)
|
$
|
-
|
$
|
100,896
|
|||||||
Issuance
of common stock related to acquisition of Mudd®
|
3,269
|
3
|
47,859
|
-
|
-
|
-
|
47,862
|
|||||||||||||||
Issuance
of common stock related to acquisition of London Fog
|
482
|
1
|
7,106
|
7,107
|
||||||||||||||||||
Warrants
granted to non-employees related to acquisition of Mudd ®
|
-
|
-
|
4,596
|
-
|
-
|
-
|
4,596
|
|||||||||||||||
Exercise
of stock options and warrants
|
1,202
|
1
|
4,230
|
-
|
-
|
-
|
4,231
|
|||||||||||||||
Option
compensation expense
|
-
|
-
|
140
|
-
|
-
|
-
|
140
|
|||||||||||||||
Release
of valuation allowance from Net Operating Loss (“NOL”) related to options
exercised previously
|
-
|
-
|
2,380
|
-
|
-
|
-
|
2,380
|
|||||||||||||||
Unrealized
gain on marketable securities (net of tax)
|
-
|
-
|
-
|
-
|
-
|
155
|
155
|
|||||||||||||||
Issuance
of restricted stock to
employees,
net of forfeitures
|
28
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Net
income
|
-
|
-
|
-
|
23,648
|
-
|
-
|
23,648
|
|||||||||||||||
Balance
at September 30, 2006
|
40,521
|
$
|
41
|
$
|
203,153
|
$
|
(11,667
|
)
|
$
|
(667
|
)
|
$
|
155
|
$
|
191,015
|
(000's
omitted)
|
Nine
Months Ended September 30,
|
||||||
|
|
|
2006
|
|
|
2005
|
|
|
|||||||
Net
cash provided by operating activities
|
$
|
18,770
|
$
|
5,627
|
|||
Cash
flows used in investing activities:
|
|||||||
Purchases
of fixed assets
|
(558
|
)
|
(26
|
)
|
|||
Purchase
of marketable securities
|
(78
|
)
|
-
|
||||
Acquisition
of Mudd & London Fog
|
(76,522
|
)
|
-
|
||||
Acquisition
of Joe Boxer and Rampage
|
-
|
(65,950
|
)
|
||||
Purchase
of trademarks
|
(1,269
|
)
|
(247
|
)
|
|||
Net
cash used in investing activities
|
(78,427
|
)
|
(66,223
|
)
|
|||
Cash
flows (used in) provided by financing activities:
|
|||||||
Proceeds
from long-term debt
|
78,000
|
85,489
|
|||||
Increase
in debt to be repaid with restricted-use cash
|
(12,000
|
)
|
|||||
Repayment
of loans from related parties
|
-
|
(2,465
|
)
|
||||
Proceeds
from exercise of stock options and warrants
|
4,231
|
1,289
|
|||||
Payment
of long-term debt
|
(6,863
|
)
|
(1,430
|
)
|
|||
Deferred
financing costs
|
(550
|
)
|
(1,968
|
)
|
|||
Restricted
cash - Current
|
(11,961
|
)
|
(1,710
|
)
|
|||
Restricted
cash - Non Current
|
(5,593
|
)
|
-
|
||||
Net
cash provided by financing activities
|
57,264
|
67,205
|
|||||
Net
(decrease) increase in cash and cash equivalents
|
(2,393
|
)
|
6,609
|
||||
Cash
and cash equivalents, beginning of period
|
7,593
|
798
|
|||||
Cash
and cash equivalents, end of period
|
$
|
5,200
|
$
|
7,407
|
|||
Balance
of restricted cash - Current
|
16,055
|
4,094
|
|||||
Total
cash and cash equivalents including current restricted cash, end
of
period
|
$
|
21,255
|
$
|
11,687
|
Nine
Months Ended September 30,
|
|||||||
|
2006
|
|
|
2005
|
|||
|
|||||||
Cash
paid during the year:
|
|||||||
Interest
|
$
|
7,150
|
$
|
1,219
|
|||
Taxes
|
$
|
-
|
$
|
-
|
Nine
Months Ended September 30,
|
|||||||
|
|
|
2006
|
|
|
2005
|
|
|
|||||||
Acquisitions:
|
|||||||
Common
stock issued
|
$
|
54,969
|
$
|
56,386
|
|||
Warrants
issued - acquisition cost
|
$
|
4,596
|
$
|
-
|
|||
|
|||||||
Assumption
of Kmart Loan
|
$
|
-
|
$
|
10,798
|
|||
Issuance
of promissory note
|
$
|
750
|
$
|
-
|
Cash
paid for acquisition
|
$
|
40,755
|
||
|
||||
Fair
value of 4,350,000 restricted shares of common stock at $8.33 per
share
|
36,236
|
|||
Value
of warrants issued as a cost of the acquisition
|
788
|
|||
Total
equity consideration
|
$
|
37,024
|
||
|
||||
Assumption
of Kmart loan, including $3,509 due within 12 months
|
10,798
|
|||
Accrued
interest, Kmart loan
|
309
|
|||
Total
cost of acquisition
|
$
|
88,886
|
Accounts
receivable
|
$
|
3,121
|
||
Deferred
tax asset
|
2,700
|
|||
Licensing
contracts
|
1,333
|
|||
Joe
Boxer trademark
|
79,800
|
|||
Goodwill
|
1,932
|
|||
Total
allocated purchase price
|
$
|
88,886
|
Cash
paid for acquisition
|
$
|
26,159
|
||
|
||||
Fair
value of 2,171,336 restricted shares of common stock at $9.28 per
share
|
20,150
|
|||
Value
of warrants issued as a cost of the acquisition
|
1,653
|
|||
Total
equity consideration
|
21,803
|
|||
|
||||
Other
estimated costs of acquisition
|
150
|
|||
Total
cost of acquisition
|
$
|
48,112
|
Rampage
licensing contract
|
$
|
550
|
||
Rampage
domain name
|
230
|
|||
Rampage
non-compete agreement
|
600
|
|||
Rampage
trademark
|
41,070
|
|||
Goodwill
|
5,662
|
|||
Total
allocated purchase price
|
$
|
48,112
|
Cash
paid for acquisition
|
$
|
45,000
|
||
|
||||
Fair
value of 3,269,231 shares of $.001 par value common stock at $14.64
fair
market value per share
|
47,862
|
|||
Value
of 408,334 warrants ($5.98 exercise price for 333,334 and $8.58 exercise
price for 75,000) issued as a cost of the acquisition
|
4,596
|
|||
Total
equity consideration
|
52,458
|
|||
|
||||
Other
estimated costs of acquisition, including $990 to be paid after
closing
|
1,775
|
|||
Total
cost of acquisition
|
$
|
99,233
|
Mudd
Trademarks
|
$
|
87,100
|
||
Mudd
domain name
|
340
|
|||
Mudd
license agreements
|
700
|
|||
Mudd
non-compete agreement
|
1,400
|
|||
Goodwill
|
9,693
|
|||
Total
allocated purchase price
|
$
|
99,233
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||
|
|
|
2006
|
|
|
2005*
|
|
|
2006
|
|
|
2005
|
|
|
|
(000's
omitted, except per share)
|
|||||||||||
Licensing
revenues
|
$
|
22,113
|
$
|
13,917
|
$
|
58,398
|
$
|
45,891
|
|||||
Operating
income
|
$
|
15,409
|
$
|
8,844
|
$
|
35,602
|
$
|
26,839
|
|||||
Net
Income
|
$
|
7,946
|
$
|
6,921
|
$
|
23,752
|
$
|
17,507
|
|||||
|
|||||||||||||
Basic
earnings per common share
|
$
|
0.20
|
$
|
0.19
|
$
|
0.60
|
$
|
0.44
|
|||||
Diluted
earnings per common share
|
$
|
0.18
|
$
|
0.19
|
$
|
0.53
|
$
|
0.41
|
Cash
paid for acquisition
|
$
|
30,500
|
||
|
||||
Fair
value of 482,423 shares of $.001 par value common stock at $14.73
fair
market value per share
|
7,106
|
|||
Total
equity consideration
|
37,606
|
|||
|
||||
Other
estimated costs of acquisition
|
480
|
|||
Total
cost of acquisition
|
$
|
38,086
|
Debt
Maturities
|
Total
|
|
|
2006
|
|
|
2007
-2008
|
|
|
2009-2010
|
|
|
After
2010
|
|||
|
||||||||||||||||
Kmart
Note
|
$
|
7,377
|
$
|
3,596
|
$
|
3,781
|
$
|
-
|
$
|
-
|
||||||
Sweet
Note (See Notes H and I)
|
3,112
|
-
|
-
|
-
|
3,112
|
|||||||||||
Asset-backed
Notes
|
159,942
|
21,953
|
41,736
|
49,525
|
46,728
|
|||||||||||
Total
Debt Maturities
|
$
|
170,431
|
$
|
25,549
|
$
|
45,517
|
$
|
49,525
|
$
|
49,840
|
Three
months ended Sep 30,
|
|
|
Nine
months ended Sep 30,
|
|
|||||||||
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
Basic
|
39,782
|
32,501
|
38,075
|
29,859
|
|||||||||
Effect
of assumed conversions of stock options and warrants
|
5,036
|
4,153
|
5,394
|
3,212
|
|||||||||
Diluted
|
44,818
|
36,654
|
43,469
|
33,071
|
Weighted-Average
|
|
Aggregate
Intrinsic
|
|
||||||||
|
|
|
Shares
|
|
|
|
Exercise
Price
|
|
|
Value
|
|
|
|||||||||||
Outstanding
at December 31, 2005
|
9,573,292
|
$
|
5.09
|
||||||||
Granted
|
1,102,443
|
*
|
10.84
|
||||||||
Canceled
|
(1,217,750
|
)
|
8.71
|
||||||||
Exercised
|
(1,647,110
|
)
|
6.20
|
||||||||
Expired
|
-
|
-
|
|||||||||
Outstanding
at September 30, 2006
|
7,810,875
|
**
|
$
|
4.96
|
$
|
87,030,006
|
|||||
Exercisable
at September 30, 2006
|
6,889,097
|
$
|
4.21
|
$
|
82,479,357
|
|
Options/Warrants
Outstanding
|
Options/Warrants
Exercisable
|
|||
|
|
Weighted
Average
|
Weighted
|
|
Weighted
|
Range
of
|
Number
|
Average
|
Average
|
Number
|
Average
|
Exercise
Prices
|
Outstanding
|
Contractual
Life
|
Exercise
Price
|
Exercisable
|
Exercise
Price
|
$0.24-1.14
|
426,625
|
4.00
|
$1.07
|
426,625
|
$1.07
|
$1.15-1.50
|
370,500
|
4.38
|
$1.25
|
370,500
|
$1.25
|
$1.51-2.50
|
981,000
|
6.53
|
$1.99
|
981,000
|
$1.99
|
$2.51-3.50
|
2,404,750
|
4.17
|
$3.14
|
2,404,750
|
$3.14
|
$3.51-5.00
|
1,292,750
|
8.46
|
$4.62
|
1,191,082
|
$4.63
|
$5.01-10.19
|
2,335,250
|
9.26
|
$9.56
|
1,515,140
|
$8.61
|
|
|
|
|
|
|
|
7,810,875
|
6.70
|
$4.96
|
6,889,097
|
$4.21
|
(in
thousands except per share data)
|
Three
months ended
Sept
30, 2005
|
|
|
Nine
months ended
Sept
30, 2005
|
|||
Net
income - as reported
|
$
|
5,159
|
$
|
8,457
|
|||
Add:
Stock-based employee compensation included in reported net
income
|
-
|
-
|
|||||
Deduct:
Stock-based employee compensation determined under the fair value
based
method
|
(1,209
|
)
|
(3,649
|
)
|
|||
Pro
forma net income
|
$
|
3,950
|
$
|
4,808
|
|||
|
|||||||
|
|||||||
Basic
earnings per share:
|
|||||||
As
reported
|
$
|
0.16
|
$
|
0.28
|
|||
Pro
forma
|
$
|
0.12
|
$
|
0.16
|
|||
|
|||||||
Diluted
earnings per share:
|
|||||||
As
reported
|
$
|
0.14
|
$
|
0.26
|
|||
Pro
forma
|
$
|
0.11
|
$
|
0.15
|
Votes
Cast
|
|
|
Votes
|
|
|||
Director
|
|
|
"For"
|
|
|
Withheld
|
|
Neil
Cole
|
33,320,545
|
503,862
|
|||||
Barry
Emanuel
|
32,335,269
|
1,489,138
|
|||||
Steven
Mendelow
|
32,732,363
|
1,092,044
|
|||||
Michael
Groveman
|
32,732,168
|
1,092,239
|
|||||
Drew
Cohen
|
32,731,185
|
1,093,222
|
Votes
Cast "For"
|
|
|
Votes
Cast "Against"
|
|
|
Votes
"Abstaining"
|
|
12,565,996
|
|
|
11,283,624
|
|
|
79,193
|
Votes
Cast "For"
|
|
|
Votes
Cast "Against"
|
|
|
Votes
"Abstaining"
|
|
33,649,208
|
|
|
158,063
|
|
|
17,136
|
2.1 |
Asset
Purchase Agreement, dated as of August 21, 2006, between the Registrant
and London Fog Group, Inc, (1)
|
4.1 |
Fifth
Amended and Restated Indenture dated of August 28, 2006 by and between
IP
Holdings LLC, as issuer, and Wilmington Trust Company as Trustee.
(1)
|
10.1 |
Stock
Issuance and Registration Rights Agreement dated as of August 28,
2006, by
and among the Registrant and DDJ Capital Management, LLC.
(1)
|
10.2* | Iconix Brand Group, Inc. 2006 Equity Incentive Plan (2) |
10.3* | Employment Agreement dated September 22, 2006 between the Company and Andrew Tarshis. (3) |
10.4* | Amendment dated September 22, 2006 to the Employment Agreement dated October 28, 2005 between the Company and Deborah Sorell Stehr. (3) |
10.5* | Restricted Stock Agreement dated September 22, 2006 between the Company and Andrew Tarshis. (3) |
10.6* | Restricted Stock Agreement dated September 22, 2006 between the Company and Deborah Sorell Stehr. (3) |
10.7 | Form of Restricted Stock Agreement for officers under the Iconix Brand Group, Inc. 2006 Equity Incentive Plan. |
10.8 | Form of Restricted Stock Agreement for Directors under the Iconix Brand Group, Inc. 2006 Equity Incentive Plan. |
31.1 |
Certification
of Chief Executive Officer Pursuant To Rule 13a-14 Or 15d-14 Of The
Securities Exchange Act Of 1934, As Adopted Pursuant To Section 302
Of The
Sarbanes-Oxley Act Of 2002.
|
31.2 |
Certification
of Chief Financial Officer Pursuant To Rule 13a-14 Or 15d-14 Of The
Securities Exchange Act Of 1934, As Adopted Pursuant To Section 302
Of The
Sarbanes-Oxley Act Of 2002.
|
32.1 |
Certification
of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As
Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of
2002.
|
32.2 |
Certification
of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As
Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of
2002.
|
(1) |
(2) | Incorporated by reference to Annex B to the Company's definitive proxy statement on Schedule 14A filed with the SEC on July 19, 2006. |
(3) |
Incorporated
by reference to the applicable exhibit filed with the Company's Current
Report on Form 8-K for the event dated September 22, 2006.
|
* | Denotes management compensation plan or arrangement. |
Iconix
Brand Group, Inc.
|
||
______________________________
|
||
(Registrant)
|
||
Date: November 7, 2006 |
/s/
Neil
Cole
|
|
Neil
Cole
|
||
Chairman
of the Board, President
|
||
and
Chief Executive Officer
|
||
(on
Behalf of the Registrant)
|
||
Date: November 7, 2006 |
/s/
Warren
Clamen
|
|
Warren
Clamen
|
||
Chief
Financial Officer
|